Q1 2022 TransAlta Corp Earnings Call
Yes.
[music].
Good morning, My name is Sylvie and I will be your conference operator today at this time I would like to welcome everyone to Transalta Corporation's first quarter 2022 results conference call note that 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 and if you would like to withdraw. Your question. Please press Star then number two thank you Ms. Valentini you may begin your conference.
Thank you Sylvia and good morning, everyone and welcome to turns out this first quarter 2022 conference call with me today are John Quizzing Yours, President and Chief Executive Officer, Todd Stack, EVP of 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 the supporting slides that are also posted.
A replay of the call will be available later today and the transcript will be posted to our site shortly thereafter.
All of the information provided during this conference 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.
Today's call all amounts referenced during the call are in Canadian currency, unless otherwise noted.
The non I for us terminology used including adjusted EBITDA funds from operations and free cash flow are reconciled in the MD&A for your reference.
On today's call, John and Todd will provide an overview of the quarters results and after these remarks, we will open the call for questions with that let me turn the call over to John .
Thank you Kara good morning, everyone and thank you for joining our first quarter results call for 2022.
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 the myths atop.
The people of the Treaty seven region in Southern Alberta, which includes the <unk> that the county the Kenai.
And the Estonian Dakota first nations as well as the home of mid Teen Asian region three.
<unk> also had a solid first quarter and I'm proud of the progress we have made in advancing our priorities and in the performance of our company and our employees we.
We delivered $266 million of adjusted EBITDA and free cash flow of 115 million or <unk> 42 per share both broadly in line with our expectations for the quarter.
We focused on optimizing and economically dispatching our fleet and delivered operational performance, which enabled us to run during periods of peak pricing in Alberta.
The prices realized by both our Alberta, Hydro and Alberta gas fleets were in excess of average spot prices in the quarter and are reflective of the value and peaking nature of our diversified fleet.
During the quarter. We also delivered on a number of key priorities on the growth side. Our development team secured 200 megawatts of renewables growth with the announcement of the Horizon Hill Wind project with meta formerly known as Facebook as well as the Mount Keith transmission expansion project in Western Australia with BHP.
We executed a PPA for the remaining 30 megawatts of capacity at our 130 megawatt carbon playing wind facility with an investment grade counterparty garden plane is now 100% contracted with two great Counterparties.
And we are now able to share with you that Amazon is our corporate customer at the white rock wind projects.
I remain confident in our ability to deliver on the remainder of our two gigawatt clean electricity growth plan, we're targeting to reach investment decisions on another 200 megawatts of renewables growth later this year and are on track to deliver on our annual target of 400 megawatts for 2022.
Switching to our re contracting activities at Sarnia I can now confirm that we have entered into additional contract extensions with all three remaining industrial customers at the facility. This is a significant achievement with PPA renewals now in place with all of our industrial customers at the site setting the facility up well for contracted life.
Tension into the 2030.
On the coal transition side, we are fully retired both key pillars unit, one and Sundance unit, four and now no longer have operating coal units in Canada.
Our coal transition is among the most meaningful carbon emission reduction achievements in the country, representing 9% to 10% of Canada's 2030 emissions reductions targets.
Overall, we have reduced our annual C. O two emissions by 29 million tons as compared to 2005, including $3 9 million tons of annual reductions in 2021 of 24% reduction year over year.
The recently announced policy directions from the federal government support our decisions and validate our strategic shift.
Government policy announcements, particularly the federal discussion paper on the clean electricity standard and the 2030 emissions reductions plan confirmed that new natural gas generation faces growing policy and economic risks are.
Our principal focus is now on developing renewable projects that meet the growing demand for electricity in a manner that is aligned with global carbon goals as we outlined at our Investor day last year.
Identifying alternative pathways to deliver reliability, while pursuing a path to net zero is critical for our company and we have established an internal energy innovation team with a mandate to do just that.
In addition to the recent investment we made any kona to help advance our hydrogen technology platform. We have made a $25 million commitment to energy impact partners Frontier Fund.
This fund is focused on making investments in companies with transformative technologies critical to deep decarbonization, including long term storage novel generation and industrial Decarbonization. All of this is directed at taking a targeted approach to diversification and defining the next generation of power solutions for our company.
We continue to make considerable progress on advancing our EBITDA contribution from renewables assets with the addition of the wind drives in North Carolina solar facilities last year, our EBITDA contribution from renewables and storage assets reached 53% in the quarter another step toward our target contribution level of 70%.
By the end of 2025 as.
As a result of the progress we've made in advancing our clean electricity growth plan, our ESG rating with Morgan Stanley Capital International was upgraded from Triple B <unk> and finally in March we were active with our normal course issuer bid and returned $18 million to our shareholders through the buyback of $1 4 million common.
Shares.
In April we entered into a long term PPA with meta for the full output from the 200 megawatt Horizon Hill wind project in Oklahoma.
The delivery of low cost reliable and clean electricity from Horizon Hill supports medicine sustainability goals and will bring our wind fleet in the United States to almost 875 megawatts.
Commercial operation of the wind farm is expected to be achieved in the second half of 2023 and annual EBITDA from the project is expected to be between 27 and $30 million.
