Q4 2021 TransAlta Corp Earnings Call
Okay.
Yeah.
[music].
At this time I would like to welcome everyone to Transalta.
Corporations fourth 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 one on your telephone keypad.
If you'd like to withdraw your question. Please press Star then the number two thank you.
MS. Valentini you May now begin your conference.
Great. Thank you Miranda good morning, everyone and welcome to Transalta is fourth quarter and 2021 year end conference call.
With me today are John <unk>, President and Chief Executive Officer.
Todd stock EVP, Finance, and Chief Financial Officer, and Kerry O'reilly Wilks, EVP legal commercial and external affairs.
Today's call is being webcast and I invite those listening on the phone lines to view of supporting slides that are posted on our website.
A replay of the call will be later it will be available later today and the transcript will be posted to our website. Shortly thereafter.
All information provided during this call is subject to the forward looking statement qualification set out here on slide two 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 noted.
<unk> terminology used including adjusted EBITDA funds from operations and free cash flow are also reconciled in the MD&A for your reference.
On today's call, John and Todd will provide an overview of the year's results along with our expectations for 2022.
After these remarks, we will open the call for questions and with that let me turn the call over to John .
Thank you Kara good morning, everyone and thank you for joining our 2021 annual results call as part of our commitment towards reconciliation I want to begin by acknowledging the trends Altus head office, where we are today is located in the traditional territories of them. It's a choppy the people of the treaty seven region in southern Alberta.
Which includes the sika epic Arnie.
The <unk> and the Stoney Nikola first nations as well as the home of maintain nation region three.
It's a pleasure today to share with you our ultimate achievements for 2021.
Transalta had a record year and I am extremely proud of the performance of our company and our employees and the outstanding progress we have made in advancing our priorities.
In 2021, we delivered $1 $2 6 billion of adjusted EBITDA of 36% increase over 2020 results. We also delivered free cash flow of $562 million or $2 <unk> per share a 59% increase over 2020 on a per share basis exceeding the top end of our restated guidance right.
And in September given our view of 2021 performance and our expectations for 2022, we increased our common share dividend by 11% to an annualized 20 per share.
Our performance was driven by our ability to optimize our fleet and deliver operational performance, which enabled us to capture the higher prices experienced in Alberta, demonstrating the underlying value of our diversified fleet.
In addition to the strong results in our generation fleet energy marketing also had an excellent trading results across our U S power and natural gas desks, where we capitalize on our deep knowledge of North American power markets and captured market opportunities.
In 2021, we were able to deliver on all of our key priorities, particularly in the areas of growth and carbon transition.
In terms of carbon transition the three year transition plan that we started in 2019 to phase out coal fired generation in Canada has been realized.
We completed our final coal to gas conversion and are now fully off coal in Canada and running on lower carbon emitting natural gas.
This marks the achievement of an important milestone nine years ahead of the government target of 2030.
Our coal transition is among the most meaningful carbon emission reduction achievements in Canada.
Overall, we've reduced our annual <unk> emissions by 29 million tons since 2005, including $3 9 million tons in 2021 of 24% reduction year over year.
And we've adopted a more ambitious target for emissions reductions targeting a 75% cotr emissions reduction by 2026 from 2015 levels and we're proud to be the first publicly traded electricity company in Canada committed to setting asides based emissions reduction target.
Shifting to growth our development team secured 600 megawatts of renewables growth during the year, representing 30% of our five year growth target with growth in each of our three core markets in 2021.
We achieved commercial operation and completed a project financing or wind rise our largest wind facility in Alberta, and we continue to monitor new and emerging technologies for deployment in the back half of the decade and beyond.
We recently made an investment in the Kona to advance the commercialization of their hydrogen technology platform.
If successful this technology would produce cleaner and lower cost hydrogen and has the ability to be sited wherever natural gas infrastructure exists today.
I remain confident in our ability to deliver on the remainder of our two gigawatt clean electricity growth plan and we are targeting to reach investment decisions on another 400 megawatts of renewables growth in 2022.
We ended the year with record liquidity and we are well positioned to fully fund our renewable growth pipeline.
Strong performance from our Hydro fleet, coupled with the addition of wind rise in the North Carolina Solar portfolio led to EBITDA contribution from renewables and storage assets, increasing from 35% in 2020% to 43% in 2021.
