Q1 2022 Capital Power Corp Earnings Call
Thank you for standing by this is the conference operator welcome to the capital Power's first quarter 2022 results Conference call. As a reminder, all participants are in listen only mode and the conference call is being recorded today may two two.
22, I will now turn the call over to Mr. Randy Mah the director of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today to review capital Power's first quarter 'twenty two results, which we released earlier. This morning, our first quarter report and the presentation for this conference call are posted on our website at capital power Dot Com. Joining me. This morning are Brian <unk>, President and CEO , and Sandra Hopkins Senior Vice President Finance and CFO .
Well, let's start with opening comments and then open the lines to take your questions.
Before we start I would like to remind everyone that certain statements about future events made on the call are forward looking in nature and are based on certain assumptions and analysis made by the company actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward looking information on slide two.
In today's discussion, we will be referring to various non-GAAP financial measures and ratios as noted on slide three these measures are not defined financial measures. According to GAAP and do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other enterprises. These measures are.
<unk> to complement the GAAP measures, which are provided in the analysis of the company's results from management's perspective reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our first quarter 2022, MD&A I will now turn the call over to Brian for his remarks, starting on slide four.
Thanks, Randy and good morning.
Capital Power's head office in Edmonton is located within the traditional and contemporary home of many indigenous peoples of the Treaty six region and Metis nation of Alberta region. Four we acknowledge the diverse indigenous communities that are located in these areas and who's President continues to enrich the community and.
Our lives as we learn more about the indigenous history of the lands on which we live and work.
In the first quarter capital power delivered on our strategic strategic objectives of growing our renewables fleet, increasing contracted cash flows and re contracting our natural gas assets.
Strathmore solar our first Canadian solar facility began commercial operations in March the 41 megawatt facility is fully contracted with 100% of the renewable energy and associated renewable energy credits so to tell us under a 25 year PPA.
We also executed a 10 year renewable energy agreement with Ami Global Canada for the balance of the <unk> portion of the Whitlow wind facility.
With a lot of wind is now fully contracted for 100% of the energy generated and approximately 86% of the environmental attributes for 10 years.
The additional phases of Whitlow wind, representing an additional 151 megawatts began commercial operations in December of 2021 after.
After four months of operations, it's operating very well with higher generation than forecast.
The contract renewal for our island generation facility is nearing completion, we have agreed in principle.
To the terms of a four and a half year electricity purchase agreement with BC Hydro both parties are finalizing details and execution is expected within the next several weeks, we continue to aggressively intervene in the BC UC IRB process based on our expectation that island generation is needed.
<unk> four and a half years.
Turning to slide five.
I will touch on the significant progress that has been made on our Genesis Ccs project in the first quarter and a very encouraging developments that have occurred on the policy front.
Enbridge has open access waldman carbon hub, which would provide transportation and sequestration services for the Genesee Ccs project was awarded the right to pursue development of a carbon hub as part of the government of Alberta as Cc U S hub process for <unk>.
Genesee Ccs project, we have completed our preliminary feed steady that updated various technical and cost parameters and feed steady activities are proceeding.
On April seven the federal government provided the details of the proposed to refundable Cc U S investment tax credit as part of that 22020, 2022 federal budget document the.
The Ccs.
For projects undertaken before 'twenty 30 would be set at 60% for our investment in direct air capture project, 50%, where all other capture projects and 37, 5% foreign investment in transportation sequestration and use.
The details of the proposed ITC are encouraging and will provide important support for the.
<unk> Ccs project.
We continue our discussions with the Canadian infrastructure Bank on the framework for financing. We also continue to explore our programs that federal and provincial governments have launched that are intended to provide targeted support for accelerated deployment of <unk> U S and other large scale decarbonization technologies, we have.
Also expect first nation's participation as well as other potential partnerships for the project.
We have been clear that a decision to ultimately proceed with the project will require a mechanism for derisking carbon policy. We were pleased to see the federal government's 2030 emissions reduction plan document released on March 29th included are committed.
Commitment to explore these types of mechanisms the ERP specifically stated the following.
To enhance long term certainty the government of Canada will explore measures that helped guarantee the future price of carbon pollution. This includes for example investment approaches like carbon contracts were differences, which enshrined future price levels and contracts between the government and low carbon project.