Similar to our White rock project over 90% of the project capital cost have been fixed under a turbine supply agreement with Vestas and an EPC agreement for the construction of the project with infrastructure and energy alternatives Horizon Hill will be our eighth wind facility in the U S.
We're also excited to announce the expansion of the Mount Keith transmission system in Western Australia to support the northern Goldfish field based operations of BHP The project.
We'll facilitate the connection of additional generating capacity to our network to support Bhp's operation and increase their competitiveness as a supplier of low carbon nickel.
The project is being developed under the existing PPA with BHP, which has a 15 year term construction.
Construction capital is estimated to be between $50 to 53 million Australian dollars.
And the project is expected to be completed in the second half of 2023 and generate annual EBITDA in the range of six to 7 million Australian dollars.
We see considerable opportunities for transalta as the race to Decarbonize unfolds over the next decade, we plan to deliver two gigawatts of new renewables capacity by 2025 by deploying $3 billion of capital with a target of achieving cumulative annual EBITDA from the projects of $250 million by 2025.
Just over a year into the execution of the plan and we're proud of the progress that we've made we've secured 800 megawatts of growth projects across Canada, The U S and Australia, representing 40% of our two gigawatt target by 2025 and combined these projects will contribute approximately $137 million in EBITDA once fully operational.
Providing 55% of our five year incremental annual EBITDA target of $250 million.
As I turn now to our U S development pipeline, we've highlighted that the Horizon Hill project has moved from the advanced development category into the under construction category.
And we still have over 750 megawatts of potential development sites in the U S across a number of projects in several key markets. The demand for renewables remains strong in the U S and we see plenty of opportunity for growth in that market and we're actively looking at a number of opportunities to grow our development pipeline there with <unk>.
Recently added a new wind development sites of the pipeline and expect to continue to add projects to our pipeline over the course of 2022.
We remain disciplined on growth in Canada, primarily here in Alberta are Tempest wind project is move up to an advanced stage of development and we continue to see demand for renewable ppas in the market from corporate customers. Our team is actively seeking opportunities to contract our sites and advance our projects into the construction phase and in Australia.
Dahlia, we've moved the Mount Keith transmission expansion projects to the under construction phase, we're definitely seeing growing opportunities in western Australia in support of our remote mining customers and we are advancing several opportunities there and expect to reach final investment decision on additional projects with BHP and others in coming months.
I'll now turn it over to Todd to take us through our financial results for the quarter.
Thank you John and good morning, everyone.
In Alberta, our hydro gas energy transition and wind facilities, our dispatches the portfolio in order to benefit from base load and peaking energy sales and in the first quarter. The fleet generated just over 2500 gigawatt hours of electricity.
We've positioned our fleet to firm renewables and provide capacity and energy when needed by the grid.
Strong pricing throughout the quarter resulted in the average pool price for Q1 settling at $90 per megawatt hour. This was slightly softer than the average price in Q1 of 2021 of $95 and capacity factors were lower than our expectations as price volatility was more muted this year than in 2021.
The lower price and lower volatility was mainly due to warm weather and fewer planned and unplanned outages across the province compared to last year.
In the quarter the company was well hedged on both power and natural gas. However, given the significant increase in the spot price of natural gas combined with the current carbon price levels coal fired generation had the marginal cost advantage in the quarter.
Given these market conditions, we optimize the fleet through daily assessments and made choices on whether to dispatch down our units and supply our customers through the market.
This also allows us the opportunity to resell any unused gas that was hedged and also avoids higher emissions and corresponding carbon costs.
As carbon costs continue to rise and other coal fired units in the market become less competitive and retire or are converted we expect to see stronger correlations between natural gas and power prices in the near future as offers from generators will fully reflect the price of gas.
During the quarter, the gas and energy transition units realized a premium of 14% over spot price with a realized merchant price of $103 per megawatt hour with.
With our Alberta fleet now fully converted to natural gas our carbon compliance costs have decreased by over 50% from $19 a megawatt hour in Q1 of 2021 to $9 per megawatt hour in the first quarter of 2022.
The ability of our hydro fleet to capture peak pricing was demonstrated again in the quarter with realized merchant prices of $108 per megawatt hour, which represented a 20% premium over the average spot price.
Ancillary services revenue in the quarter was lower due to lower due to the lower average pool price and lower volatility.
A lower contribution from ancillary services resulted in a reduced EBITDA from the hydro segment.
Our merchant wind fleet in Alberta performed extremely well not only did we benefit from a strong wind resource. The fleet also benefited from strong on and off peak pricing and realized an average merchant price of $58 per megawatt hour.
Looking at the balance of 2022, we have approximately 4900 gigawatt hours of our Alberta gas generation hedged at an average price of $73 per megawatt hour and $40 million of <unk> of natural gas hedged at approximately $3.
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 and we see forward prices for the balance of the year in the $112 per megawatt hour range.
Our performance in Q1 was led by the wind and solar fleet, which delivered a 17% increase in adjusted EBITDA from $76 million in the first quarter of 2000 $21 million to $89 million. This quarter. The increase was driven by incremental contributions from the wind rise facility as well as the North Carolina solar facility.
And higher wind resource.