As I mentioned in 2021, we secured 600 megawatts of growth projects across Canada, The U S and Australia, a solid start to our two gigawatt target by 2025. This represents a capital investment of approximately $1 billion and deliver 30% of our five year target on a megawatt basis combined.
These projects will contribute just under $100 million in EBITDA once fully operational achieving 40% of our five year EBITDA target.
We closed the North Carolina Solar acquisition in November which is already in service and we currently have 178 megawatts of projects actively under construction in Alberta and in Western Australia and later this year, we will start construction on our White rock project in Oklahoma.
All of our construction projects are expected to be funded with existing liquidity.
In December we entered into two long term ppas with a new investment grade customer for the full output from the 300 megawatt white rock wind projects in Oklahoma, the delivery of low cost reliable and clean energy from White rock supports our customer sustainability goals and we will nearly double our wind fleet in the United States from 375 megawatt.
What's to 675 megawatts commercial operation is expected to be achieved in the second half of 2023, and these wind facilities will be our sixth and seventh in the U S and combined will be our largest UN U S wind projects.
As I turn now to our U S development pipeline you can see that the White rock project has moved from the advanced development category into the under construction category.
We still have over 800 megawatts of potential development sites in the U S across a number of projects in several key markets. Our most advanced site is now the 200 megawatt Horizon Hill project in Oklahoma, and we're pleased with the progress that our team is making as they advanced that project towards a final investment decision.
The demand for renewables remains strong in the U S and we see plenty of opportunity for growth in that market. We're looking at a number of opportunities to grow our development pipeline in the U S and expect to add some excellent sites to our pipeline over the course of 2022.
We remain disciplined on growth in Canada, including here in Alberta, we've shifted away from merchant base load gas generation and are now exploring opportunities to maximize the value of our hydro and wind fleets with a new focus on battery storage as well as wind and solar.
This includes our water Charger project, where we've recently filed our application with the Alberta Utilities Commission.
The project will build a 180 megawatt battery storage facility near the Ghost reservoir on the Bow River.
Batteries would be charged from our existing hydroelectric facility, there and dispatched to the provincial power grid when demand for power is high.
We continue to develop a number of wind development sites in Alberta, as we see continued demand for renewable ppas in the market from corporate customers. Our team is actively seeking opportunities to contract our sites and advanced those projects into the construction phase.
In Australia, we've moved a 40 megawatt Mount Keith capacity and transmission expansion projects for the advanced development stage, we're seeing growing opportunities in western Australia in support of our remote mining customers. Our team is developing customized clean power solutions to meet the ESG objectives of our customers in the most cost effective manner.
We are advancing several opportunities there and we expect to reach final investment decision on additional projects with BHP and others in the coming months I'll now turn it over to Todd to take us through our financial results for the year.
Thank you John and good morning, everyone.
As John discussed we had a record year in 2000.
And our diversified fleet delivered excellent results with $1 6 billion of adjusted EBITDA and record free cash flow of $562 million.
This stellar performance was led by our by our Alberta Fleet, which I will discuss first.
The hydro gas energy transition and wind facilities are dispatched as a portfolio in order to benefit from base load and peaking energy sales and for the full year. The fleet generated just under 13000 gigawatt hours of electricity.
The strong pricing throughout the quarter resulted in the average pool price for Q4, settling at $107 per megawatt hour and at $102 per megawatt hour for the full year. This is significantly stronger than the average price in 2020 of $47.
The ability of hydro to capture peak pricing was demonstrated throughout the year with average realized prices of $122 per megawatt hour, which represents a 19% premium over the average spot price.
Ancillary services from our Hydro fleet continued to be an important contributor to the hydro business and volumes were broadly in line with expectations.
Overall hydro gross revenues benefited from strong realized pricing for both energy and ancillary services and exceeded our expectations for the year with the Alberta Hydro fleet delivering over $300 million of EBITDA.
The gas and coal units also realized strong pricing of $102 per megawatt hour, which is a combination of both the hedge positions as well as from peaking merchant sales.
Our wind fleet, which is not dispatched <unk> realized an average price of $63 per megawatt hour, which was one of our strongest years ever.
And looking forward to 2022, we have approximately 75% of the expected Alberta gas generation hedged at $75 per megawatt hour and roughly 55% of our natural gas fuel requirements is hedged at $2 75 per GJ.
