Q3 2023 TransAlta Corp Earnings Call
[music].
Good morning, My name is Jenny and I will be your conference operator today.
At this time I would.
I'd like to welcome everyone.
Altra corporations third quarter 2023 results conference call.
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After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time.
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Thank you Mr. <unk> you may begin your conference.
Thank you Tony Good morning, everyone and welcome to Transalta third quarter 2023.
With me today are John <unk>, President and Chief Executive Officer, Charles Shock, EVP, Finance, and Chief Financial Officer, Kerry O'reilly books EVP.
Legal and external affairs.
Today's call is being webcast I invite those listening on the phone lines due to supporting slides that are posted on our website.
A replay of the call will be available later today.
Transcript will be posted to our website shortly thereafter.
All of the information provided during this conference call is subject to the forward looking statement qualification.
Here on slide two.
Further in our MD&A and incorporated both for the purposes of today's call all amounts referenced during the call are in Canadian currency, unless otherwise noted the non FRS terminology used including adjusted EBITDA funds from operations free cash flow are also reconciled in the MD&A for your reference.
On today's call, John and Todd will provide an overview of the quarter's results. After these remarks.
Paul.
And with that let me turn the call over to John.
Thank you Chiara good morning, everyone and thank you for joining our third quarter results call for 2023.
As part of our commitment towards reconciliation I want to begin by acknowledging the Trans Altus head office, where we are today is located in the traditional territories of the mid to top the people of the Treaty seven region in Southern Alberta, which includes the six sika Connie decline I see that.
And starting the quarter first nations, including the bears Paul Sneaky and good Stony first nations as well as the whole <unk> nation of Alberta region three.
Transalta delivered another strong performance in the third quarter with 453 million of adjusted EBITDA and free cash flow of 228 million or <unk> 87 per share.
Both metrics were in line with our expectations for the quarter.
Our performance was led by our Alberta gas.
Ladies and supply returning to service along with the reduction of power imports it's wallboard.
And the lower water and wind resources enabled our merchant gas fleet in Alberta to perform exceptionally well.
Our asset optimization program for the Alberta gas fleet also delivered higher contributions in the third quarter of 2022 due to higher hedged volumes at overall higher hedge prices than the previous year.
This coupled with lower realized gas prices in 2023 significantly expanded gross margin from our Alberta gas portfolio compared to Q3 of 2022.
Our Alberta Hydro fleet also performed well, although more normalized as compared to last year's exceptional quarter due to the impact of lower prices and lower water resource availability, which impacted production.
Overall, our fleet availability was excellent at 91, 9%.
During the quarter and more recently, we have delivered on a number of key priorities and strategic initiatives first we announced the trans Alpha had entered into a definitive agreement with an affiliate of energy capital partners. The parents of Heartland generation pursuant to which trends also will acquire heartland in its entire business operations and all.
And British Columbia for $390 million subject to working capital and other adjustments as well as the assumption of $268 million of low cost debt.
This opportunity will enable us to expand and enhance our competitiveness and generation capabilities with one eight gigawatts of additional capacity to meet the changing demands of energy transition.
Second we closed the acquisition of Transalta renewables, which represents a key milestone for the company the simplified corporate structure and unified asset ownership capital resources and capabilities will enhance cash flow predictability and enable us to better realize future growth.
Third we fully commissioned the garden play wind facility, adding a 130 megawatts to our installed capacity.
The facility is fully contracted with Pembina, and Pepsico and has a weighted average contract life of 17 years.
Fourth we significantly advanced the rehabilitation of Kent Hills, with all 50 turbines now fully reassembled and being returned to service is commissioning activities are completed today.
To date 36 turbines have been fully placed back in operation and are now, earning revenues from New Brunswick power.
Full commercial operations is expected to be reached before the end of the year.
Fifth we were proud to have ranked first unused week's inaugural world's most trustworthy companies 2023 for the energy and utilities category. Following an extensive global survey and the valuations of companies that people trust as a customer as an investor as an employee.
Finally, with another quarter of strong cash flow our balance sheet position is strong with excellent liquidity to fund, our recently announced transaction with Heartland generation as well as our growth projects.
We made significant progress on our growth initiatives during the quarter and are on track to complete all our contracted renewables projects under construction either during the fourth quarter of 2023 or early in 2024.