Investors, thereby derisking private sector low carbon investments.
We will continue to engage with the federal government on this issue.
Turning to slide six I will comment on our prospective growth outlook.
In Ontario are three natural gas assets York Energy East Windsor and Gore away are currently under long term contracts.
With the earliest expiry in 2029.
So recently published their annual acquisition report that identified incremental capacity needs, a 2500 megawatts by 2027 and an additional 500 megawatts by 2030.
This creates significant opportunities for capital power either for expansion of existing facilities or the addition of batteries. These developments support.
These facilities are well positioned for re contracting in regions with significant needs.
We continue to advance numerous sites in our U S solar and storage pipeline and expect to begin actively marketing more advanced facilities.
With respect to M&A, we are seeing significant opportunities for both thermal and renewable assets and expect to meet or exceed our annual $500 million committed capital for growth target.
I'll now turn the call over to Sandra.
Thanks, Brian on slide seven I'll touch on the financial highlights for the first quarter overall financial performance with strong companywide, resulting in double digit percentage increases in all key financial metrics.
Revenues and other income before unrealized changes in fair value of commodity derivatives and emission credits was $746 million at 23% increase year over year.
We reported adjusted EBITDA of $348 million, the highest quarterly adjusted EBITDA in two years.
Adjusted EBITDA benefited from higher generation from the Genesee units and Clover Bar Energy Center and favorable Alberta commercial performance. We also had a full quarter of performance from the additional phases of Whitlow win that began commercial operations in December of last year.
In Ontario, we saw two five times higher generation from Gore way from increased dispatch, mainly due to nuclear outages that required additional base load generation.
And our U S renewable facilities performed well from higher generation.
Partly offsetting the higher consolidated adjusted EBITDA was slightly lower year over year performance from our U S contracted facilities.
Baxter and wind had lower financial performance this year due to the impacts from the extreme weather events in Texas in February of 2021.
While lower heat rate call option margin higher gas prices and maintenance costs resulted in lower financial performance from Arlington Valley.
We reported <unk> of $200 million in the first quarter at 26% increase from a year ago and net cash flow from operating activities was $415 million in the quarter that double that $206 million a year ago overall, a very strong first quarter to start the year.
Moving to slide eight I'll touch on the Alberta power market and our hedge positions.
The average Alberta spot price was $90 per megawatt hour in the first quarter, reflecting high availability of generation in the province, mild weather and strong wind generation are realized power price was $84 per megawatt hour in the first quarter compared to $77 per megawatt hour in the first quarter of 2021.
This slide shows our hedge position for power and natural gas for 2023 to 2025.
For 2023, we are 58% hedged in the low $60 per megawatt hour range in 2024, we have 37% hedged in the high $50 per megawatt hour range and for 2025, we are 24% hedged in the high $50 range.
This compares to forward prices of 70, 863% and $59 per megawatt hour for 2023 to 2025, respectively.
In 2023, and 2020 for the hedges currently in place are predominantly low longer term contracts the contracts capture a lower price relative to the four rigs that reduced price risk in future.
Future years, when we see prices moving down for example in 2023, 58% of our base load is under long term contracts many of which are three to five years or longer in duration.
Our long term hedges have an average price in the low $60 per megawatt hour range, which reflects longer term forward.
Natural gas prices have been have an increasing impact on our financial results as we transition off coal we have been actively hedging our expected natural gas burn for the Alberta fleet at favorable prices relative to forward.
As previously disclosed in our 2021 year end results, 100% of our expected natural gas volumes for 2022 are hedged at an average hedge price between $2 and $2 50.
Crude tanker Joel.
For 2023, and 2024, we are over 90% hedged and over 50% hedged in 2025.
The average hedge price for all three years is between two and $2 50 per GJ <unk>.
Which is much lower than the forward prices at the end of the quarter as shown in the table.
Turning to slide nine I'll conclude my remarks by reviewing our 'twenty two targets and comment on the outlook for the remainder of the year.
Availability in the first quarter was 95% compared to our full year target of 93%, which reflects the planned outages at Genesee one in the first quarter and a planned outage for Genesee three scheduled later in the year.