This increase was partially offset by the extended outage at Kent Hills.
Operations and adjusted EBITDA from the gas segment, which includes our contracted assets as well as our Alberta merchant fleet was largely in line with 2021.
Adjusted EBITDA from the energy transition segment decreased 69% year over year due to the retirement of <unk> unit, one at the end of 2021, and lower production and higher coal cost at Centralia.
Our energy marketing team delivered results consistent with our normalized expectations for the segment was $27 million in adjusted EBITDA.
Overall <unk> results were in line with our expectations.
I want to thank all of our employees for their performance in delivery in the quarter.
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.
And in the first quarter, we delivered EBITDA of 266 million broadly in line with our expectations and consistent with our 2022 EBITDA guidance range.
Free cash flow of $115 million or <unk> 42 per share was also in line with our expectations and also consistent with our 2022 free cash flow guidance range of $455 million to $555 million.
In the quarter <unk> reaffirmed our triple B low stable rating and we still expect to refinance our November 2022 debt maturity before it matures.
Our treasury team has been proactive and have secured interest rate locks to protect us against rising interest rates.
Our balance sheet and liquidity remain very strong we closed the quarter with over 2 billion of liquidity, including approximately $1 billion in available cash this positions us extremely well to fund our future growth pipeline, including our 680 megawatts of projects under or soon to be under construction.
Before I turn things back to John I'll turn to Transalta renewables.
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, the quarter's results Mark. The full addition of 428 megawatts of contracted growth generation in each of our core operating regions.
In 2021.
Despite the ongoing suspension of operations at Kent Hills <unk> results for the quarter have demonstrated the resilience of the diversified fleet and the value of the 2021 growth investments for.
For the first quarter Transalta renewables delivered $139 million of adjusted EBITDA, an increase of $16 million compared to the same period in 2021 the.
The increase was a result of the incremental production from our growth projects and strong wind resource during the quarter.
With respect to Kent Hills, we're expecting to finalize our rehabilitation plan and conclude our negotiations with new Brunswick power very soon.
We are pleased to say that we have an agreement in principle with NV power that includes among other things a term that now goes to December 31, 2045 under each of the three ppas.
Further our discussions with the project lenders are in advanced stage, and we expect to obtain their final concern during the second quarter at which time, we will be in a position to commence construction.
The estimated rehabilitation cost has increased in excess of our previous range and is now estimated at $120 million, including contingency and the net impact of replacing the failed turbine.
The increase is due to a more robust foundation design inflationary cost pressures and an acceleration of the schedule.
We will provide a further update unexpected expenditure commercial terms and construction timelines as terms are finalized.
We have strong liquidity at <unk> for the upcoming funding needs. In addition to our $700 million committed credit facility, we had $278 million of cash at the end of the quarter and with that I'll turn the call back over to John .
Thanks, Todd as I look at our strategic priorities for 2022. Our primary goal is to continue delivering clean power solutions too and be the supplier of choice for customers that are focused on sustainable growth and de carbonization in.
In 2022, we're focused on progressing the following key goals, reaching final investment decisions on the equivalent of 400 megawatts of additional clean energy projects across Canada, the United States, and Australia, and we're on track having secured 200 megawatts. So far this year, achieving Seo D on the garden planed wind in northern Goldfield.
<unk> projects.
<unk> construction on our U S wind projects at White rock and Horizon Hill, and advancing our milk keep transmission expansion project in Western Australia.
Expanding our development pipeline with a focus on renewables and storage re contracting with the ISO at Sarnia in Q3 progressing the rehabilitation of Kent Hills, wind, which we expect to be able to provide more details on later this quarter.
<unk> EBITDA and free cash flow within our guidance ranges and advancing our ESG objectives, which includes reclamation work at high Vale 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 what I think makes transalta, a highly attractive investment and a great value opportunity.
First our cash flows are resilient and are supported by a high quality and highly diversified portfolio. Our business is driven by our contracted wind and solar portfolio are unique reliable and perpetual hydro portfolio and our efficient gas portfolio all of which are complemented by a world class asset optimization and energy marketing capabilities.
Second we're a clean electricity leader with a focus on tangible greenhouse gas emissions reductions we have adopted a more ambitious cotwo emissions reduction target of 75% by 2026 from 2015 levels and are committed to setting a science based emissions reductions targets this year in.
In addition, our focus on removing systemic barriers through our commitment to equity diversity and inclusion and good governance shows our commitment to leadership across all dimensions of ESG performance.
Third we have an extensive and diversified set of growth opportunities and a talented development team focused on realizing its value. Our execution is on track and we delivered on that growth pipeline in 2021 and early in 2022.
Fourth our company has a sound financial foundation, our balance sheet is strong and we have ample liquidity to pursue our growth.
Finally, our people 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 quarter.
<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 will turn the call back over to Keira.
Thank you John Sylvie will you. Please open the call for questions from the analysts and media.
Thank you, ladies and gentlemen, if you would.
Like to ask a question. Please press star followed by one you will then hear a threefold.
Prompt acknowledging your request and if you would like to withdraw yourself from the question queue. Please press star followed by two and lastly, if you're using a speaker phone and we do ask that you. Please lift the handset before pressing any keys. Please go ahead and press Star one now if you have a question.