We currently have 548 megawatts of projects into construction days, representing an investment of $1 3 billion with approximately $1 2 billion spent to date and $100 million left to go.
Our northern Goldfield Solar project in Australia is nearing completion.
<unk> and testing processes are now fully in progress with the facility expected to achieve commercial operations by the end of the year.
This project will deliver approximately $9 million of adjusted EBITDA.
Construction at the Horizon Hill Wind project in Oklahoma is also well advanced with all 34 wind turbines fully assembled.
Construction of the transmission interconnection is now underway and expected to soon be complete with the facility, reaching commercial operations during the first quarter of 2024.
At our white rock eastern West projects equipment deliveries are now complete and wind turbine Assembly is progressing well with 34 out of 61 turbines fully assembled.
The transmission interconnection is advancing and commercial operations are also expected in early 2024.
Together, our Horizon Hill, and White rock, Oklahoma wind projects will contribute over $100 million of EBITDA.
Finally, our mouth Keith 132 kv expansion project is also making excellent progress with the transmission line and transform installation now complete.
The project will achieve commercial operations by the end of the year and contribute approximately $7 million of adjusted EBITDA.
We're pleased that the finish line is in sight for all of these projects and look forward to adding all four to our operations in the near term.
Within our development pipeline, we have 418 megawatts of advanced stage generation and transmission projects that we are progressing towards final investment decisions, representing additional growth capital of approximately $750 million.
They range from wind generation attempt to battery storage at water charge.
We have been patient and disciplined in advancing these projects focused on ensuring that they are appropriately de risked and construction ready with appropriate risk adjusted returns to enhance shareholder value and given the inflationary environment in which we found ourselves.
Finally, we're pleased with the advancement in our growth pipeline, having almost reached our five gigawatt target two years early.
During the quarter, we added an additional 186 megawatts of future development opportunities to the pipeline and have added over 800 megawatts of projects in the year to date.
I will now pass it over to Todd to go through our segment results.
Thank you John and good morning, everyone.
They usually do I will start my comments with an overview of our Alberta portfolio performance overall during the first nine months of the year, we continued to realize high merchant power pricing for energy and ancillary services across the merchant fleet in Alberta and have been able to optimize our capacity across all fuel types in our portfolio.
The spot price in the quarter averaged $152 per megawatt hour, which was below last year's Q3 price of 221.
The gas fleet again exceeded our expectations operating with strong availability and capturing peak pricing throughout the quarter with a realized merchant price of $173 per megawatt hour, which represents a 14% premium to the average spot price.
Similarly, the ability of our hydro fleet to capture peak pricing was demonstrated throughout the third quarter with a realized energy price of $195 per megawatt hour, which represents 28% premium to the average spot price.
Our merchant wind fleet realized an average price of $103 per megawatt hour, which is below the average price of $136 that we saw last year, but on a year to date basis. The merchant wind fleet as realized an average price of $89, which is tracking higher.
Fleet realized in the first nine months of 2022.
Looking at the balance of Europe for 2023, we have approximately 700 gigawatt hours of Alberta gas generation hedged at an average price of $89 per megawatt hour and roughly 95% of our required natural gas volumes are hedged at an attractive price of $2 34 per GJ.
Our hedging activities aimed to mitigate the impact of unfavorable market pricing on the Alberta gas fleet and we continue to retain a significant open position in order to realize higher pricing during times of peak market demand, which was demonstrated in our strong Q3 and year to date results.
Our financial results for the third quarter exceeded our expectations for the period as John noted, we generated $453 million of adjusted EBITDA and an impressive $228 million of free cash flow.
Performance in the third quarter was led by the gasoline with adjusted EBITDA of $254 million.
The gasoline significantly exceeded managements expectations for the segment and the performance is consistent with our revised expected full year financial guidance provided in the second quarter of 2023.
The segment performance and strong gross margins driven by higher production due to market demand.
Higher realized power prices and volumes from our hedging program and lower gas cost due to both lower spot gas pricing and benefits from our gas hedging program.
The hydro segment performed very well with an adjusted EBITDA of 150 million hydro benefited from strong realized pricing and gains realized from our hedging program, but was affected by lower water resources as compared to 2022.