Sustaining capex was $25 million in the first quarter compared to our target of $105 million to $115 million.
Sustaining capex is expected to be above the target range due to increased work plan for the remainder of the year and the timing of work.
We continue to monitor the impacts from rising inflation rates, which currently only have a modest unmitigated exposure on our operating results.
For our growth projects, we are managing our construction exposure, which includes having a significant percentage of our procurement costs locked in for the Genesee Repowering.
We expect strong internally generated cash flow based on favorable Alberta price outlook that supports financing for our growth capex and refinancing of prep shares.
Both S&P and DVR S recently reaffirmed our investment grade credit ratings with credit metrics well above the current ratings threshold.
Overall, we now expect to meet or exceed the upper end of our full year guidance ranges of 111 billion to $1 6 billion for adjusted EBITDA and $580 to $630 million in <unk>.
We are also reiterating our 5% annual dividend growth guidance out to 2025.
Finally, we continue to target $500 million per year of committed capital for growth 2022, it's expected to be another exceptional year, both financially and strategically.
Now ill turn the call back over to Randy.
Alright, Thanks, Sandra operator, we're ready to take questions now.
Okay.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw.
Your question. Please press Star then two we will pause for a moment as callers join the queue.
Okay.
The first question comes from Rob Hope with Scotiabank. Please go ahead.
Good morning, everyone. First question is just on the solar supply chain, we're seeing the potential for tariffs in the U S.
Relatively yes.
We'll call it conflicted supply chain out there right now how is that impacting your existing projects as well as the next phase of projects that you could be adding to the development pipeline.
So for the existing projects when we're looking at the cost of panels or the impact on on the on the project site.
Mostly isolated to the North Carolina solar projects, where for US at this point the key consideration is that the higher transport costs to bring panels over from from Vietnam, and so given the timing delays on that project, we feel that we will see some normalization in those container.
As we move forward in and that will be the key consideration there with respect to future projects as we get a line of sight on the implications on the cost of panels going forward, we would see that that will be built into the economics of any new projects and that would be.
Industry wide. So it wouldn't just be specific projects, we're doing but I think youll see that some of those cost considerations will will become a factor in the cost of future projects.
Thanks for that and then maybe as a follow up.
It seems like you are speaking more favorably about M&A.
M&A activities and the opportunities Youre seeing there.
Is it more on the renewable side is it more on the thermal side and if we do see a slowdown in the development pipeline for solar does that push you more into the M&A side.
So Rob you know as we've said sort of.
All along.
Not really.
Prefer one side development versus M&A, who over the other.
What we're seeing in front of us today.
<unk>.
A very significant level of opportunities on the M&A side I think we've been talking for the last year that we expected.
Significant uptick at some point well that's happened so that's why we're a little bit more bullish on on that today and as you pointed out, particularly on the solar side. There is maybe a little bit of a pause associated with just uncertainty around pricing. So I would say from a on a very temporary basis.
We're not quite as bullish at the front part of this year on solar, but or wind, but certainly expect.
To to be able to pull the trigger on a on a renewable project this year.
But as I say, there is a significant amount of traffic out there on the M&A side that that actually fits us.
Alright, I appreciate the color I'll hop back in the queue.
The next operator.
Sorry. The next question comes from David <unk> with Raymond James. Please go ahead.
Thanks. Good morning, everyone. My first question here just on the <unk>.
Genesee carbon capture project I guess now that you've done some engineering work I'm curious if you can provide any color on.
How that budget has been refined and maybe any commentary around our return expectations and how de risking on the policy front could could affect your return expectations there.
So the.
The work that we've done to date.
That being the completion of the pre feed study and moving into the feed study more or less confirms our price range that was there before are costs from one $8 billion to $2 billion.
So no no change on the pricing side or any other significant operating type costs or parameters continue to be the same.
When.
We look at the overall returns.
We've generally been targeting some something around a merchant risk and so as we see the support coming in in different.
Ways, such as supporting the capital costs through investment tax credit et cetera.
And.
The forward view as to what carbon pricing looks like that tends to drive in.
Our cash flow that again, we're looking for something around a merchant return.
The challenge that our next challenges.