And your first question will be from various laws at the Bank of America. Please go ahead.
Hey, guys. Good morning, and thank you for the time.
My first one maybe just kind of on capital allocation. It seems like you guys have quite a bit of cash on hand.
Liquidity available relative to the projects in the pipeline.
Before your fairly robust free cash flow guidance for the year maybe.
Maybe in the context of the buyback that you guys did a little bit on in Q1.
The other option how are you guys thinking about deploying the balance sheet a little bit here.
Yeah.
Yes, hi, good morning, Darius look I would say that we continue to be opportunistic on share buybacks. We were blacked out during our Q4 release and our annual results last year and did did purchase one two months, we were out of that buyback period, and really opportunistic I mean, when we saw the share price it fell off after joining during Q1 and we saw.
There's a great opportunity to pick up shares.
And I would say Todd too we do have I mean, I think our total spend in terms of projects under construction is sort of in that mid 1 billion $5.
Range, when you put sort of the capital commitments were expected from both companies, both transalta and Transalta renewables. So so I think we're comfortable with the way we're looking at our capital allocation kind of falls within the range of.
The ranges that we've said we tend to target.
Okay, great. Thank you for that and maybe.
Maybe switching gears.
Walking up the industrial Sarnia customers for.
For a few more years.
Hi.
Takeaway from the update in the MD&A on the Isos process that you guys will have visibility into whether or not that contract is extended.
By the second half of 'twenty two it sounds like that's sort of where they are.
Process might might give you guys. Some clarity, but will you be able to update the market at that point.
That's what that's actually what our expectation is Darius.
ISO there has come out and is basically running an RFP for kind of a medium term sort of capacity.
To be awarded for the Province, I think that goes from 2026th 2031 that kind of time period.
We have actually applied.
And are seeking a contract under that capacity procurement that they are doing we are pretty confident of our ability to being successful in that and right now the current time schedule for the ISO to kind of go through all of the proponents for capacity contract would see them coming back to people in Q3. So so I think you've got it exactly right.
Okay, great. Thank you if I could sneak in one more quick one.
Higher expected forecast for Alberta pricing for the balance for the full year.
Just a factor of Q1 coming in higher than expected or is there something that you are updating in your forecast for the balance of 'twenty two here.
Yes, I think I think what we've seen is actually the forward curve and I think market expectations in terms of where pricing is going to be in the jurisdiction, increasing pretty significantly I would say over the course over the last month or so I think.
Kind of balance of year pricing in Alberta is now in about $113 range.
I think may and we're already in May would be in the upper <unk> I think June is a bit over $100 and then Q3.
A bit over 120, and then Q4 about $114. So in general I think what we're seeing is the market kind of just reacting to the increase in gas prices and.
Just making sure. It's just reflective of the fact that variable cost for a lot of the generators have.
Have popped up.
Okay, great. Thank you very much I'll turn it back here.
Thank you. Thank you.
Question will be from Rob Hope at Scotiabank. Please go ahead.
Yeah.
Hi, Good morning wanted to follow up on the on the outlook for guidance relative to.
The power pricing can you maybe walk us through some of the puts and takes that you're seeing in terms of your guidance you highlight potential.
Potential upside on the on the energy pricing and you do have gas locked in there as well or a good portion of it. So we would imagine that should be a tailwind as we go through the rest of the year. So are there any other headwinds that you are seeing or Directionally are you looking better than you expected. When you are when you put out guidance.
Yes, when we looked at the first quarter by the way good morning.
When we looked at the first quarter, we had a bunch of sort of one time events that impacted the quarter as well a little bit. So there was a provision that actually went through our numbers in Q1 that we don't expect to have any issues with on the balance of the year and candidly Q1 also reflected some of the costs from.
The leadership change that occurred.
In 2021, and those are not things that we would expect to impact the company on a go forward basis I think you've got it right I think we're pretty comfortable in terms of our gas position, we've seen the market pricing.
Reflect I think there was a bit of what I referred to as heat rate compression kind of in the first quarter and we're seeing that improve a little bit in Q2 Q3.
Q4, we're very happy with where our trade floor.
Candidly progressing.
Pretty strong April I would say Todd and.
We're pretty pleased with there with where theyre sitting so so net net we feel pretty good about the guidance in terms of where we are we're also expecting better performance from Centralia certainly in Q2 Q3 balance of the year Q1 was pretty anemic I think the pricing we saw in the Pac northwest was weak I would say and yet our coal delivery costs.
Sure.
Which we've basically locked into that for the balance of the life of that facility trended a little bit higher, but we're seeing strong pricing there and continued strong pricing for the balance of the year. So overall certainly more I would say.
Tailwind and headwinds that's for sure. So I don't know if you want add anything to that.
Is going to highlight Centralia in the energy transition segment, we do expect it to decline year over year as the retirements of some of the unit owner with Centralia was I would say off the Mark in Q1. The other thing I would say Rob is we are expecting too.
Turn on the revenue top I would say from.
Kent Hills as we begin the rehabilitation. It is our expectation that that will actually see that rehabilitation work.
Pretty quickly would be our plan in.
Begin getting getting that in a place where we wanted to be.