In Q3 of 2022 hydro production levels were abnormally strong due to a late spring runoff, which boosted production last year.
This year Q3 production levels were about 10% below average driven by the timing of spring runoff, which occurred earlier in the season.
Production was also impacted by overall lower precipitation levels.
Hillary services volumes were lower year over year due to lower procurement demand from the ISO due to reduced import levels and from the lower availability of water resources.
Our realized price of ancillary services remained strong in the quarter at 54% of spot prices.
The wind and solar segment underperformed quarter over quarter.
Although we brought on new production from the Garden Plains facility and had commissioning production volumes from Kent Hills, we experienced lower overall production due to weaker wind and solar resources in all regions compared to the same quarter last year.
We also experienced lower realized merchant prices in Alberta, and lower revenue from the timing of environmental attribute sales.
Quarterly variability in wind resource as expected and we remain confident in our fleets ability to realize its long term average production levels.
In the quarter energy marketing delivered $26 million of gross margin at $13 million of adjusted EBITDA results.
Our results in the quarter were affected by adjustments to revenues due to the timing of settlements, which we expect to be realized in subsequent quarters.
We still expect the segment to meet our revised guidance range of $130 million to $150 million of gross margin.
On a year to date basis, we are exceeding last year's performance and delivered over $1 $3 billion of EBITDA. This year well ahead of the $1 1 billion delivered.
<unk> delivered over the same period in 2022.
Similarly free cash flow delivered year to date is $769 million.
A 19% improvement over 2022 free cash flow in the same period.
Overall <unk> results are within our expectations and keep us well on track to meet our guidance target of one 7% to $1 8 billion of adjusted EBITDA and between 815 and $950 million up free cash flow.
The strong performance of our Hydro fleet continues to benefit our shareholders in the third quarter, our hydro assets generated $150 million of EBITDA and year to date have generated just over $400 million.
Continue to see strength in Q4 and are on track to deliver $500 million of adjusted EBITDA. This year from the hydro segment.
Although energy production and ancillary services volumes vary quarterly they remain largely consistent on an annual basis. This provides long term predictability in our Florida cash flows and is unique to this asset class.
While water resource and energy production in Q3 of 2023 was below last year, we remain confident in the fleet's ability to realize its long term average production levels.
Realized pricing and hydro continues to be strong with a premium on spot electricity prices, averaging roughly 26% over the last three years and with ancillary services, earning an average of 50% of spot prices.
In Q3.
We also executed a number of power hedges, which contributed positively to our third quarter results.
As John indicated last week, we announced our agreement to acquire the Heartland business the availability of the Heartland portfolio.
Unexpected opportunity for Transalta, and we were able to secure the acquisition at very attractive deal metrics.
This includes one eight gigawatts of flexible capacity generation, comprising a combination of contracted cogeneration merchant, peaking generation and transmission capacity rates.
As we communicated last week the transaction was priced with a <unk> EBITDA multiple of approximately five five times and the purchase price thats the value of the portfolio at $357 per kilowatt.
Purchase price is well below the replacement cost of current and other forms of reliable generation and provides a low cost expansion option to deliver reliable generation to the market demands of Alberta.
The acquisition is accretive to free cash flow and we will just deliver a strong cash yield with an expected average annual EBITDA contribution of $150 million.
The portfolio is highly contracted with 55% of its revenues under contract with excellent Counterparties.
The customer contracts have a weighted average remaining life of 16 years and will provide further diversification to our cash flows.
And finally with our local presence here in Alberta, we expect to drive corporate synergies of approximately $20 million year on a pre tax basis.
As we discussed on the call last week the transaction will require approval under the competition Act here in Canada as part of customary closing conditions in the meantime, our business operations will continue to operate separately and independently until the transaction closes.
We are confident that the transaction will be successful and anticipate that the transaction will close sometime in the first half of 2024.
We expect to fund the transaction price of $390 million using existing cash and available liquidity.
And with that I'll now pass the call back to John.
Thanks, Bob as I look at our strategic priorities for 2023. 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 decarbonization.
In 2023.
We are focused on progressing the following key goals achieving <unk> on the northern goldfield solar and melt key transmission projects, while progressing the white rock wind at Verizon Hill wind projects to completion early in 2024.