Dealing with the federal government and developing something like a contract for differences on carbon pricing that actually reduces the return doesn't necessarily increase the level of cash flow, but significantly reduces the risk to the project. So again, we've been kind of thinking about it in terms of merchant type risks given the name.
<unk>.
Of the asset and the overall opportunity and we think that pad fits well.
Excellent. Thanks for that Brian maybe just one more for me on the on the clean energy standard in the Equivalency review that's happening right now just curious what you see as potential outcomes.
And I guess any color you can provide on <unk>.
What that equivalent fee outcome ends up being and how that would affect your strategy going forward.
So in terms of the federal perspective.
We're seeing some definitely some positive elements around it.
Certainly the.
Federal government is recognizing for example that youre going to need in Canada significant levels of natural gas generation beyond 2035.
And that.
Certainly.
Something with <unk>.
<unk> natural gas like Genesee, one and two may well be operating below our standards set at that point in time, so the general environment for setting.
The equivalency standards as is.
Actually hill.
Much more positive than it has been in the past what that ultimately looks like Neil as a matter of.
Of course over the next number of months through to I believe the end of this year.
Now once the federal government sets its overall framework.
And.
And as you know is happening and will happen through that period, the provincial governments, who look for equivalency.
We'll be negotiating and.
And looking at.
The various <unk>.
Equivalency elements and levers that they have within their jurisdictions, we've been told by the provincial government that they very much want to hold the <unk> three seven so we'll see how that goes.
In the event that.
It doesn't hold and it drops we expected.
System with the way that the federal government has.
Ben.
Signaling things over the last number of years, so that what they're looking to do is to actually set.
Guideposts out there so that it doesn't cause any significant disruption. So we think any glide path down from the three seven.
Won't be extremely abrupt but would be.
A relatively soft.
Glide path.
Neil from that perspective, we don't really see that it wouldn't necessarily change our strategy in some respects.
<unk>.
More severe glide path in the short term it is probably more positive for us in terms of the implications for the market and our prices et cetera, and I think as you know our.
Exposure to carbon tax is essentially only in Alberta.
<unk> and BC.
We are not responsible for the.
The carbon tax implications likewise with our assets in Ontario.
No.
Increasing the variable cost in there.
The province of Alberta, just tends to increase everybody's variable costs and power prices.
That's great color. Thank you that's it for me.
The next question comes from Maurice Choy with RBC capital markets. Please go ahead.
Thank you and good morning, just first question and it's probably a follow up on the policy side.
There is clearly some clarity needed on the policy matters, and particularly I'm thinking about as you mentioned guaranteed the price of carbon pollution.
CES and the federal review of the performance standards.
To continue to expect to make in that.
By mid 2023 for <unk> U S.
From now until mid 2023 can you lay out the timing of when you expect these policy matters to marriage and also is there any.
Your range of outcomes the potential delay in there.
Necessary.
So very good question, because what we base our investment decision timing on is the development of these major parameters I think as we had signaled earlier.
In the market, we thought we might have.
Complete.
The investment decision by the end of this year and.
And what moved that off was the slowdown in our view of the development of of decisions around the Alberta hubs.
So again, you know that that that we saw as taking a <unk>.
Considerable amount of time.
Given the.
The prudent way in which we want to proceed.
In terms of the other elements of the government that is important to us. The first one is we expect in relatively short order more details more specific details around the investment tax credit and the degree to which it applies to us.
And again.
It does apply to us.
Some of our project.
Our 100% of the project costs are eligible or.
What may allow or disallow in their determination of of eligible assets to be in the calculation.
And then after that.
<unk>.
At the same time and going in parallel our discussions and negotiations around.
And I'll just call it a contract for differences on carbon price.
And we expect it will go.
Discussions are ongoing.
<unk> had a number of conversations with the federal government about the need and the nature of it.
And so we expect that bill.
We will be proceeding on that fairly rapidly.
In the background.
One has to recognize that the government's trying the federal government is trying very much to significantly reduce.
Carbon.
In the atmosphere by 2030, which means anything needs to be operational by 2029.
Which means it needs to be.
We really truly operational sometime in 'twenty eight 'twenty eight to ensure that it can function properly and there is always a.
Commissioning and other activities to get a facility like this up to the to the carbon capture a level that you are looking so Neil there isn't an awful lot of time in this framework for the.
