Q2 2021 TransAlta Corp Earnings Call

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Good morning, My name is Sylvie and I will be a conference operator today at this 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 Valentini, managing director of strategic Finance and Investor Relations. Please go ahead.

Great. Thank you Sylvia and good morning, everyone and welcome to Transalta second quarter Conference call.

With me today are John crews and Euro President and Chief Executive Officer, Todd Stack, EVP Finance, and Chief Financial Officer, and carry of Riley wealth, EVP legal and commercial and external affairs.

Today's call is being webcast and I invite those of you know 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.

Details further on our MD&A and incorporated and full for the purposes of today's call all amounts referenced during the call are in Canadian currency, unless otherwise stated and the non I first terminology used including comparable EBITDA funds from operations and free cash flow or else of reconciling for.

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 tiara and 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 and the traditional territories of the myths of choppy the people of the Treaty 7 region and southern Alberta, which includes the 6 sika the pick.

Connie the kind of high that's Athena and the stone and Dakota first nations as well as the home of maintain nation reach and 3.

We've had another outstanding quarter I'm extremely pleased with the performance of our company and the progress that we've made and advancing our priorities and.

In Q2, we delivered a 39% increase and comparable EBITDA, which has resulted in a 55% increase and free cash flow per share quarter over quarter and year to date, we have generated a 40% increase and comparable EBITDA, which has resulted in the 38% increase of 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, Todd 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 the gas a 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 in Alberta.

On the Alberta teams develop 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.

And for the second quarter in a row, our Alberta hydro and thermal segments of demonstrated the underlying value of our diversified Alberta fleet energy 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 solutions. The project will reduce bhp's greenhouse gas emissions at Leinster and Mount Keith and Western Australia by 540.

<unk> thousand tons of Cotwo over the first 10 years of operation. This project is a concrete example of transalta supporting our customers draw.

Drive to achieve their ESG goals.

In early May we announced our 130 megawatt garden play and wind project, which is contracted to Perm and a 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 wind rise project as of June 30th 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 longstanding 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 and Ontario for 2026, and beyond we're participating and 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 $128 million of proceeds 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 pills 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.

Sure and this 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 high Bill My and effective December 31, all of our Alberta facilities will be generating on lower carbon NAV.

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 and 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 producing between 292 and 329 million tonnes of Cotwo from 2005 levels by 2030.

On the renewables front, we've progressed, our 300 megawatts.

White rock East and West and 200 megawatt Horizon Hill wind projects, 2 and advanced stage and are actively seeking and 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 and 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 and 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 and Australia the.

And the project comprises 2 solar farms totaling 38 megawatts and a 10 megawatt battery energy storage system and <unk>.

The 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 and 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 world.

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 Plains project and are extremely excited to have pembina pipeline as of new customer and working with customers like pembina to develop low cost reliable energy solutions and support of their sustainability goals is the cornerstone of our strategy.

As we've announced the project will have a 130 megawatts of capacity and the supported by an 18 year agreement with Pam and I for 100 megawatts of the capacity and the associated environmental attributes.

We expect the project to deliver between 14 and $18 million and 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, and the most cost effective manner.

A key element of the school 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 and exclusive discussions and processes regarding opportunities to contract the output from the facilities.

And 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 and 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 from $302 million of comparable EBITDA, driven by robust results and 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 day 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 and 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 and over 3 fold increase from $29 million and $2000.20 million to $96 million this year.

EBITDA from the Alberta thermal segment also significantly increased year over year from $30 million and $2000.20 million to $85 million. This year, although I note that realized cash flow and 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 and Alberta at the Fort Saskatchewan plant.

Centralia has EBITDA decreased by $13 million compared to the same period and 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 and 2020 as a result of the timing of planned major maintenance as we are setting up the plan for its final run the retirement at the end of 2025.

The overall trends also 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 and achieving these results.

I'm going to spend a few minutes on the next slides.

And 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 dispatch of the 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 and revenue, including our Alberta wind fleet.

Power prices in Alberta, and and other western regions were significantly impacted by the warmer weather experienced in Q2.

As is typical during periods of extreme weather patterns, and 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 and extreme heat and power prices averaged $141 per megawatt hour the strong pricing and June contributed to the average pool price for Q2 settled.

And $105.

In the quarter, the Alberta thermal fleet generated approximately 2400 gigawatt hours with an average realized price of $93 per megawatt hour.

The 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 from periods of high market demand and disruption resulted in revenues and 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 and Q3, and 800 gigawatt hours hedged and 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 and our carbon compliance costs in Q2, roughly 40% of our production that Alberta thermal was from coal firing at our unconverted units currently our coal generation carriers 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, and Alberta thermal of $37 million.