Continuing the expansion of our development pipeline with a focus on renewables and storage.
Leading the rehabilitation of Kent Hills wind.
Advancing the long term contracted newness of our Alberta electricity portfolio.
Achieving EBITDA and free cash flow within our increased guidance ranges and driving final investment decisions on our advanced stage projects with a focus on securing appropriate risk adjusted returns to drive shareholder value through capital and return discipline.
I'd like to close by highlighting what I think makes <unk>, a highly attractive investment and a great value opportunity.
Our cash flows are robust and underpinned by our high quality and highly diversified portfolio our.
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 our world class asset optimization and energy marketing capabilities.
The acquisitions of Transalta renewables and Heartland generation will further diversify and increase the contracted this of our cash flows while heartlands, peaking assets will contribute to our Alberta strategy.
Second we're clean electricity leader with a focus on tangible greenhouse gas emissions reductions. This year, we adopted a more ambitious cotwo reduction target of 75% by 2026 from 2015 levels and our board has recently approved our commitment to net zero by 'twenty five.
And everyone at the Heartland acquisition will not affect either of these commitments.
Third as noted earlier, we have a diversified and growing development pipeline and a talented development team focused on realizing it's fast.
Fourth our company has a sound financial Foundation.
Balance sheet is strong and we have ample liquidity to close the heartland acquisition as well as to pursue and deliver a clean electricity growth plan.
Finally, our people our people are our greatest asset.
All of our employees and contractors for the outstanding work they have done to deliver another strong quarter.
Quarter. Thank.
Thank you I will turn the call back over to Kia.
Thank you John Jenny would you. Please open the call for questions from the analysts.
Yes. Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on you touched on sound.
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Your first question is from Meles Choi from RBC capital markets. Please ask your question.
Thank you and good morning, everyone I just wanted to start with growth.
Growth pattern.
It seemed to have dropped your 2023 prior to reaching 500 megawatts of clean energy.
And I believe it's been well over a year since your philosophy when you build projects.
Something that you touched on in your prepared remarks in the last two major announcements where acquisitions related to <unk>. Harlan. So my question is how would you characterize your decision to hold back on renewables and how would.
You define.
What you said is appropriate view risk projects in your prepared remarks.
Yes.
Good morning.
Youre right.
Sure.
Did begin the year with a target to hit 500 megawatts of new.
Growth organically Greenfield and brownfield out from the company.
And <unk> been working hard all year, we do have a bit over 400 megawatts of advanced stage projects to advance, but I have to tell you.
We have been.
Showing a lot of discipline and kind of moving them forward. There were certainly times during the course of the intervening period, where we could move forward.
And proceeded with those projects, but we continue to work to make sure that the supply chain and the costs associated with developing those projects are as tight as they possibly can be and that the associated ppas that the projects would have.
Provide the appropriate level of returns that we need I think you alluded to it we've seen interest rates go up inflation go up so you know from our own perspective, we're trying to get.
Higher I would say returns then.
We were looking at getting you know two years ago.
And so it becomes an issue of balancing the increased costs associated with developing the project and some of the reluctance that we've seen candidly on the PPA side to kind of provide the kind of returns that you need to appropriately balance out we think the risks and the incremental costs that we see from developing the portfolio so rather than.
Pulling the trigger were being patient and we'll wait to make sure that.
We've got an appropriate balance for those projects going forward. The one thing I would say, though is we are absolutely committed to our clean electricity growth plan.
We continue to work on growing that pipeline from my own perspective, whether were behind by a year or six months and sort of in terms of achieving it.
Doesn't trouble me as much as ensuring that we continue to progress remain disciplined and continue candidly to build up the capabilities of the team going forward.
Thanks, and maybe if I can follow up with that and you guys should seek higher returns for your projects and obviously this quarter has demonstrated cash flow generation.
How would you didnt compare.
Some of these offshore pipeline emphasis.
Many opportunities, which you've done already.
Versus also buying back shares, which you've also done prior to the <unk> acquisition.
Yep.
Yes.
Look in terms of share buybacks, we've done I think it's about $71 million worth of.
Buybacks this year, roughly and sort of in the mid $11 price I think about $11 60 11 62.