In addition to our contracted production we continue to retain a significant open position in order to realize higher pricing during times of peak market demand.
Okay.
During the fourth quarter of 2021, we changed our segmented reporting disclosures to align with our clean electricity growth plan and the recent completion of our off coal transition through.
Through this re segmentation, we now have a single gas segment, which includes the previous North American and Australian gas segments and it also includes the Alberta thermal units that were converted to natural gas.
We combined the Alberta thermal in Centralia segments into the new energy transition segment, which is reflective of the transitory nature of these assets. This.
This segment includes the Centralia facility, the remaining legacy Alberta thermal assets that did not undergo boiler conversions as well as all of the mine reclamation operations.
No changes were made to the hydro wind and solar or the energy marketing segments.
The 2021 results and corresponding history have been restated to reflect our new segmentation.
As I mentioned, our performance was led by the Alberta Hydro fleet, which delivered a three fold increase in adjusted EBITDA from $105 million in 2000 $20 million to $322 million in 2021, a fantastic result.
Similarly, adjusted EBITDA from the new gas segment also increased 35% year over year from $367 million in 2000 $20 million to $494 million this year.
Adjusted EBITDA from the energy transition segment decreased 24% year over year due to the retirement of the Centralia unit one at the end of 2020.
And we expect contribution from this segment to decline further in 2022 with the retirement of <unk> unit. One at the end of 2021 and Sundance unit four in April of this year.
Our energy marketing team also delivered another consecutive year of outstanding results, we delivered $137 million and adjusted EBITDA of 21% increase to 2020, which was also a great year for the team.
Overall trends also delivered an exceptional year and we are very pleased with both the results across our diversified fleet and the realization of the potential of our Alberta generating portfolio.
I want to thank all of our employees for their dedication and contribution in achieving these fantastic results.
I'm going to turn now to highlight our longer term trends for free cash flow and EBITDA performance and the continuing financial strength of the company for 2021, EBITDA exceeded our 2020 annual results by 36% and delivered towards the top end of our 2021 guidance range in.
In January we announced our 2022 EBITDA guidance range of 1.065 to $1 5 billion. Our 2022 guidance is based on our estimate for Alberta pricing of between 80 to $90 per megawatt hour.
Free cash flow for 'twenty, one for 2021 also exceeded our 2020 <unk> annual results by 57% and exceeded our guidance range.
Our free cash flow for 2022 is estimated in the range of $455 million to $555 million, which equates to free cash flow per share of $1 86 at the midpoint.
Our balance sheet and liquidity remained very strong we closed the year with $2 2 billion of liquidity, including $947 million of total cash this positions us extremely well to fund our future growth pipeline, including our 400 480 megawatts of projects under or soon to be under construction.
Before I turn things back to John I'd like to turn to Transalta renewables and our year end results. There 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 <unk> results.
Overall, transalta renewables had a solid year for growth by adding four new assets to the fleet. The company's adjusted EBITDA increased with the additions of the Skookum, Chuck wind and Ada co. Gen facilities in Q1, as well as the commissioning of wind rise and the acquisition of the North Carolina solar facilities, both in the fourth quarter.
Our year end also marked the conclusion of our contract dispute with SMG at South headland F&B has returned as a customer itself headwind and is now taking power under a renegotiated PPA.
For 2022, we expect adjusted EBITDA at <unk> to be between 485, and $525 million, representing approximately a 9% growth year over year higher EBITDA from our new assets will be partially offset by the loss in revenues at Kent Hills through the balance of the year.
We expect <unk> at the midpoint of our guidance range will decline relative to 2021 due to the impact of Kent Hills scheduled principal repayments on the south edlin debt and the provision settlement at Sarnia relating to our outage in 2021.
Given these cash flow impacts in 2022, we expect the company's dividend payout ratio to be between 88, and 102% exceeding our stated target range of 80% to 85%.
The Kent Hills rehabilitation plan is on track and proceeding as expected we are targeting to begin construction in the second quarter of the year and discussions are ongoing with both new Brunswick power and our lenders, we will look to share additional information on our progress as it becomes available.