And the conversion program and fully completed the same production would have incurred approximately 50% of the compliance costs.

Turning to hydro and the ability of hydro to capture of 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 and high price periods in 2019 and 2020.

And energy and ancillary volume volumes and 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 prices to settle at approximately the $80 level.

The higher average prices experienced year to date have largely been the 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 and 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 and transalta as results on.

On April 1 we completed the transfer of the economic interest and 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 and wind resource although.

And 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 and 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 and fiscal year <unk>.

Comparable EBITDA for 2021 is now estimated to be between $470 and $500 million and cash available for distribution to be and the $260 million to $290 million range due to the lower EBITDA and the planned acceleration of the acquisition of of spare turbine for the South Hadley facility.

In terms of growth, we expect transalta renewables to acquire and economic interest and the recently announced the BHP Solar project referenced earlier as Transalta renewables has the right to invest and 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 <unk>.

Company looks forward to adding the first renewable generation assets to the Australia and fleet.

We also anticipate that the garden plain project. The John also referenced earlier would make and 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 has 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 and $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 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 of 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 at 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 and sustaining capital is driven by the acceleration of the spare engine purchase for south headland facility and Q3 higher sustaining and maintenance capital at our hydro fleet and slightly increased costs from major maintenance at <unk>, 2 and key pillar III largely driven.

And by enhanced COVID-19 safety protocols and.

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 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.

On the hydro assets provide transalta shareholders of unique opportunity to participate and renewable and reliable capacity and 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.

And the 6 months ended June 30th 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 and liquidity, including approximately $650 million of cash and this positions us extremely well to fund future growth are.

Our senior corporate debt level has been reduced the $1.1 billion, which is below our targeted level and at the lowest level and over 5 years. When we net out the impact of cash held at Transalta, Our deconsolidation of net senior debt is about $700 million.

And 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 of growth project and the United States completing the construction of wind rise completing the key pillar III coal to gas conversion and 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.

And I'd like to close by highlighting what I think makes transalta of highly attractive investment and of great value opportunity.

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.

And in energy marketing capabilities.

Second we're of clean electricity leader with a focus on tangible greenhouse gas emission reductions are de carbonization journey has resulted and 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 and 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.

Fourth our company has a strong financial foundation, our balance sheet is in great shape and has ample liquidity to pursue growth.

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 selves to deliver great results for our company.

<unk> also had an exciting time and its development and we are well positioned for the future as a leader and low cost reliable and clean electricity generation focused on serving and meeting the needs of our customers and.

As I mentioned and 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 Dolby would you. Please open the call up for questions from analysts.

Certainly ladies and gentlemen, if you do have any questions. Please press star 1 on your Touchtone phone and you will Dan here as retail and prompt acknowledging of your request and if at all.

I would like to withdraw your question simply press Star followed by 2 and if you can.

Using a speaker phone and 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.

And your first question will be from Mark Jarvi CIBC capital markets. Please go ahead.

Thanks, everyone.

And just wanted to go to the Sun 5 Repowering and there's commentary about evaluating just wanted to see what your cash.

Sort of implying there around cost when you are out there and looking for again the.

Update and Vince I implant and the cost can go up from the 900, 950 and and the second part would be.

And if you don't like where the costs are and questions around supply dynamic what are the options it seems like.

And you've retired the asset effectively and so that can maybe came to employ the conversions or the it simply just R.

Nothing in terms of the Repowering for some while.

Yeah.

Good morning, Mark Thanks for the question so on Sundance 5 so does the number of questions that you had and that.

In terms of what we were signaling in terms of the increase in cost and we're seeing and the unit we continue to be broadly in line.

And 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 of the evolution of supply and.

In the province 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's approach to carbon pricing for new <unk>.

Buying cycle of gas plants. So that's all on the mix and that remains.

And live in terms of the assessment that we're doing 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 <unk>.

And 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 and administrative kind of approach where parking all of the unit at this point and time no plans to bring it back.

The 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 conversion there either.

But it tends to be clear.

And you still could go to a plan B and who are simple conversion I think and for the key tells me and us.

And so to that.

That would be possible to do there yet.

And what the timeline of the first half of 2024 to stick to that target completion day. If that's what you intended 1 when do you have to make a formal decision on on 5 of whether or not to go ahead.

I think just going from memory here would be sometime later this year mark of here Okay.

And then can you guys proactive and more contexts on on the Sarnia issues with the the steam interruption in terms of whether or not there is any cost still the bear and liquidate damages or essentially what we saw.