The.
To achieve some of the carbon reduction targets and the federal government is very very aware of that and they are I would say moving extremely quickly in terms of trying to develop these frameworks and these mechanisms so that decisions like ours can be made thus far this speed.
The federal government actions have not slowed our project down.
But it wouldn't be too long into the future that it actually would so we would hope.
And this is a long long way to answer your question, we would hope the whole contract for differences that element would be done by the end of this year.
Then after that it's more or less just normal project process to get us to two an investment decision by the middle of next year.
And just to follow up on that.
CES and the federal review of the performance that view.
View that timing to be.
Around the same time as the carbon cfd, but in this year as well.
Yes, we're hopeful that there'll be a very significant amount of clarity around that in and around the end of this year.
Great. Thank you and my second question is about market share.
Obviously, you wanted to Genesee Repowering is complete the facility should have the raw dominant based on position now, but our market.
Where do you see a market share being in Sir is there a target as to what you want to be in.
And what about that.
What percentage is what's the mix between merchant and contract that recognizing the comments from S&P.
As well on the business risk.
So we've never really had a market share target and we actually don't have a market share target as we look at it we tried to do is position our assets and either.
Build or core historically.
Like what's Shepherd acquirer position in an asset so that it is so that they can perform very well in the market. So when you look across our assets.
Especially after the Repowering will have.
The lowest asset and the.
In terms of dispatch and invest efficiency.
In the marketplace.
And when you look at.
Sure.
Thats, a little bit higher and the curve being the Shepard Energy Center you look at our.
Our peaking facilities they continue to be the best in the province, the most efficient so thats what interest us.
Getting just more megawatt generation.
Doesn't doesn't appeal to us so again, it's more we're more focused on quality of assets and competitiveness than we are on quantity.
Thank you very much.
The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Thank you good morning, just wanted to come back to the inflation theme here.
Just curious in light of the ongoing pressures out there.
Might revisit potentially crystallizing.
Core compensation payments.
As a way to help mitigate the need to access other sources of equity for your various investment opportunities.
And I guess, if not maybe you can touch on what other funding levers.
You might be exploring today, either divesting of certain mature assets in the portfolio or perhaps bringing in financial partners at the asset level for example.
Thanks, Pat that we continue to look at all of those things, but if you think about where we sit today in terms of our funding plans. We did redeem the prep share at the end of December and have another tranche coming up in September that we expect to redeem and replace those with with a hybrid instrument.
But based on our current cash flow and and spending profile, we're actually not in a position to have to be raising any kind of funding and the just the replacement of those two hybrid those two perhaps will give us.
More than enough cash flow for what we've currently done from a from a growth perspective on our committed capital.
With respect to thinking about increased funding for growth that will be forthcoming it would depend on the nature of what we what we see whether it's more renewables or an acquisition. So fine that we're very well positioned currently if we were to do some.
In advance of the reset of our prep in September have the opportunity to upsize that and take advantage of our full hybrid capacity in the capital stack as one way of funding.
As far as the crystallizing the off coal, it's something that we've looked at but its not been particularly.
Attractive from our perspective.
But that would be an option and we continue to look at whether or not selling down any any portion of some of our projects would be a good.
Vehicle in lieu of raising equity, but would also.
Consider any any one or a combination of those as being something that would be available to us but.
No no specific plans as I said it'll be dependent on our growth and what comes in what form that comes in.
Okay. Thanks for that Sandra.
And then just.
With respect to natural gas prices here being at levels, we haven't seen in say over a decade, obviously higher power prices are helping to maintain robust merchant margins, but.
Given you have contracted at over 90% of your Baseload gas supply needs through 2024 I'm curious.
What power price doesn't make economic sense to say, you'll start dialing back some dispatch in order to realize higher margins on some of your contracted gas supply.
Yes, so thats something that we do do look at in terms of.
The balance between between the price price forecast increase as well as natural gas.
I couldn't tell you, what what sort of price level, we would say.
Say that that that would trigger that but we do look at optimizing around both of those commodity values.
And then maybe just a follow up just given your expectation of <unk>.
<unk> some excess free.
Free cash flow this year over and above your initial budget.