We have strong liquidity at <unk> for the upcoming funding needs. In addition to our $700 million committed credit facility, we had $244 million of cash at the end of 2021 and based on our <unk> current financial position, we have sufficient capacity to continue to fund the annualized common dividend at <unk> 94 per share.
And with that I'll turn the call back over to John .
Thanks, Todd in 2022, we will continue to focus on progressing our key goals, which include reaching a final investment decision on 400 megawatts of additional clean energy projects across Canada, the United States, and Australia, achieving cod on the Garden Plains wind and northern Goldfield solar projects progressing construction on our white <unk>.
<unk> wind projects, expanding our development pipeline with a focus on renewables and storage re contracting with the remaining industrial customers in the ISO at Sarnia progressing the rehabilitation of Kent Hills wind, delivering EBITDA and free cash flow within our guidance ranges and advancing our ESG objectives, which includes reclamation work.
Hi, Bill and Centralia, providing indigenous cultural awareness training to all of our employees in achieving at least 40% female employees by 2030.
I'd like to close by highlighting as I always do what I think makes transalta highly attractive investment and a great value opportunity.
First our cash flows are resilient and are supported by a high quality and highly diversified portfolio as underscored by a record year in 2021 are.
Our business is driven by our contracted wind portfolio, our unique reliable and perpetual hydro portfolio and our efficient gas portfolio all of which are complemented by our world class asset optimization and energy marketing capabilities.
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 9% to 10% of Canada's 2030 target in.
In 2021, we reduced our annual C O two emissions by a further $3 9 million tonnes adopted a more ambitious emissions target of 75% by 2026 from 2015 levels and are committed to setting a science based emissions reduction targets.
In addition, our focus on removing systemic barriers through our commitment to equity diversity and inclusion and good governance places us well ahead as a leader in ESG.
Third we have an extensive and diversified set of growth opportunities, which includes a pipeline of advanced stage projects and a talented development team focused on realizing its value. Our execution is on track and we delivered on that growth pipeline in 2021 already securing 600 megawatts of renewables and storage growth.
Fourth our company has a strong financial foundation, our balance sheet is in great shape, and we have ample liquidity to pursue growth.
Finally, our people our people are our greatest asset.
Want to thank all our employees and contractors for their work that they have done to deliver our exceptional results in 2021, 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> is at an exciting time in its evolution and we're 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. Thank you I'll turn the call back over to Keira.
Thank you John Miranda would you. Please open the call for questions from the analysts and media.
Okay.
Thank you, ladies and gentlemen, we will now begin our question and answer session.
Should you have a question. Please press star followed by the number one on your Touchtone phone.
You will hear a threefold prompt acknowledging your request and your questions will be pulled in the order they are received.
Do you wish to decline from the polling process. Please press star followed by the number Q.
You are using a speaker phone please lift the handset before pressing any Q.
One moment here for your first question.
Your first question will come from Darius lose any.
From Bank of America. Please go ahead.
Hi, Good morning, and thank you for taking my question.
Good morning.
Hey, good morning, guys I just wanted to.
Maybe discuss the U S development pipeline, a little bit I noticed.
Comparing against your Investor day materials, there has been a little bit of movement. There looks like a couple of solar projects are no longer on that slide.
A couple of them moved back to 2006 from a slightly earlier timeframe could you maybe talk about the drivers of those changes is it supply chain related potentially.
Or there are inflationary pressures driving any of that just maybe talk about some of the puts and takes in that pipeline developed if you could.
Yes, Darius I don't.
It's really driven by sort of a continuous evaluation that our development team does in terms of seeing which projects are the best ones that we have to actually.
Advance and.
It's a continually continual sort of iterative process that our development team has in assessing which ones, we're going to prioritize and which ones are further away or less likely to proceed. It isn't really at this point based on any of the challenges that we see from a supply chain or an inflationary perspective, it's really.
Driven more by the potential of projects and and.
And where we think we'll be able to slot them in from a development perspective.
Okay.
Got it okay. That's very helpful and maybe just staying on that topic.
Bearing in mind. It seems like you guys are are advancing some of the U S, Oklahoma project pretty well.
I just wanted to confirm is the goal still remains to add two gigawatts by 2025 or is there, perhaps some flexibility and by when those two gigawatts might be online.
Yes, it's a great question our target remains as it was from our Investor day to get to two Gigawatts from 2025, as we progress and redevelop our development pipeline and we continue to sort of.