Yes.
Alright, and just as a follow up like conceptually Transalta has been relatively heavy on the wind development side versus solar which is.
Our benefit right now just given where youre seeing supply chain.
As you move forward.
Is this causing you to double down on wind and potentially push off some of the solar development just seeing.
The increased challenges, we're seeing in the solar side versus wind.
Yes.
Link.
We take a long term view in terms of kind of what the mix of technology will be I think right now I think you've got it exactly right in terms of the wind versus solar and frankly, we have a lot more experience in wind development that solar solar is something that is relatively new to us I mean, our northern Goldfields project was really the first transalta built.
Solar project that we have so we continue to see a lot of opportunities on the wind side and when you look at our development pipeline. It's for sure weighted more to win then it is solar but we're just mindful of solar because we see it as a pretty disruptive technology going forward and something for us.
To keep an oar in the water on for sure.
Yes.
I appreciate the color. Thank you.
Thank you and the next question will be from Mark Jarvi CIBC. Please go ahead.
Thanks, Good morning.
Just coming back to the outlook for the balance of the year and talked about the gas hedges and the rising power prices, if you're looking at coal to gas conversion assets do you think spark spreads.
Expansion of thousands you're kind of hold those flat given the current dynamics.
Yes, it's a great question good morning, Mark.
Our expectation is that they'll improve a bit.
Certainly improve over what we saw in the first quarter I would say I mean, our team looks at it.
Regularly I mean gas prices are certainly I would say higher than we anticipated that they would be Todd as we enter the year and as we have.
We're looking at the hedge position overall for the portfolio for the year, but we are expecting to see a little bit of an expansion.
Okay, and then any hedges material hedges beyond 2019 guidance.
Closure for this year and some for next year, but anything a little bit longer term on the gas side.
Yes, I would I would say Todd I'm, just going from memory I.
I think the longest term that you would typically see our hedges would be sort of three years is what I would say typically when they tend to rollover and I think I would say kind of a weighted average kind of age I'd say of the hedges would be probably a year and a half kind of in that range on the power on the power side that's right.
On the gas side, just in terms of gas supply, yes, it's very much.
Thousand 'twenty two in terms of the position that we're in and we like where we are in terms of the first third of the year for 2023.
Okay, and then just a couple of questions in.
In the quarterly filing around the hydro segment fingers, commenting a little lower a bit more competition and also some higher O&M pool, luckily or not that kind of percent in terms of the O&M and the competition.
Your color around what happened ancillary side of things.
Sure Todd you want we can go ahead also just take the <unk>.
Eliminate discussion Mark really I think its noted in there that insurance costs were really probably the one of the main drivers probably accounting for a third of the increase if not more of the cost and that is a trend that you will see for the balance of the year.
Really it is it is our most valuable asset.
It is one of the highest coverages in our insurance policies and so it is bears the brunt of a what I'll say is rising costs associated with insurance that we're seeing across the industry and John I don't know if you want to talk about ancillary. So yes, no I think we should talk about on the ancillary services.
We did see a bit more competition on the S side, but I don't think that that was really the major issue. When we talk to our team I mean, I think our ASP prices in Q1 of.
2021 were roughly in that $67 range and I think for this quarter. They were in the mid 40 range I think mark and so thats, a pretty big difference year over year are the judgment of our sort of optimization team would have been more around the fact that there was just a lot more volatility last year, so the path to be.
We often talk about average prices, but the path to how you got there is actually more important than many times what the average price wasn't just the volatility that we saw particularly in February last year would have been the difference really.
Year over year in terms of how the portfolio performed.
The pricing that it cost and in fact, I'm just going from memory I think volumetric Lee we were actually ahead year over year, both on the energy side for the hydro portfolio. So not worried about our market share per se right. Now. It's just it was just reflective of kind of the pricing dynamics that we saw in the in the province in the first quarter I would say more than anything.
Okay. Thanks Niccolo.
Thanks Mark.
Next question will be from Ben Pham BMO. Please go ahead.
Okay.
Alright, Thanks, guys good morning, everybody.
We announced that the garden claims.
Contract.
Amazon is.
Quarry.
Wondering.
So for you to succeed there.
Sure.
And any other renewable power company.
I Wonder what are the corporate PPA is looking for.
What that.
What gives you or anyone else that competitive advantage.
Thank you Mark good morning, more counterparties on the contracting side.
Yes.
Good morning, Ben.
Question look when we look at and look I can only speak to what we're doing in kind of the experience that we have in the marketplace. I think one of the key Differentiators for US is and then look this is just based on feedback that we're getting from the customers that we work with is really.
<unk>.
I would say three things one.
They really like I think the high high customer service approach that we ended up taking with the customers. That's something we've been working very deliberately fund, we actually have training programs and the like within the organization to try to get into.
End of <unk>.
Our high touch highly responsive kind of ethos around dealing with customers as we go forward. So I would say that would be one two.
For a number of the customers that we deal with the fact that we have kind of broad generation expertise and actually optimization and trading expertise. They just like having discussions.
And sometimes we get involved in helping them think through and plan. How they are on their own decarbonization journey and candidly the journey that we've been on.