I don't expect you'd be leaning towards a higher dividend increase this summer but.
Maybe you could just confirm your priority list in terms of allocating that excess free cash flow whether towards debt repayment share buybacks.
Perhaps tuck in acquisitions et cetera.
Yeah, so as usual our first priority would be on growth and allocating that to more acquisitions and development.
You are right around the dividend to not leaning towards an increase I think that 5% dividend increase is is.
Feels like the right level, so don't expect that we'll be revisiting that.
With the buyback or reduction in debt, we don't have any near term debt that needs to be.
Refinance though in terms of an early call of our 2024 tranches.
Probably not.
And the offering and given the amount of growth that we see in the relatively near to mid term.
Probably not looking at share buybacks at this at this point and just hoping that we're able to deploy the capital to growth sell and feel optimistic that that that is what will unfold for us.
Alright, that's great I'll leave it there thank you.
The next question comes from Mark Jarvi with CIBC capital markets. Please go ahead.
Thanks, Good morning, everyone.
Brian you made a comment earlier in the Q&A session about likely you expect to pull the trigger on a renewable project this year, but that in the context of M&A or on originated projects internally.
Yes, yes.
Yes, that's more an originated project.
And then just with the solar tariffs and supply chain stuff in the U S. When you're talking about looking to pull the trigger or do something or is it more activity in Canada right now just a little bit of uncertain in the U S or maybe just kind of give us sort of some context in terms of how things are looking in north and south of the border right now.
So we've got ongoing activities on on both north and south of the border.
And Theres certainly is a bit of a caused some pause on the on.
On the solar side in terms of doing something right now in fact it was in <unk>.
<unk> opportunity for us in the states that we looked at and we said you know there's just too much uncertainty right now to be moving forward with.
<unk> committed prices et cetera. So.
There's a bit of a pause here, but we say we expect that given the importance of <unk>.
Solar development in the United States in the shorter term that those issues will be resolved fairly quickly.
I would say at the end of the day I would expect that there will be some increase in solar costs, but it won't be.
I would say.
Sporadic as it is today in terms of People's thinking a little bit more stable, but again I think everybody is price will go up a bit in and that will get reflected through to customers.
On the Canadian side continue to see opportunities here in Alberta and.
And certainly we see some significant and very interesting developments.
Ontario, especially when we talked about renewables. We're also talking about battery activity. So there as we season. Some some very near term developments in Ontario, as well so on both sides of the border we're pretty optimistic.
Okay got it and then.
The MST SP and sort of look at cap I guess on the units in terms of capacity in your work around with the batteries.
Talks about in the MD&A you guys or there is a review around maybe increasing that SSC.
I see.
How does that factor in your ability just to pause on the batteries or move ahead or scale. Those like can you pull that together in terms of whether or not that is creating uncertainty on how you adjust if there is an increase.
So we keep monitoring that as well I mean, we certainly believe the batteries will have an enduring value beyond just simply.
<unk> capacity when called for.
But we are watching that we're also watching things like for example, if you have a <unk> project that's continually drawing energy.
From those facilities that that effectively creates the same thing and reduces.
What would otherwise be considered as as a requirement for batteries. So we're looking at that we are in a position where we can modify the size of the biopsies as we go so.
Very much a current conversation current consideration.
And then my last question is just on realized pricing didn't seem as it was as much dispersion or volatility pricing this year versus last but you've got higher realized pricing is there something just the way you guys have become smarter in the dispatch as <unk> seen the market evolved in the last year.
And certain assets so.
Maybe just kind of comment on how you guys were able to sort of push higher unrealized pricing.
Yeah. Good question as far as if we've gotten smarter I think we've always been deep and expertise in that area. So.
As far as the volatility that that is a part of the captured price when youre looking at the number of megawatts that were run that tier denominator and then on the top is sort of your.
Pool receipts plus share trading gains so you are seeing.
Some increase on net on the trading side that would push that up so definitely.
Good good results come from the desk would be a large part of lecture, but youre seeing in terms of the higher realized price in the quarter.
And there was there anything in particular about the hedge position for Q1 that drove some higher realized pricing then maybe not come through the balance of this year or do you feel like you are set up quite well for 2022.