Execute as well as we can from growth, we'll reevaluate the target, but our target right now remains as it was in our Investor day in September of last year.
Okay. Thank you very much I'll pass it along here.
Thank you.
Your next question will come from Maurice Choy from RBC capital markets. Please go ahead.
Thanks, and good morning, My first questions is a follow up on the earlier question about <unk> growth plan, you mentioned that small changes to the pipeline, we're not driven by supply chain inflation pressures. So maybe just bigger picture.
At this point to maybe the top two things that you will watch out for in the ones that we can pull as well.
That would alter.
That delay or even.
Houston the growth of this plan.
Deliberate two gigawatt.
Yes.
So <unk> right now.
Think we look we're in the middle of.
Basically a $1 billion buildout from growth largely in 2023 are our development teams and our growth teams are busy.
We tend to be focused on matching our development projects with Ppas, we don't build projects on spec, they're always driven from having a PPA that really underpins the economics of the project as we go forward, we continue to see robust demand, both in Canada, and the United States and Australia.
Yeah for those projects and really we don't see I mean, I think we have a natural progression in terms of meeting the target that we've set.
If.
We're more successful in terms of increasing our pipeline that our current approach you might see us accelerate some of the development that we do.
In terms of something that could impact it as if there are inflationary pressures or something happens to the demand that we're seeing in the market.
That kind of reduces that that sort of drive that were seeing from the corporate sector.
In the sense of a shift to renewables that might affect kind of the progression, but right now we're not seeing that we're seeing sort of steady demand going forward, we're seeing PPA prices.
That are have adjusted and actually gone up to reflect some of the inflationary pressures that we're seeing so for at least from a trans Alto perspective, it's about finding customers to match with our projects as we go through and develop develop them in a way that meets our threshold hurdle rates.
Got it that makes sense.
And maybe a second question that's more of a bigger picture question.
On slide 16 for a 2022 priorities you mentioned that.
You are looking to secure long term contracts for Alberta.
Maybe.
What projects are you referring to.
And the bigger picture question is how do you view your profile in terms of contracting contractor.
Contracted cash flows versus merchant today, and where would you like.
Yes, no. That's a great question. So one of the things that we do so that reference in the slides of securing long term contracts for Alberta merchant fleet is directed to our merchant fleet, what a lot of people sometimes lose sight of the fact is when we talk about our hedging position roughly Todd I would guess, 20% to 25% of hedge position is <unk>.
Just on contracts that we have with our C&I business, our commercial and industrial business and.
And that's often multiyear.
Contracts that that provide kind of a contracted newness to our merchant fleet and kind of underpin our hedging efforts that are there.
We think of the kinds of other contracts that were looking for I think the recent.
Transaction that was announced with Lafarge for example, an extra we're powering with with renewable energy their operations. There as an example, I think where we're moving I think quite well for instance, two to contract the remaining merchant position at Garden plain and we continue to develop our C&I business is a critical component.
Forward. So we set targets for the team they had a really great year last year, increasing that position and our view is to ensure that we have a good contracted position balanced with ensuring that we have enough length in the market to take advantage of.
Higher pricing when it occurs so that that's really what we're referring to there taught out of if you want to add any color to I was just going to just going to remind.
Mind, you our mores that as part of the Sun Five project, we did take on a long term contract there with a reputable counterparty another contract doesn't start until 2023.
But those are those are fantastic contracts that will again booster our overall contracting this across the company and especially here in Alberta.
Perfect. Thank you very much.
Your next question will come from Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone.
A larger question conceptual in nature, how are you viewing the relationship between <unk> and Transalta. These days, we have seen the valuation premium that burn W compressed and.
We're looking to keep white rock <expletive> .
Project area as well.
How are you viewing our NW funding vehicle and there's kind of a strategic imperative is still there to keep it a standalone vehicle.
Yeah, Good morning, Robert.
Look.
Transalta renewables for US remains the vehicle, where we have a lot of our contracted.
Natural gas and renewables assets.
Today, we continue to view it as a vehicle that could help fund our growth. We are mindful of continuing to consider dropdowns to it I mean garden plane is a good example of the kind of projects that we would consider dropping down to it.