As the hit to the Q2 numbers is all done and there is no COVID-19 impact.

Yes, Mark.

So we had 3 very unusual for us very typical 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> is up.

And running we're not expecting any.

And sort of significant sort of sustaining capital or other capital costs associated with the outages. The liquidated damages are effectively as.

And 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 and Sarnia.

Kind of bring them through the channels that we were facing and be as responsive as we could to their needs.

Okay. That's good to hear and last question the nicknames for Todd and just in terms of the hybrid solar project in Australia, and the economics that you guys have shown from the Capex and EBITDA projections, and I assume and sort of like Ted.

And to Transalta Corp, how would we adjust those numbers I think for in terms 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 EBITDA.

Net of Transalta renewables.

Yes, Mark I would say on any development. If he is modest those economics effectively roll up into Transalta renewables.

Okay, great. Thanks, that's all 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 just wanted to touch on the unplanned outage at the already.

Can you just speak to that and a little bit more detail. Please I know the Q kind of referenced that there were 3 separate of beds.

Just curious if you could give a little bit more.

The clarity as far as the.

As far as how those went.

We had I'm.

Not sure that there's a lot more of that I can.

Give you the areas, we had the sort of 3 technical issues, which occurred.

I think 2 of them occurred pretty pretty proximate to each other and then we had a third 1 that recur that occurred subsequently.

They werent related events. They were they were very much sort of stand alone.

Events and the facility is back up and.

And running at this point and Tom Todd I don't know, yet and we're calling me and maybe I'll just add a bit more color difference I mean.

<unk> of our steam interruptions are extremely.

Infrequent and <unk>.

And rare and these facilities as you know the cogent facility, especially Sarnia is designed with a lot of and -1 duplication reliability and order to maintain that steam supply to customers and this particular case the.

First the first outage occurred and and while they were and the process. They did report resource steam supply, but not fully restore all of the redundancies and the plant and while they were and 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 bit of cash.

Catch up game of trying to get the plant fully restored to all of its all of its and -1 and 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 and Werent actually available for the second and third events.

Okay no. Thank you for that added detail.

And 1 more just on the <unk> 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.

And unfortunately, and when you can't you.

You can't say that the first half was at 90% and the second half will be at 110.

So our balance of year forecast is based on the <unk> results. So basically on an 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 all the 92% and the personnel and 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 of Scotia Bank. Please go ahead.

Hello, everyone I 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 from the Covid.

Net of core turbines. If you were not to proceed with Sun 5 could you port those over to your other portfolio.

Yes.

Rob that's 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 and of the <unk>.

Portfolio of generation and the provinces.

And then I guess, just more fulsome in terms of kind of the capital allocation question.

The Sun 5 if the costs further increase quite a bit of the capital spend for a good amount of merchant capacity. There. When you take a look at the suite of projects that you have on.

<unk> under the umbrella.

Are we increasingly seeing yield better opportunities on the renewable side and.

<unk> doesn't go forward could we see increased invest.

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 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.

<unk> in some respects of lower lower risk.

And just factors into the way that were looking of the capital allocation between the 2 and in the event that we werent to perceive the Sun 5 of it ends up being developed and a different kind of manner, there would potentially be more capital to and to accelerate part of the renewable side of the equation in terms of share buybacks I mean, and Todd you can comment about that too, but we're very much focused on.

On doing that when we think and it makes sense based on the trading price of the of the shares and we've typically bought.

And our prices sort of at a sub $10 a level and given where we're trading right now the share buybacks aren't.

To put words, and Todd smell of 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 too.

On the stock buyback and opportunistic prices.

Okay, and then just 1 follow up question. The the headwinds settlement that was struck and may any updates.

And there in terms of progress and wells potential uplift from EBITDA.

Sure I might I might Rob I might turn that over to Kerry hopefully you can hear her here hi, 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.

And in the coming week.

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.

Sounds like everything is remains on the table and including boiler conversion lights on 6.

But within your list of options that are in front of you is there any contemplation to repower the project using newer and more efficient technology and sit of the ones and sort of turbines from qinetiq core and to that and how marketable as it too. So the kinetic core of turbines that you bought back in 2019.

Yes Maurice.

Good morning, Thanks for that.

Look we are looking at at Sundance, 5, including sort of the competitiveness of the unit and light of the the Newbuild that is being proposed to be to be added to the province over the course of the next 7 or 8 years, or so which of which is pretty significant.

We're still at and 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 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 where that.

And where that would land and and at this point and 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 to enhance the event, but is it likely that we will hear more about debt on that day and 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.