It continues to be something.
We look at doing and it's <unk>.
My expectation I would say Todd that we'll be back in the market doing share buybacks before year end as you can appreciate given the kind of.
Work that we've done around heartland that even transalta renewables.
Blacked out for considerable periods of time in terms of being able.
To be in the market and do share buybacks, but going back to sort of the initial premise of your question. We do think that share buybacks are appropriate. It is something our company is committed to we do think it's a good.
Good tool to provide capital back to our shareholders, especially when we view our share prices being undervalued.
But growth is critical to and when we see opportunities like the heartland portfolio, what we think.
We are able to pursue the kind of benefits that we see from putting the two companies together and simplifying our transaction in and developing our clean electricity growth plan, we think that long term executing on those kind of growth projects will ultimately provide our shareholders the best possible value for growth.
Thanks for the color.
Thanks Bryce.
Thank you. Your next question is from Mark Jarvi from CIBC. Please ask your question.
Yes, thanks, good morning.
Coming back we had some discussion on last week's call I just wanted to revisit.
Some of the chatter around market reforms in Alberta on one of the things. We've been hearing is maybe some evolved measures too.
I guess protect against.
<unk> deliver reliability, whether or not that's ancillary service products or something like that what are you guys advocating for around that how do you think your hydro assets lineup with that do you think theres more.
Revenue opportunities around the hydro assets for around reliability.
The ability and SaaS products, where they are.
Maxed out and then I guess, maybe the <unk> from Heartland in terms of how they might fit into anything your advocate for or expect to come into the market.
Yes, good good morning, Mark I think look.
The work in terms of the pathways for the future of that.
<unk> was looking at and even the.
Notion.
At the provincial government has in terms of making sure that we have a proper sort of transition in the generating fleet.
That the energy transition occurs in a responsible way are ongoing and we're able to think about as you can imagine, but when it comes to the kind of asset classes that you talked about.
To think of them as falling broadly within sort of three buckets.
One if you look at some of the.
I would say more traditional maybe less flexible thermal plants, we do and you've heard me say this before we do view them as being sort of Alberta style <unk>. Our work shows that they will be needed in the marketplace. Notwithstanding the addition.
New gas generation. So some of the things that we're looking at and it's something that the ISO with the provincial government are very aware of is how do those that asset class helped to underpin reliability.
In the jurisdiction. So when we have discussions with them the notion of potentially out of market payments to keep those assets appropriately in place well into the balance of the decade, whether it be through contracts or other mechanisms to see them through is something that we're actually talking about.
And we think it is more perspective than it might have been even a few years ago now that people kind of understand the magnitude of the impact that the transition will provide so that's one two on hydro we think that the way the market is evolving we will continue to support our hydro fleet. So I think ancillary services.
We will continue to be critically important and might actually expand in terms of the various categories that we see so for instance, fast frequency response is something that the ISO is grappling with and that is something that our hydro batteries a combination of the two.
It really helped US go forward and when we think of our water charter project that fits squarely.
In that category.
Potential attribute and then finally with heartland not to sort of get ahead of the acquisition, taking place, but having more flexible and fast responding <unk>.
Setting aside ancillary services and reliability. We just think it's something that that would be very important to underpin reliability and candidly cost effectiveness in the province going forward I think that those assets certainly at the price that we're proposing to buy them that are just excellent.
In addition to the fleet going forward. So hopefully that gives you a bit of a sense.
No. That's very helpful. Just on the last item on the <unk> or are you, saying that you don't think there is necessarily a reliability affirming type revenue contract for those assets. It's mostly just the way you think the market is heading in.
Dispersion of pricing ours, there'll be able to pick off those high priced hours.
Yes, there may be but I think at least our current the current way that we envisioned them. It's more in the in the latter part of the scenario that you articulated where they would be more of what I would call traditional <unk>, mark where they would be oriented towards.
Stepping in rapidly win.
There is a reduction in supply coming from renewables and providing reliability of the system that way, but really benefiting from the energy price that as it responds to kind of the <unk>.
Tightness at the moment, our work would show that if the renewables coming in both wind and solar we may see periods, where the supply stack shifts I know Todd carry like kind of in that 2000 megawatts kind of on an hourly basis. So having something that was pretty extraordinary compared to what we normally would have seen in the province.