The strategies of the two companies are converging for sure that is something that we're very mindful of and we continue to evaluate and reevaluate.
The positioning of the two but right now it.
It's a core pillar for transalta.
<unk>.
It remains as is.
In terms of our current strategy.
Alright, I appreciate the color, maybe something a little bit more granular there as well as the SMG settlement.
Can you maybe just talk to what the impact would be on a go forward EBITDA basis. While this replace the EBITDA that FMT was originally going to put it in south had learned or will it be something less than that.
Yes, Robert the settlement is confidential actually so we can't.
Disclose any of the terms that we have with FMT going forward. So I wish I could give you more more information I can say that we're happy to have the dispute over with <unk> and bring them back into the fold as a good customer for the facility.
There and in fact, it was it was one of the reasons.
We had a bit higher sustaining capital spend we ended up buying a spare engine.
For south south headwinds to make sure that it would meet the needs of <unk> as we go forward, but in terms of the specific.
Deals specific terms rather of the settlement I can't I can't actually give them to you.
Alright, thank you.
Next question will be coming from John mould at TD Securities. Please go ahead.
Hi, Good morning, everyone media, just like to start with your business and in the Pacific Northwest and your longer term outlook there.
And the retirement of the second unit.
At Centralia at the end of 2025, what are you doing to look to maintain our position in that market beyond that that closure recognizing there are.
Gas supply constraints in the area is there a gas conversion opportunity are there other renewable opportunities in that area that maybe youre looking at what's what's on your potential list of things to do there.
Yes, good morning, John .
So look.
Doing our coal to gas conversion of unit two is challenging I.
I think for a number of reasons I think you alluded to the letting gas supply remains a challenge in the region and candidly even <unk> permitting.
It's probably a challenge we continue to evaluate what we could potentially do with the site and really are thinking of it in a couple of ways. One there is opportunity to add some renewables for example, we've looked at solar at at that part of the world sorry on the physical location of the site.
In the past and continue to work to see what we could do there. We're looking to see whether there is alternative technologies that we could bring bring to the generating facilities there that wouldn't be dependent on gas in terms of going forward and.
Working in the early stages of working with some companies that could potentially provide sort of a new technology.
Approach that could see some of the residual.
Infrastructure that we have therapy be utilized in the future and we continue to focus on potentially increasing our pipeline in terms of providing other renewables, particularly wind.
In the region to be able to meet some of the growing renewables needs of customers in the region I'd also be remiss.
If I didn't mention that we have looked at and continue to evaluate the importance of and the potential of maybe storage at that facility given.
Some of the base load generation that has traditionally been there with coal just fading away pretty rapidly and as that market transitions, having some of that storage to be able to help out as another opportunity.
Okay.
Okay, great. Thanks for that and then maybe just moving on to the water Charger project I'm. Just wondering if you can talk through a little bit the interplay there with the Brookfield Hydro investment would that initiative get held is under the umbrella of the.
No.
T, Alberta Hydro unit in which Brookfield will will be able to.
<unk> interest in.
How does the capital cost work there and then.
The EBITDA formula determines.
Brookfield Ctrip has taken those assets does that how does that all get factored into the project.
Yes, it's something look as we develop the project will clearly engaged in discussions with Brookfield to kind of make sure that we're clear about the impact on it my sense of it right now would be that those.
Revenues in this is that a first blush, John would be part of the of the.
Yes.
The cash flows that would go into the hydro purchase at this point in time in the capital would be for Trans Alphas account as we develop it and with just then be factored into the purchase equation of the interest when they back into it at this point in time, so hopefully that gives you a bit of a sense.
Yes that makes sense, great. Okay, I will get back in the queue. Thank you.
Thanks, John .
Your next question will come from Andrew <unk>.
Credit.
Please go ahead.
Thank you good morning I.
I guess it is.
So to grow the portfolio of assets in a few different geographies.
How do you think about hurdle rates across the geographies and ask the question in part because of your portfolio positioning in Alberta.
On what unique.
And you have a lot of optionality that comes out of that portfolio and.
And so how do you think about investing capital within the core Alberta market versus what you've done in the U S and even Australia.
Yes.
Andrew I would say look our hurdle rates are evaluated based on the risk of each project and clearly when we think about when I think about the projects in the U S versus projects here in Alberta, where effectively developing similar risk profile assets renewables profile long term contracts with with good good counterparties and so.