I think we're set up quite well for the balance of 2022.
Great. Thanks Sandra.
The next question comes from John Mould with TD Securities. Please go ahead.
Hi, good morning, everybody.
Maybe just pivoting back first to the Ccs projects you know it sounds like.
Clarity on carbon pricing.
The biggest gating factor and you ran through some of the other considerations I'm wondering where potential partnerships fall into this timeline and just to be clear I'm referencing partnerships.
The actual capture initiative and not the other.
Carbon hub I think you suggested on the previous call that.
Maybe from your perspective ownership of just over 50%, maybe the sweet spot depending on governance.
Is that something that you would you would finalize the year or something that you could announce sooner than that as you continue to develop the project and maybe some of those other policy questions fall into place.
So.
In terms of the.
A partnership as we had said earlier, what we Didnt want to do until we had gotten past some of these gates was too.
Start engaging with other people to talk about partnerships until the.
The project had matured a bit including completion of the pre feed study.
We're at that point now we are starting to engage with our first nations for participation in the project.
We do expect that that will proceed first indications are very positive in terms of.
They're well their desire to participate in the project. So again, we will see where those conversations will lead us to in terms of.
<unk>.
Bringing on additional partners.
There's a few that we would see as you know.
Strategic and.
Neil Valuable partners one of the challenges that we have is how you actually.
Consider genesee wanted to Repower versus the <unk> project and how they interrelate. So we're sort of working through some of those details now and certainly with a 50%.
Investment tax credits were actually today looking at it as a $1 billion project not a $2 billion project. So it is certainly with some first nation's participation something that is definitely in our wheelhouse in terms of being able to carry that capital ourselves, having said that would.
We are open to partnership depending on.
If it can be structured in an equitable.
Risk.
Way between them between the various partners. So those some of those discussions we see will likely start in the next quarter or so but definitely by the time, we are making.
An investment decision, we would expect partners to be onboard.
Okay, great. Thanks for that and maybe just.
Pivoting to Alberta and.
'twenty two is modernizing Alberta electricity grid.
Bill, which I realized it was just tabled last week, but we'll include some provisions on energy storage.
Unlimited full supply with export some other updates I'm just wondering if you've got any preliminary thoughts on the law you can share with us whether there was anything in there from your perspective.
Military or concern as it as it pertains to power market structure.
No there actually isn't.
A lot of that has been obviously discussed in.
And.
It reflects the background that <unk>.
Consultations that we've been involved in so.
A lot of it is you could characterize as enabling.
And adjustments to the market to again.
<unk> put in place elements that.
Different different kinds of technologies and.
And things are obviously late like batteries and <unk>.
Behind the fence generation those things that have been under discussion for.
A considerable period of time, so no we see it as enabling and positive.
From our perspective, particularly on the battery side.
Okay, Great I'll leave it there thanks for your time.
The next question comes from Ben Pang with BMO. Please go ahead.
Hi, Thanks, Good morning, I had a couple.
Couple of questions on <unk>.
The hedging percentages and on the gas in the power side.
And also.
You mentioned also that the energy trading results.
That said you add.
My question is was there any opportunities for you guys and in March when spot prices were low in New York.
Earnings on an.
Looking at our hedge price.
Sorry, Ben.
Yes.
Didn't quite catch your question was there are opportunities in up in March four.
You can repeat it.
Yes sure did you was there any opportunities for you too.
Instead of physically produce.
Power.
And you've seen this in the past where you are.
You've got a hedge.
<unk>.
Hedge price I'd say $65 and then.
Sometimes spot goes on a 20 <unk> you buy spot not for days and you just delivered to the edge just capital spent.
So some of the buys and sells so yes, it's certainly that would be part of that.
An ongoing strategy that we would look at as.
Part of our portfolio optimization.
Okay and can confirm that there was some of that in March.
We typically don't discuss sort of monthly results are or any kind of strategic decisions, we make around the portfolio at that that level of details, but it is an ongoing strategy for sure.
Okay, and what about on the gas side.
Andrew.
There are certain price $67, where youre at.
Producing gas.
Got.
Not your gas plants, you're not producing.
Yeah, the space of capturing a spread on the gas price.