I think is notable and something that many kind of referred to in sort of want to have a discussion as it relates to us. So I would say that would be the second thing. The third thing is a lot of them arent sure that theyre going to actually get the projects that they've bargain floor, there's been more than one instance, pretty much in all the markets that we're in where people thought.
They were getting something and it just wasn't delivered by a developer at the end of the day. They know when they come to US we'll get the project done and we will get it done on time.
And they will get what they bargain for us so hopefully that gives you a bit of a sense.
<unk>.
We have a lot of experience in operating wind.
We have a very strong supply chain team really good relationships with the Oems.
Those are also things that we end up leveraging but but I just wanted to give you a sense of just some of the more qualitative factors that people are looking at that we're looking to differentiate ourselves on.
Okay.
Okay. That's very helpful. Thank you and then.
I wanted to ask also what are your thoughts around.
Offshore wind in the U S.
Ever source looking to.
To monetize and then.
Some additional leases I think there are going to be open I mean is there.
And any interest today, even considered looking at that.
Technology.
Yes.
Then over the years, we've had opportunities and obviously what opportunities come to the table. They are brought to the attention of the company and our M&A team looks at them, we're not actively pursuing anything right now.
Opportunistically, if something came up we would potentially look at it but it's not kind of a core competency that we have I mean, it's.
A pretty different game to develop and service that kind of a facility versus what we're used to our bread and butter in terms of onshore.
So so it would be.
A pretty unique I think it would have to be a pretty unique circumstance that would require us partnering.
With somebody to get it done, but it's not it's not.
Can I put it it's not top of mind in terms of what we're focusing on from a development.
Okay great. Thank.
Thank you.
Thanks Ben.
Next question will be from John move at TD. Please go ahead.
Okay.
Hi, Thanks, good morning, everybody.
I'd like to start with the quest.
Question on co Gen. I guess, maybe firstly are you seeing any appetite for on site co. Gen right now and you got appetite to allocate capital to new co Gen.
Development in Canada, or the U S. Given your focus on renewables and then maybe how are you thinking about co gen over the long term in Canada, just given our decarbonization targets and maybe uncertainty about how it's going to be treated under the clean energy standard.
Great.
Yes, good morning, John .
I think you've kind of.
<unk> kind of the response I think through your comment at the end, but what I would say is.
Look at it.
When we looked back probably two or three years ago, I think we expected and in the context of kind of the regulatory environment of the day, we expected probably to see more runway and fairness around co generation and.
Had a team internally that was pursuing a bunch of that we've seen that fall off candidly and as you know it isn't sort of one of the core areas that we're looking at from a growth perspective in terms of our clean electricity growth plant and having said that.
We are involved with discussions and we are pursuing some opportunities.
Effectively co gen developments, but interestingly, they're typically for existing customers in terms of meeting their needs and also certainly a greater amount of focus on them potentially being non gas. So for example, being hydrogen fueled as opposed to being natural gas in terms of the fuel source, that's basically used for.
The facility.
I think you hit the nail on the head on the regulatory environment.
It still feels I mean, directionally, we think it's going to be increasingly challenging from a gas perspective to be sure.
But it's pretty opaque and I think making those big kind of bets.
As challenging and and I think we see it as sort of risky unless it's in the context of serving a good customer, particularly existing customers that we have long standing relationships with.
Yes.
Okay, great. Thanks for that and then maybe I'll just ask one more on development.
In Quebec, specifically and then you have a couple of operating sites there.
Yes.
Two three gigawatts of tenders coming and presumably more appetite there in the long term are there any opportunities for you in terms of expanding those sites.
Or local part with or without local partners and maybe some longer term greenfield opportunities. How are you thinking about that market.
Yes, it's a great. It's a great question.
So we have done a little bit of work to see if we can.
Maybe increase the size of some of the footprint that we have there because of some of the other jurisdictions that is one of the things that we're looking at kind of grow or our pipeline I think it'll be challenging and as you've seen from sort of our.
<unk>.
Our disclosure on where our pipeline is we don't have a lot of.
Sites, while we don't have any sites frankly other than our existing sites in.
In Quebec, So for sure there is an opportunity there for other folks to be able to bid into it.
If an opportunity comes our way to joint venture with somebody.
We wouldn't say no to considering something like that but I don't really see us as being a key.
Proponent in the in the Rfps that we're seeing coming into that jurisdiction right now.
Okay got it thanks.
I'll hop back in the queue. Thank you for taking my questions.
Thanks, John .
Next question is from Andrew Kuske at Credit Suisse. Please go ahead.
Thanks, Good morning, maybe an easy one to start and it's really just how do you think about the water levels and hydrology situation in BC in the Pac northwest right now in the outlook over.
Over the summer months, and then into the fall.
Hey, good morning, Andrew.
Yes, I never know if those are actually easy questions, Brett, but but look I would say.
Right now I think we are thinking that it is a bit below what I would call a normal year, a little bit below a normal year in the Pac northwest I would say I think we're expecting Alberta to be fine like pretty good in terms of where we are.
Going down to California, and further south on the on the.
The West coast, because we tend to look at it as almost an integrated market given the flows in the way our our trade floor can wheel power along given sort of some of the transmission rights that we have very very dry.