No.
Don't particularly see a big difference between.
The two hurdle rates in the two in the geographies.
And similarly for Australia, we've seen.
Very similar rates of return on projects that we execute down there.
Yes, we havent, Andrew I'm not sure I'm, just thinking of sort of our own process given that we had over the course of the last year, we didn't see much variation based on the geography of the investment it was driven more off of kind of I would say taught a base level of returns that we expect with adjustments for the quality of the <unk>.
<unk> party risk associated with the development regulatory.
Certainty tenure or those kinds of things more than issues relating to geography, if you see what I mean.
Yes.
Okay. That's helpful. And then maybe for my second question, maybe a bit more geeky on to some of the technical staff.
If we think about just battery usage to supplement certain assets.
What are you seeing or what are you getting from Oems as far as battery performance.
Colder weather named Alberta versus hotter weather climates, like what you experienced in Australia.
Yes.
Sure.
The only I can say I mean thats a question that I think we could probably get back to you on with some of our.
Folks from the development side I think all I can say is when we look at our wind charger projects sort of in southern Alberta.
We haven't seen any impacts from a weather perspective, the units are sort of in closed an inappropriate sort of structures that temperature seems to be within an appropriate operational zones. So we haven't seen any impacts and I know when we were developing our northern Goldfields project, which has a storage component.
To it.
The issues associated with that kind of the performance of the units in would be hot weather for sure.
Seem to be pretty comparable just going from memory from what we're experiencing in southern Alberta, Andrew we can get back to you with specifics though.
Okay. That's great. Thank you.
Your next question will come from Rajeev <unk> from IAA capital markets. Please go ahead.
Hi, good morning.
Your target for 400 megawatts this year of new projects.
Our projects.
Projects are some of the most advanced ones in Alberta.
I'm just wondering if you could talk about how those would fit into your existing portfolio in the province, if there is.
It's really the focus is on contracting all of them there is a bit of leeway tops them some merchant exposure.
Yes, good morning.
When I think of Alberta, and I think of kind of the projects that we're developing there.
There's really four that are.
Kind of significant ones from my perspective, the biggest one is <unk>, which is a 300 megawatt wind farm in southern Alberta that would be something that we would be looking to contract Tempest, which is just going from memory 100 megawatt.
Wind farm is something that we're also focused on developing more rapidly and are actively working that.
But that wind farm that too would be contracted.
When I think of kind of something that might be a little bit more merchant I think of water charger, which is the 180 megawatt battery project, we were talking about a little bit earlier that would typically be at least our own thinking around that is it would be much more of a merchant.
Project It would be we could potentially contracted but I think it's more merchant.
It would it would be operated in tandem with our hydro facilities and we also see it as an ancillary service provider in the market and then Sun Hills solar.
Which is a little bit of a later stage development up there. We would also be looking to have that contracted so right now when I look at kind of the leader is at least from my own perspective in terms of what we're pursuing in Alberta of significance, it's sort of three quarters would be contracted with.
The merchant being more oriented towards being tied with with hydro and being something that we can optimize through the optimization team that we have with ancillary services and the like.
Okay got it.
Question on I guess, what kind of cost pressures youre seeing on some projects.
Our overall goal is.
<unk> 3 billion to develop two gig you've already got 30% of that at a.
Call it the roughly $1 billion so.
Maybe you can just remind us even if you go a bit over budget here what are some of the levers that you have to maintain your returns both on the project on the portfolio level.
Yes.
Great question, So we have seen some.
Some inflationary pressure, but we don't.
We always do our projects tied to and.
I'll set water charges aside tied to having a power purchase arrangement, which is tied to the project and what we tend to do is one make sure our economics makes sense, because it's tied to sort of the revenue stream that we would be getting from the contract at that time, and we have seen that PPA prices, particularly in the U S have adjusted to sort of reflect some of the <unk>.
Greece cost that that that we see from a construction perspective. So we're holding the returns if you see what I'm, saying number one two we are very much focused on at the time that we sign a PPA, we contemporaneously really fixed the cost of as much of the project as we can and when we mean as much as we can we meet after <unk> 90 <unk>.
<unk> of the projects with both in terms of securing the turbines for example at a fixed price entering into EPC contracts with a fixed price arrangement. So we're locking in as much as we can.