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 and 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 and the profitability of this segment moving forward.

And I can assure on that over to my friend, Todd, who who oversees the group yes.

I'm not sure like certainly the floor is well positioned to take advantage of of opportunities that present themselves and 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 what it takes there is a market opportunity and so volatility is 1 of the key.

The 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 profits and that's something that we've seen whether it's from heat waves and certain areas of cold periods and other parts of the times of the year.

Even even quite frankly.

Forest fires and other disruptions of of transmission and et cetera give the teams 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 and upward upward shift and that number.

Yeah, and I, just think I think talk with the increasing heat that we've seen over time and that part of the world and and.

And increasing demand the change of the generation mix certainly volatile volatility has increased and the forthright on the yes.

Fair enough. Thank you very much.

Thank you.

Thank you. Your next question will be from John mould of TD Securities. Please go ahead John.

Hi, good morning, everybody.

And maybe just 2.

The circle back to some size again.

Looking back at your Q1.

Disclosures you had referenced the issuing full notice to proceed weighted this year.

And so you know obviously that language has been.

Pull back a little bit I guess whats changed since may and your broader.

Broader outlook for the project, either you know and the power markets and the regulatory outlook be it the maybe of Ccs requirement on the road or or or build cost picture of its just maybe.

And 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 it and 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 a free.

On 5 would actually decline to zero by 2030 time period in terms of just Directionally, where we're going and seeing that being fully exposed to the carbon price as it's increased over the coming years.

And mindful of load growth and the province, and looking at the increase in the.

The amount of the proposed generation both on.

On the gas side and on the renewable side and working to understand the implications of that for generation and the province as we go forward. So it's really a.

It is and any 1 thing John it's a confluence of of things that I think we're prudently looking at in the context of making the right decision for our shareholders.

Okay, great. Thanks, and then.

And go ahead and I would just add debt Ccs is is also a pretty big uncertainty.

Is it is expensive technology.

Our assessment would have the cost of FCC FCC U S. The at least equal to the cost of the actual repowering.

Of the project and it isn't.

<unk> the case that the technology associated with that as a fait accompli. So I just I wanted to sort of give you a bit of a complete picture.

Okay. Thanks for that and then <unk>.

Turning to the Sarnia and the.

The re contracting outlook there just wonder.

But your thoughts on how the re contracting outlook there has been informed and all by the recent annual acquisition.

<unk> reported that the ISO published.

Yes, it's a great. It's a great question.

So for US, there's really 3 elements, the sarnia and and I can I can turn it over to carried out of any color if I.

If I were made anything you know 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 and doing that certainly over the course of the quarter were expecting.

Some of the crypto miners to be interested and 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 4 major off takers. There we have completed 1.

The discussions are advancing well with the other 3.

And it's kind of good just to have.

1 of them done and creating kind of a good template and 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 and we're actually pretty optimistic about our ability to re contract a chunk of that plant.

With the ISO is located and are part of the province that we understand.

It does have a power need it's important in terms of backstopping the needs of industry and that particular region and the size of the off take that debt at least we understand the ISO was looking at it.

A sufficiently large given what would be available to participate that debt. We think it creates a good opportunity for us too.

To be competitive and that and actually secure something.

It underpins the plant going forward Carrie I don't know if theres anything else you would add to that.

Just note that we're very pleased.

The pain relief the guidance, we appreciate the stealing the design phase.

We're also confident given that.

And the amount of nickel.

And what's that we'll be able to be bid into the process is.

And is limited to.

The offtake.

2 providers that will be coming off contract at the same time and Sarnia and we're working closely hand in hand, and as we always do with the Ontario government and.

And with the goal that we provide them with the energy that they need.

And that we are obviously able to contract the facility to provide our shareholders.

And those returns as well.

Okay, great. Thanks for that and maybe just 1 last 1 on on your growth pipeline.

Looking beyond the the Oklahoma projects, which I understand youre advancing.

And I will take discussions or where are you seeing among your mid stage pipeline, the best opportunities to secure potential offtake agreements and.

All of those projects forward.

Yes, thank you for that.

So we think it really falls into.

The 3 areas we.

We do think that there continue to be opportunities to grow in a similar fashion to what we've seen serving our customers and Australia and our development team there.

<unk> 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.

Australia, and Canada, we're pretty excited about the ongoing demand from industry institutions.

The commercial entities for renewables here, we're working hard to advance our wind farms that are under development and the province here and I'm thinking of Ripplinger and Willow Creek.

And would be just an example of some of the wind farms. There were also and the early stages of developing solar in the province both.

The 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 and the U S.

We continue to see a lot of opportunity.

