Q3 2024 Capital Power Corp Earnings Call
and the other one.
The End
Speaker Change: Good day and thank you for standing by. Welcome to the Capital Power Q3 24 Analyst Conference Call. At this time while participants aren't a listen only. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1-1 on your telephone. You will then hear an automated message advice in that your hand is raised. To withdraw your question please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Roy Arthur, Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning and thank you for joining us to review Cavalry Power's third quarter 2024 results which we released earlier today.
Speaker Change: and the presentation for this conference call are available on our website.
Roy Arthur: During today's call, our President and CEO Attic Day will offer an update on our business by strategic focus area. Following that, Sandra Haskins will present a review of the quarter-infinattles for the company.
Roy Arthur: Avik will then wrap up with his closing remarks after which we will open the floor to questions from analysts in our interactive Q&A session.
Roy Arthur: Before we start, I would like to remind everyone that certain statements about the future events made on the call or forward-looking in nature, and our based on certain assumptions that analysis made by the company.
Roy Arthur: Actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business.
Roy Arthur: Please refer to the cautionary statement on forward looking information on slide 3 of our regulatory filings available on CR+. In today's discussion, we will be referring to various non-gap financial measures and ratios, also noted on slide 3.
Roy Arthur: These measures are not defined financial measures according to gap and do not have standardized meetings prescribed by gap and therefore are unlikely to be comparable to similar measures used by other enterprises.
Roy Arthur: These measures are provided to complement gap measures which are in the analysis of the company's results from management's perspective.
Roy Arthur: Reconciliation of non-gap financial measures, so nearest gap measures can be found in our 2023 Integrated Annual Report.
Speaker Change: Before we begin our presentation, I would like to acknowledge that Capital Powers had office in editing located within the traditional and contemporary column of many indigenous peoples.
Speaker Change: of the Treaty-Clicks region and the May-T Nation of Alberta Region Paul. We acknowledge the diverse Indigenous communities that are in need of areas of this present continues to enrich the community and our lives as we've learned more about the Indigenous history of the lands on which we live and work.
Speaker Change: With that, I will turn it over to Avik for his remarks.
Avik: Thanks Roy in good morning everyone. During the third quarter of 2024, we made significant strides across our three strategic areas of focus as we continue our journey of power change by changing power.
Avik: In this quarter, we delivered a record 11-tera watt hours of reliable and affordable power across our strategically positioned fleet of assets.
Avik: While the increase in generation was largely driven by the acquisition of new assets that Laplama and Harco Halla, it would still be a record quarter for generation if the assets were in our portfolio in Q3 2023.
Avik: I will provide more contact later in the presentation, but this increase in demand reinforces our conviction that natural gas thermal generation will continue to play a key role in the power grid for the foreseeable future.
Avik: In addition to generating more megawatts, our portfolios diversification continues to increase.
Avik: with US assets contributing 53%.
Avik: of Q3 2024 Evidda.
Avik: The newly acquired assets, along with our legacy US-generating facilities, are now providing upside in our portfolio during a period when, Alberta pool prices are depressed, demonstrating the value of our diversification strategy.
Avik: We also continue to invest in our assets and have completed just over 60% of the scheduled outage days.
Avik: Budger did for 2024.
Avik: and our on-tracked to meet our guidance range of 180 to 200 million.
Avik: of sustaining cat-backs. From a build perspective, we have continued to advance 10 growth projects across our portfolio that will result in a combined 1.1 gigawatt of incremental capacity.
Avik: Notably, the Gen. C. Repower Project has reached the critical milestone. We have started commissioning the repowered unit.
Avik: We are proud to announce a three-year agreement with four first nations which provides an opportunity to acquire combined total of 25% of Housework to win.
Avik: As part of our commitment to reconciliation, the agreement provides an equitable, profit-sharing model that supports a pathway for future equity ownership that can support these nations with sustainable income throughout the lifetime of the project's operations.
Avik: On the Data Center front, as many of you will have seen, we have two projects in the A-Sau connection to you for a total of 1.5 gigawatts of load at the Gen of B site.
Avik: While our discussions have not yet given rise to an announcement, our confidence level and playing a leadership role providing power for the build-out of data centers in the U.S. and Canada is rising. I will conclude my remarks with some perspectives on why before handing it over to Sandra.