So on the gas side, what we've procured is on our expected generation and what we generate to a large extent is based on what we have to deliver so we do look at all of those moving pieces and the ability to have financial settles in Dubai buy and sell towers that you are seeing a lot of opportunity with.
The volatility of both power and natural gas to optimize around that so.
That is something that certainly the desk does look to to do in terms of creating value.
Okay and can you clarify that.
Calculate over 90%.
But northern and base load is that are.
Are you taking basically.
Meredith Genesee <unk> separate and then you exclude clover and all of a peaking plant of that.
Great that percentage.
So it wouldn't it would exclude the peaking facilities.
Far as the Baseload that we would be looking at what are our dispatch expectations are for the year on those facilities and coming up with what.
What what we are seeing and so to the extent you can burn gas at Genesee that would be factored into those percentages, but it would be very much aligned with our forecast view on how we're going to be running those facilities.
Okay, that's great.
And then maybe I did.
One last cleanup question is there any outcome up the Texas that dispute.
At all or does it.
No not at this point in time, so we've been continuing to go through the various agents required under under the litigation.
With the counterparty on that facility and expect that it is something that would be resolved. This year based on how its been proceeding and moving along through the various stages at this point there is not a resolution.
Okay. That's great. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from <unk> <unk> of <unk>.
<unk> <unk> capital markets. Please go ahead.
Hi, Good morning, just wanted to go back to the topic of M&A I'm wondering if you can give us a bit more details on the pipeline and the opportunity. It seems like there's a lot in the hopper just wanted to get a bit more color on that chicken.
Well I think.
Yeah.
Little bit difficult to be talking about.
Potential transactions out there because there is also.
Counterparties and Theres also.
And competitive bidding processes and people wonder whether you are in or out of different processes, but I can characterize it that.
Everything that we are looking at is down the fairway.
They are.
Contracted.
And then on.
On both sides contracted natural gas assets.
Midlife well position everything.
According to the strategy per se.
<unk>.
There are some renewable opportunities.
Likewise.
Generally contracted but also more and more you're seeing renewables.
Pop up that are have some significant or near term.
Exploration of contracts. So the portfolios there tend to be a little bit more mixed than when youre looking at the oil and natural gas assets.
Those as singles or in small groups of assets. So that's the general framework.
<unk>.
More of what you've seen historically is somewhat what we're looking at today.
Okay. That's helpful. So similar similar to what's been done in the past same strategy and then just to maybe take it a step further do you have any specific.
Strategic or financial targets that you want to achieve with M&A This year.
Diversification of accretion.
So when we look at things from the M&A perspective, we certainly look for particularly if it's natural gas that they are cigna.
Significantly accretive.
Unlike the renewables, which.
Tend to obviously.
Better multiples.
Likewise, the higher costs, we see less accretion coming from those opportunities in general.
We do look for accretion, but again, we don't have targets I mean, we have the $500 million out there as a signal as we are looking for investments in.
Have conversations like this.
But.
I think we've demonstrated in the past we will only pull the trigger on those projects that makes sense to capital Power's shareholders in and again, although we're extremely bullish right now if it turns out that nothing that we're looking at through the year makes sense for us we're not driven to.
Growth just for growth's sake.
We have a discipline and we'll continue with that discipline.
Understood. That's helpful. Just maybe one last question.
Good luck to you.
You talked about starting to potentially engage with partners on the Genesee project.
In your discussions or maybe current dose future discussions are there any partners that you think you can work with.
Initially on the Genesee project, but maybe eventually on other.
Similar projects in North America.
As we look at it and if you think of <unk>.
U S.
It's the very high probability that it could move forward at Shepherd.
But outside of that don't really see a lot of season pass type opportunities for us there is such things as direct air capture et cetera, but I think the partners that we're looking at.
Uh huh.
In terms of the.
The cc USA Genesee tend to be I would say more specific too.
The opportunities that we might have in Alberta.
As opposed to more more broad ones I mean, we are not just to be clear, we're really not looking for investment capital.
We were looking for somebody that actually brings value beyond capital.
Okay.
Got it understood. Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Mr. Randy Mah for any closing remarks.
Okay. If there are no more questions. We will conclude our conference call. Thank you for joining us today and for your interest in capital power have a good day everyone.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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