In California, like I would say I mean, Todd you and I were looking at this is just the other day sort of shockingly dry horribly.
From kind of the Oregon, California border, South so I'd say a bit below kind of the mean in the Pac northwest and and pretty normal.
Up here, but we will see what the spring rains are like and how things evolve over the coming months.
Okay I appreciate that I won't preface. This one is easier hard, but if you look back over the last week.
We call it five or 10 years with the balance sheet improvements the coal to natural gas program that you have and really just the market transition in Alberta.
Went through a lot as an organization and now as you think about transalta and positioning in it more to a growth mode.
Where do you think you are in that process, just sort of internally on refocusing on growing versus all of the stuff that you've accomplished in the loss pick a timeframe two years five years.
Yes.
So you know it's interesting.
We're doing really.
I would say three things around that the first one is.
And I think.
The work Thats involved doing this can't be underestimated, we're actually in the process of really working on a cultural shift within the organization.
And recognizing that we are moving into a growth orientation, a real strong customer service orientation getting to a place where there is technological disruption that's occurring within the organization very much focused on.
Our results orientation within the company are real strong learning orientation.
And a strong orientation towards purpose as we as we shift our culture.
From what it may have traditionally been given the nature of the company a decade ago or even half a decade ago to where it is today and that's something that we're very.
Deliberate about I would say Andrew in terms of the shift that's taking place.
The second would be just the very strong.
Making sure that the capabilities within our growth team are up to snuff in terms of what we need to move it forward and that's not just on the.
Sourcing and contracting side of the equation, but also just on execution I mean, we're building a lot and having the right skill set they're the right project manager is the right sort of contracting strategies to make sure that we locked out our costs are also critical to us going going forward and as part of that are new energy innovation.
Team is a critical part of kind of looking for five and 10 years in terms of what is what is coming forward.
Thing that we're really focusing on is.
Using data and innovation and just what we call our one trans Alpha platform internally within the organization, which has evolved and you'll remember this from Greenlight Andrew.
To really make sure that we have a singular approach to maintenance, we're using data as well as we can to make appropriate.
Maintenance decisions for the fleet trying to figure out.
Do we need to know TSA can we do it internally.
What kind of benefits.
Can we bring to bear on the whole fleet. So hopefully that gives you some of the flavors, but but.
We are very much focused on bringing kind of the.
<unk> and the culture of the internal organization, all along to where it needs to be to compete effectively.
For the aspirations of the company has.
That's very helpful. Thank you I appreciate the color.
Sure. Thanks, Andrew.
Thank you and your next question is from Maurice Choy with RBC. Please go ahead.
Thank you and good morning. My first question is on Dropdowns I know that at the Investor Day, you commented that around two thirds of the plan may be suitable for dropdown candidates arent W. However, obviously meet two U S projects as you move forward with those.
And you stated that those won't be dropdown, maybe refresh us how you see what.
Suitable for dropdown using horizon White rock that's right.
On the tax or geography perspective, and whether the two thirds, it's still a suitable number.
Yes, good morning <unk>.
Thank you for that.
Look when we look at Dropdowns and how we're looking at kind of allocating the growth between the two.
Companies that.
Certainly requires a more active discussion within the organization today, given I think the greater convergence in terms of the growth of the two companies going forward I think when we think about it and I can and Todd can jump in here too.
Transalta renewables actually grew quite a bit last year.
In terms of that cash that it has available from a growth perspective, it's solid but it's actually THC that is sort of the more liquid of the two companies right now and actually is able to probably grow to a greater extent I would say then then then are in W. As in terms of just the cash the organic cash flow that it has on cash.
Resources that has available to it and then in terms of geographies, which is the other thing that we tend to look at it.
When when we look at the jurisdictions that really would be more impactful for growth for transalta renewables, given its tax horizons and the benefit that it gets from from <unk>.
Depreciation and interest.
The investments that we would make certainly Canada, and Australia would be more impactful at the <unk> level to be sure.
And helped maintain our cash flows, whereas the U S doesn't really do a heck of a lot to them and I think at least when we think of it right now certainly our U S assets and you've seen it I think.
With right rock and horizon here all of those will be more THC assets going forward. So hopefully that gives you a little bit of a sense that we're thinking about it I don't think we have hardwired any particular percentage that would go to one versus the other at this point in time, it's sort of more of a fluid assessment on a project by project basis I don't know if you want to add.
I think you hit the key points there Jonathan's question earlier on the call about capital allocation and that really is.
One of the key drivers of.
The white rock in the Horizon Hill projects at Transalta, when we when we halted the Sundance Five project last September .
We basically had all of that capital allocated to that project raised and ready to go that's now being redeployed in those projects and potentially other opportunities and just to remind you again as John mentioned last year was a good growth year for <unk>.
It's got two projects on the go down in Australia right now, we just announced one this morning and then.
And then it's also got the rehabilitation of Kent Hills. So it has a lot of that goes well.
It's busy across the company I think what I would say Todd as you know a project like garden plane, which would be in Alberta project solid kind of middle of the road harvesting contracted now that would be the kind of projects that we would conventionally expect to see belonging probably more in the <unk> and the <unk> W sphere that necessarily in the th.