So having somebody that's fast response like that will be critical.
Understood and then coming back to the projection of about 115 million of EBITDA over the next five years from the Heartland assets when you model those.
And those assets is that number youre, arriving at just based on what's optimal for maximizing profitability for those assets without impairing revenue potential across your fleet or the market I guess is it just that's the most of you think you can get out without harming your hydro assets for your quota gas assets or at that price at $1 15, do you think there is potential.
How youre assuming those myron.
There is call it revenue synergies across your portfolio in terms of how my optimize all your assets.
Yes, I mean, Todd do you want it.
I'll start.
Mark those assets been operating for many years here in the market and so our projections on the future are somewhat driven off of a similar operating mode that they have had in the past and remember that half of the revenue over the half. The revenue is contracted so it's really on a standalone basis from the contracted revenue.
Consistent with the way they've operated in the past and then adding on the synergies that we expect to get more from from a head office operational cost basis.
Yes, we haven't.
We sort of we did the assessment primarily on a standalone basis, I would say mark. So so to the extent that you were to look at sort of port footwear portfolio wide.
Kind of analysis in the future.
On the assumption that the transaction takes place that's not that's not something that was a focus at the time that we did the acquisition.
Obviously pricing is one dynamic in terms of the realized profit from the assets, but if you just thought about what you assume to get to the 115 that'd be sort of comparable how do you think those assets have run over the last say.
Four to six quarters, just so I'm trying to understand in terms of their function and the ROI youre not envisaging, the mean dramatically different as what im hearing.
And your assumptions to get to 115, yes, Okay, all right I'll leave it there thanks Robert.
Yes, thanks Mark.
Thank you. Your next question is from John Mould from TD Securities. Please ask your question.
Good morning, Thanks, maybe just starting with scale in Alberta, you've added when you will be adding considerable scale and the province with Heartland and just when you consider.
F E on additional renewables.
At what point and maybe it's unreasonable to hold all else equal on returns, but at what point do you prefer to add developments outside development projects can be outside of Alberta, rather than further.
Creasing your exposure to that market is there kind of an upper.
Limit in terms of percentage of your asset base of cash flows that you'd like to see that province or.
Is it really just come down to two returns more than anything else.
Yes.
To be honest, John and by the way good morning.
To be candid I mean, it's really a function of the opportunities that we see.
In any given particular time from our development portfolio and as you've seen with Heartland on an M&A basis I would say.
In terms of sort of allocation of capital quite forward, but I think of our clean electricity growth plan I think I'd say talk we're pretty comfortable with where we are now I think we have joined our critical project, which is a peak are and we've got <unk> and we've got water charger.
Those are probably the key projects that we're looking at in Alberta, We would love to be able to grow.
In the U S. We would love to be able to grow more in Australia would actually.
Are really focused on landing that and expect to be able to move that forward.
Increasing the diversity of our cash flows increasing the contracted to some of our cash flows and.
And by diversity I mean by customer. It also by geographic footprint is clearly something that we're focused on and I would have thought we've kind of had a bit of an Alberta moment is what I would say to put it that way over the last little bit and I would I would expect that on a go forward basis, it would be a little bit more balanced and probably.
<unk> geared a bit more to jurisdictions outside of Alberta.
<unk> inside of Alberta, with the kind of assets that we would be bringing in Alberta would be more oriented towards providing.
Providing reliability in the province, so like pinnacle with peaking when I think of our pumped hydro in terms of providing storage and water charger I think it's more in that vein given the evolution of the market rather than more sort of what I would call conventional contracted.
Renewables going forward if that makes sense.
Okay. That's helpful. Thanks, and then maybe just.
Moving to the U S wind projects, you've got under construction right now.
Could you give us an update on how youre thinking about the permanent financing for those projects and options for monetizing those.
Those ptc's once the projects are online and what what timeline youre looking at for for finalizing that funding decisions.
Yes, John maybe I'll kick that off.
Yes.
The market changes in the U S that allow us to monetize ptc's on our own without tax equity partners.
Very beneficial we have been in discussions with a number of counterparties to lock in that revenue stream over the long term long term period, not just selling them on an annual basis, but our ability to monetize that really makes the need for tax equity partners to be significantly less.