The other stuff that we're doing is the supply chain to your points, becoming more of a.
Of an issue at least right now so we're looking at being more specific about what jurisdictions.
The equipment is coming from whether it's coming from Asia, or whether we're sourcing products from North America or from Europe is something that we've actually specified.
In connection with our White Rock project and finally, we're considering early delivery of some components to mitigate against inflationary pressures and make sure that we are.
To maintain the timing that we need to get things done. So hopefully that gives you a bit of a picture of the levers that we have and that we've been pulling as we develop our projects, but so far I think.
The top line takeaway is we're able to maintain our returns.
Okay. That's good color. Thank you.
As a reminder, should you have a question. Please press star followed by the number one.
Your next question will be coming from Mark Jarvi from CIBC. Please go ahead.
Thanks, everyone.
<unk> talked about one of your targets for this year and starting that.
Contract.
In a sense of when.
Our appointment and here you'll have some clarity on that.
At a point now is kind of give us some indication of bookends in terms of.
Potential EBITDA haircut or where there be altered.
No formal course from contracting.
Maybe maybe mark thanks for that good morning, all.
Maybe start and then turn it over to Kerri, who can talk about the ISO.
Process that we're going through so we have contracted one of the four.
We actually have a bitcoin mining company, which has come onto the.
The park that we have there.
Which is also contributing to some of the cash flows that we're seeing so we're happy to see that.
In terms of the other three major industrial customers that were there we are expecting to have those they are in various stages of negotiation, but fairly advanced I would say and we would expect to have all of them contracted certainly in the first half of this year.
By and large, which then leaves and we would expect kind of the EBITDA expectations from those to be kind of the same or maybe even slightly better.
And then what we currently have from that segment there, it's an important facility.
A lot of the customers that we have in that in that Sarnia region.
And then on the ISO side, maybe Carey you can give you can give mark a bit of color in terms of the process. There sure good morning Mark.
The Ontario government is actually fairly ant man and how that structuring the RFP process.
Registered at the end of February which began.
Sure.
Still finalizing what the rules and the contract will look like.
These need to be in by the end of April and the current estimate is that contracts will be awarded by the end of August So we should have.
Much more certainty on what that will look like for us in the coming in the coming weeks really.
And I think carry those would be for 2026.
And the five year period post 2026.
In terms of what that means from a cash flow perspective, I mean, I think it will probably see a bit of a reduction.
In the EBITDA that would come from the ISO contract and we'll wait and see sort of where our land taught out primarily from the ISO contract and Kerry <unk>.
They've set.
Caps on what they expect for bids through that new capacity auction program that they are growing.
And can you remind us again sort of the split between the industrial inks and the ASR right now.
It's probably about 30%, 30% to 40% from the industrial customers and then probably 60% from the from the ISO contract I think of it as 60 40 market yet.
That's very helpful. Thanks.
And then any updated thoughts in terms of monitoring and later this year in terms of whether an IV.
Given our strong cash position or would you look to refinance or what sort of strategy there.
Yes look I think right now look we have I think over $1 billion of capital committed for construction on new facilities. So our expectation is to refinance that maturity, we likely won't wait until November and I know our treasury team is actually hedged a lot of the underlying over.
Over the course of the last year. So we're in good shape on the underlying reissue, but I think we would.
We will be refinancing that financing at maturity.
Okay.
Last one John you talked about being able to preserve margins, even though some cost pressures.
Looking at White rock the Capex numbers are up a bit facilities EBITDA can you just minus again in terms of the higher EBITDA projection versus a couple months ago is that fully recovering through the PPA or some sort of a merchant component of that.
And just sort of certainty on sort of the.
The ability to offset capex of higher EBITDA on highway rock.
No I mean, I think I think that is based on the PPA contracts that we see there a bit of variation depending on the PTC treatment I think that we get depending on where that lands.
In the U S, but but the where there isn't a merchant position for example.
Mark that that would supplement kind of where the EBITDA cash flows are.
Okay. Thanks, so much.
Thank you.
There are no further questions at this time. Please go ahead.
Great. 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. Thank you and have a great day.
Okay.
This concludes your call for today.
I'd like to everyone I'd like to thank everyone for joining and you may now disconnect your lines.