<unk>.
Maybe just a quick follow up.
Yes.
No other use development within your pipeline will be dropped down based on that.
Reasoning.
No I wouldn't I wouldn't I wouldn't say that it's this black line as that but when you look at sort of the the.
The capital spending that <unk> has and the projects that it has in full flight.
At least for the foreseeable future in the near term, we would expect the focus for our <unk> to be in digesting what it has.
I'm also thinking of Kent Hills.
And also being helped in terms of a tax horizon for more of our Canadian and Australian kind of focus with THC being <unk>, but I wouldn't I.
I wouldn't be as.
Prescriptive as that in terms of saying no. There is a bright line there.
And my second and final question really related.
Back to Alberta.
Position in the market, obviously in the past withheld.
Market share in markets.
Production.
Have your hydro facilities and you've made a comment earlier that youre comfortable with the market share there, but you would move to a peak rate strategy.
So big picture, yes.
Thoughts on balancing Crawford.
Trajectory of your market share and also the capital that you're investing in the market.
Yes.
We're very much focused at really it's reflective of the characteristics of the fleet that we have right now in the way that its that its offer that it's operating and we're also mindful of the kind of the demand and supply evolution that will occur in the province. So we're less focused on market share now to be sure I would say <unk>, we're very much focused on.
Just maximizing the value that we can from the fleet for us it's more about our EBITDA free cash flow are we are we really extracting premium pricing from the fleet that we have in the jurisdiction. So it is a fleet that has more peak or like.
Like like tendencies for sure and that's really what the focus is I mean, our wind fleet in the province, which which which is big I mean thats.
That's something that you get what you get when the fleet is running but certainly from a hydro.
And a.
Gas perspective, it's feeling more peaking and the.
A way we think of the market's evolution for in the future is also that way when I think of our water charge a project that we're working to get off the ground again its storage, we're thinking of as we're thinking of the kinds of products that the market will need as it evolves and we see sort of a significant gas and renewables build out going forward. So hopefully that gives you.
A bit of a sense were our metric is availability, how is our pricing compared to spot pricing.
That's more what we're focused on what's our market share certainly on us than kind of thing we have X percent market share in terms of the overall generation within the province.
I was just going to add that really I see the market share increase going to the renewables.
Actually we saw generation generation source like so we're going to see more renewables built out and our focus is is getting a piece of that market share in that buildout.
Got it thank you very much.
Thanks Louise.
Thank you once again, a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone and your next question will be from Matthew.
Baidu.
Capital markets. Please go ahead.
Good morning, just a couple of questions on <unk>. So now the horizon, how long the bank and maybe tempus coming up next I.
I guess related to the to the topic of capital allocation do you expect to fill the gap.
For your growth targets this year with M&A.
No. We do think that if you put together.
Tempest, if you look at what we're looking at for example, the southern Cross.
In Australia I think.
<unk>.
If we can get something on an M&A perspective, that's that's great and I think thats sort of gravy.
Two to what it is that we're trying to do but we're very much focused on advancing our own pipeline to be able to get to that 400. So we've got 200.
Now I mean, <unk> Tempest would be at least 100 megawatts going forward I think some of the opportunities that we see.
Australia.
Excluding the transmission would also be in that 50 megawatt range and just based on the discussions that we're having we see even more that we could add we take a pretty conservative approach when we talk about the pipeline that.
We have so if we have a twinkle in are high if I can put it that way it doesn't appear on the pipeline. So.
M&A is a nice way to round things out and I think on North Carolina Solar is a great example of what we're able to do and the team is busy right now and looking at a variety of opportunities, but but I think our first line of execution is around our pipeline.
Okay got it and just maybe related to the topic of conservatism in Nanjing expectation. So it's secured 40% of your renewable capacity targets, but at 50% of the budget. Although you also have on the returns and 55% on EBITDA when you kind of put all those things together.
It's a bit soon but do you plan to revisit these targets next year and perhaps.
Exceeding our budget, but also exceeding the returns on EBITDA additions.
Yes look we look at the target all the time I mean, it's a great question.
I can't.
Let's put it this way no decision has been made to kind of adjust the target at this point in time.
My key focus.
And in all honesty is really increasing our pipeline so as much as we're really really focused on.
On.
Getting that in the 400 for example, this year.
And getting it done equally if not more important to me today would be to see that pipeline increase and we're looking at doing it really broadly in three different ways. One of them is through an assessment of the opportunities that we have around some of the existing facilities that we have.
And I have been pleasantly surprised by kind of the scope for expansion that we have around those facilities and it's pretty cost competitive given kind of the interconnections that you have there and the infrastructure. That's there. So that's one two just organic growth of opportunities that we have and we have a number that we're working on there and then finally looking at potential acquisitions.
In and increase the portfolio going forward so.
I'd like to see us work on that.
Before we would do.
Do any big sort of adjustment in terms of the target that we want to make sure we execute well too.
And it does give you a bit of room, just to be mindful of any uncertainties or when we focus on risk management as well okay exactly.
Thank you. Thank you very much.
Thank you and at this time, we have no further questions. Please proceed with closing comments.
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 very much 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 ask that you. Please disconnect your lines.
Weekend.