About the financing going forward look we still have our preference is always to have the units up and operating.
Before we actually go out and seek financing in particular project financing.
But we do have a lot of corporate capacity and really not in any rush to go out and finance those assets. We currently have a bridge facility in place we're happy with that facility and we may look to extend that as well so nothing urgent on that front.
Okay. Thanks, and maybe just one last one on your hedges.
I think last quarter, you had some disclosures on your 2025 hedging position I don't I apologize if I missed it but I don't think you have got any this quarter and I'm just wondering what you can tell us about how.
Those hedges of maybe been updated over the loss last quarter, and how youre thinking about the market more over the mid term beyond the next 14 months.
Yes.
No John it's up it's pretty skinny in terms of where the forward curve is out in 2025. So I would say, we're developing our position in 2025 considerable amount of focus on our C&I business candidly, which has been I would say pretty robust.
Both in terms of the.
A component that basically flows with market pricing, but what we're more focused is sort of in our fixed price component of that so that's actually been at least from my own perspective saw kind of a main focus of what we're trying to do with setting up 2025 in some respects at least I'm viewing 2024, a little bit like 2021 west foreseen.
Quite a bit of new supply coming to the market.
It'll be a little bit of a reset in terms of what we see and I think we're all I think the company waiting to see as the year progresses, what we can expect a little bit closer we do as you know our own fundamental modeling internally, but just want to see the market evolve as we go forward. So I'd say, we're still we still have work to do for 2025.
<unk> I think at this point, so providing a lot of guidance associated with it is at least my view would be would be pre mature I don't know if you want that I think we will have an update.
Our Investor day potentially sure yes.
Okay.
My questions. Thanks very much.
Thanks Chuck.
Thank you.
Our next question is from Ben Pham from BMO. Please ask your question.
Hi, Thanks, good morning.
On the hydro results.
Comment around.
Hedges benefiting.
Quarter, we saw that also I think.
First quarter.
Could you talk about.
If any there has been.
Any sort of structural changes in your portfolio, that's allowing you to hedge the hydro because I don't think you've really done it historically in the past.
Yes good.
Good morning, Ben.
I don't think there's been anything structural I would say from a hydro perspective in terms of where we are I think we've just been opportunistic on occasion, so what we've seen strong pricing, particularly.
Particular quarter that might have a difference.
Compared to what our own internal fundamental forecast is internally I think the team goes and just.
It takes the position and.
Uses it to sort of guarantee the outcomes that we expect and we've done it a little bit more I would say Todd over the last couple of years really and I think it's been a little bit more visible.
More recently, just because we've seen.
<unk> pricing, which just makes sense for us to do it.
Don't know if you want it I would say just the nature of the hydro assets, where they are able to capture the peaks that.
That is the expectation out of that fleet to be getting the peak pricing when the market really you still have an open position.
So at.
The average price or like we certainly don't want to hedge the average price often in hydro and we really as John said, we look for those opportunistic periods and if you recall stepping back three months.
August September prices were very very strong and the forward market and so the team picked off some of those clear opportunities.
More in line with what we would expect our fleet to generate but it's more opportunistic I would say very opportunistic.
Yeah.
I guess with a quarter like this where hydro was below <unk>.
Truman.
That sort of situation, where you could be short.
The curve quite a data that you are hedging.
No.
No no.
Hedges in either business or relatively remember, there's 800 megawatts of capacity there now it can't run.
24, 7% at that level, but it's very very unlikely that we would be short on the hydro business.
Okay, and then adding teachers bandwidth.
When do you.
I know you mentioned operator.
It sounds like they need more peak periods, but those trends out of need.
<unk>.
Those are peaking plant.
You are advancing or that still makes sense for you.
Look I mean in terms of.
<unk> that we would be getting with.
Heartland I think we're very comfortable with those.
Peaking units.
They have competitive heat rates that cogent to candidly has competitive heat rates.
Those assets at the purchase price that we've set are much much cheaper than anything you'd be able to build for today and then when we look at peaking going forward, we kind of like political which would be a small.
<unk> kind of in that mid 40 megawatt rapid response is expensive. So you get your return of and on capital.
Closer sort of facility might we do one more.
It's possible but.