In Illinois, with our Prairie violent project and the team is doing a really good job of increasing our opportunity set and 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 differ.

And to find and 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 Chuck.

Thank you next question will be from Andrew Kuske of Credit Suisse. Please go ahead.

Thanks, Good morning.

On the MBNA theres of comments.

And Alberto if you were fully converted and your fleet your carbon compliance costs that would be $15 million to $20 million lower.

So I guess the question is more of a broad 1 on how do you think about the attention and the market of lower carbon compliance costs for some like yourselves and the conversion process versus escalate and carbon prices that are happening on the legislative basis and.

And where do you think clearer on prices wind up is there an upward bias over time because of the carbon prices increasing.

But theres also generation mix, that's changing and the province.

Yeah, that's of 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. The 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 and.

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 2023.

<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 exist at that time I don't know if that answers your question, but.

Yes. It does its helpful color and then maybe flipping to of just another part of your portfolio in Alberta, and what opportunities do you see from really structured power deals on a renewable basis.

And being able to capture premium pricing person 24.7.

And of Green power deals, we've seen them and some other jurisdictions very few players can offer them. The as you need a portfolio of assets across the ecosystem to do it.

Seem 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.

And I'm glad you phrased it.

I'm not sure of that.

Of our off takers at least today are quite there and demanding.

That product and Alberta that might change over time, and and we're actually seeing a greater focus on that with the mining community and Western Australia, where they are very much interested and reducing their emissions, but also having an element of reliability and I think in part that's just due to the remote nature of their operations. So the theyre not tied into the grid and as a result, it's.

More of on acute.

The issue with them, but I do think that it.

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 and the province, and Thats not just wind, but potentially our hydro fleet that can also help some of that shaping in addition to maybe helping.

Helping meet some of the ancillary services needed at the province might have and 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 and capital.

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 far the scene and you've got Gordon playing with Pembina Goldfields with BHP. It sounds like there is another project or more coming from the day.

We have the C corporate partnerships and becoming the path forward for growing our renewable portfolio and.

And if so what are some of the resources or investments and 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 solutions 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 and making sure that our whole approach.

And to 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.

Okay.

And maybe just another question on your and development pipeline.

And it's still mostly consist 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 and and if that's the case, how do you view solar storage and terms of risk return tradeoff versus wind.

Yes.

So we do have.

The storage in our portfolio and are actually and the process now of developing incremental storage.

Not just in the in Australia with what we've just done with BHP, but frankly and Alberta as we go forward, we think the the.

And the return equation for storage is becoming better.

All of the time and and the work that we did with our wind charger opportunity really helped I think.

Derisk our own understanding of what we can do with storage and the province, and how the economics work. So frankly, we're we're pretty.

Pretty positive about storage notwithstanding the fact that the cost of storage remains on the high and so 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 and 10.

And 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 and 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 from solar capability. So I think you'll you'll see more of a focused and we've traditionally had on solar and 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 you touched on the phone.

And 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 heatwave late in the quarter might have played into elevating the strong performance there.

Or did everything play out as expected and that 30% or so 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 I would say Patrick first of all good morning.

On.

I would say that.

And I will try to answer the question, maybe and 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.

Due to the high temperatures that we experienced but.

No there were issues with the inter tie there were outages that were there 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.

Strength and supply and demand kind of fundamentals over the quarter Todd I don't know if you want I would say nobody expected the really high temperatures that we saw on Alberta HR June right was it was abnormal as far as the premiums on hydro and it is it is somewhat correlated to how volatile the power prices are typically and shoulder shoulder months.

And we would see and like April may and we would see as more softer prices more compression of more compression, which doesn't give you as much opportunity to realize the peak pricing on the Super peak pricing in hydro but.

And 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 and the winter months, where we can realize the premiums and.

And and then also and the warm summer months of July and August for sure yes.

Okay. That's helpful. Thank you and.

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 and 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.

Youre Sundance and keep hills units just want to make sure that you won't be offside with your commitments if sun 5 does stay on the shelf for a little while.

Yes.

And.

And I wouldn't say that we would be off side 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.

And how much gas, we would need depending on the decisions that we ended up making with.

With Sundance 5 of which could.

The result in the preceding or it not proceeding or proceeding and a different way than we've currently sort of.

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 what does it mean in terms of us being able to the market of remarket those.

Those commitments going forward.

But but hopefully that gives you a little bit of of flavor Todd I don't know if you want to add any yet.

I think there's work to be done.

But again like some 5 was as part of that equation as well but.

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 and 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.

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.

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 you to please disconnect your lines.

Okay.

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