But I think we're kind of comfortable from a post acquisition portfolio perspective, with what with how it's kind of playing out and I would generally say it again.
Heartland portfolio has been in operation for a while the team did see incremental opportunity and adding peaking kept capacity faster.
Responding stores with Robbins.
No need to go through all of the work before those projects RFID, but we still see.
Positive attributes of both those projects for sure.
Okay, and then maybe just one.
My last follow up.
Upcoming Investor day.
Do you think you are in a position to.
20 core guidance.
At that point.
We're what I would say Ben is stay tuned that that's definitely something that we're focused on let's put it that way.
Okay got it thank you.
Thanks Beth.
Thank you once again that is star one should you wish to ask a question and your next question is from Patrick Kenny from National Bank. Please ask your question.
Hey, good morning, guys.
Just on your emission credits.
So your inventory has doubled year to date towards $55 million I was just wondering on a pro forma heartland basis.
If you can comment on how well protected or how long he might be sheltered from compliance costs.
And then I guess, taking it one step further but.
And playing the hypothetical here, but given the fluid situation in Ottawa around the carbon tax.
If there is a break on carbon tax for power generation similar to home heating oil or.
Even if it's just reduce somewhat can you just speak to what that could mean directionally to your overall margins across your portfolio or how meaningful that could be to your free cash flow outlook.
Sorry, sorry, Tal, let me, let me start with the emission credits start with perhaps yet.
Hi.
I can't remember exactly what your word you used but generally the emission credits, we don't consider them as sheltering the gas facilities right, we look at them as having a certain market value.
See the value of that potentially increasing over time, and we treat them on a standalone basis and similarly, what we operate gas facilities that have a carbon footprint.
When we look about what it'll cost offset the emissions there we again look at it on a standalone basis. So.
Don't subsidize my gas business by by using.
Briefly created emissions credits. So so we really do think of MSS.
Stand alone.
Asset.
But to your point, we do generate a fair number and this year, we do have a large inventory. So there's certainly no shortfall, but but.
But we're happy with the inventory, we see future value and I think youll see us starting to monetize some of that value over the next couple of years.
Okay that makes sense.
Just around the.
I guess the carbon tax in play in the hypothetical there.
Yes.
<unk>.
Good morning, Patrick.
Look on the on the carbon tax.
Let's say it would go down to zero.
I don't know that it would really impact the margin look I am speculating here, but I don't know that it would impact.
Our margins on our gas, we'd all that much I mean, I think candidly the carbon prices kind of priced in and as sort of an expense that we do and doesn't really I think drive overly at the end of the day. The margin. It would I think have an impact on the overall average price, which would probably have a.
<unk> downward impact on pricing in the province, which would in turn impact probably the renewables.
More in terms of what pricing they would be able to to realize is that you know.
That incremental variable cost that is currently priced into the market has sort of reduced or removed. If you see what I'm, saying I think I think that's.
Probably more likely what you'd see I guess, Patrick if I could sort of forecast, which.
I've never very good at doing.
Okay.
No. That's helpful. Thanks, John I appreciate that.
And then I guess.
Looking at the double B, plus credit rating and stable outlook.
Todd if you had any comp confirmation from S&P that.
Given your increased presence in Alberta with Heartland.
But they won't be moving any goalposts on you or.
Placing your rating on negative outlook like they have with others just given.
Their view of Western Canada, having higher exposure to physical risks related to some extreme weather events.
Yes, Patrick I think we.
We absolutely did reach out to the rating agencies ahead of the Heartland transaction just to understand the implications broadly received is neutral in the discussion I do not expect them to be moving any goalposts certainly not in a negative fashion.
Against Us going forward I think we've had really really strong results that we've proven to the rating agencies, how resilient. The company has and so I think the discussions ongoing with the rating agencies are very solid and we're very happy with the double B plus and the new Triple B low with DBS for our company and I think I think our U S agency.
Considering the very high quality.
But I don't think thats changing here.
Okay. That's great. Thanks, guys.
Thank you.
Thank you.
There are no further questions at this time. Please proceed.
Well. Thank you everyone that concludes our call today. If you have any further questions. Please don't hesitate to reach out to the Investor Relations team at Transalta. Thank you and have a great day.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.