Avik: Teamarkets in the U.S. continue to be a core focus for strategic flexible generation growth because of the strong fundamentals. Allow me to briefly touch on this and then zoom in on our business.
Avik: Total U.S. combined cycle generation has grown from approximately 1,200 to 1,500 to 1,500 to 1,500 to 1,500 from 2018 to 2023. In flying a cagre of 4%.
Avik: While total power generation has been much more modest at 0.5% cagur.
Avik: The growth in net gas power generation with limited new capacity being added has driven up capacity factors at existing facilities.
Avik: Looking forward, significant incremental capacity buildout is not expected while demand continues to grow. This translates into rising capacity factors of existing facilities in the years to come.
Avik: We have seen the same trend in our own portfolio but in a more dramatic fashion.
Avik: In 2024, year-to-date, our U.S. Burmol McApsis had a capacity factor of 53%.
Avik: This is up from 31% in 2021.
Avik: While the increase does not all translate directly into higher cash flow generation for contracted assets in the corresponding time period, it provides material upside for re-contracting the assets and enhances future value of those same assets.
Avik: For assets with merchant upside like Laploma and MCV, higher capacity factors provide benefit from energy exposure.
Avik: Both of these facilities recorded capacity factors above the average of this quarter and boosted our UF EBITDA contribution to the contribution of the total portfolio.
Avik: These broad-based and strong fundamentals increase our confidence in re-contracting all our U.S. flexible generation assets in the medium to long term.
Avik: Currently, the weighted average contract life of our U.S. assets is about 5-7 years. However, we are actively engaged in negotiation with respect to amending and extending visa-green myths.
Avik: This dynamic spans in contrast to the typical timeline for contract renegotiation.
Avik: Ordinarily, we would negotiate contract extensions with 18 to 24 months prior to contractive spiry. There's been a clear shift in that time line.
Avik: As a result, we anticipate the negotiations to result in terms that more accurately reflect the value of these facilities.
Avik: Even without the benefit of re-contracting
Avik: The contribution from our USFF continues to rise in the overall portfolio. From a generation perspective, USFF's represented 54% of the record 11 terralot hours we generated this quarter.
Avik: Evid.contribution from the US has risen to a similar level of 53% for Q3 2024. Up from 40% in the same period last year.
Avik: The foundation of our business continues to be our sound contractual underpinning.
Avik: However, task flow growth is coming into focus through re-contracting and expansion. As it becomes clear that natural gas fire generation will play an essential role in reliable and affordable grid across North America for longer than many had anticipated.
Avik: While the longer term is exciting, near term we remain focused on growth projects underway, I will now briefly touch on this starting with our flexible generation portfolio.
Avik: Currently, we are building six flexible generation projects. Genesee Repatter, plus our five projects in Ontario, for a total of approximately 850 megawatts of incremental capacity.
Avik: These projects are slated to achieve in-service dates in late 2024 to 2020.
Avik: The bulk of this incremental capacity is the Geneseary Power Project, whereas noted earlier, we are in the process of commissioning unit one for combined cycle operations.
Avik: This unit has now dispatch megawatts as part of commissioning and is approaching COD.
Avik: Unit 2 has begun commissioning and is on track for combined cycle commercial and we are reaffirming our existing cap accessments of 1.55 to 1.65 billion for the Gen. C. Repower Project.
Avik: The battery energy storage solution that York and Norway mobile-eyed and commenced construction during the third quarter.
Avik: At this point in time there's no further update to our CAPEX estimate of 600 million for the Ontario Best Projects and the East Windsor expansion.
Avik: Lastly, our Upgrade Projects at Gourwain, York are proceeding on time and favorable relative to budget.
Avik: We have completed one out of three of the outages for the Goro Way upgrade and expect to have approximately 26 megawatts of incremental capacity at the facility online by the end of the year.
Avik: Moving to renewables, our development portfolio, we are advancing four different projects with approximately 300 made lots of capacity and commercial operations dates ranging from late 2024 and into 2027.
Avik: This consists of three solar projects with a total of 180 megawatts of capacity located in North Carolina. These assets are contracted with a weighted average life of 15 years.
Avik: Additionally, we have one wind project, Halkirk 2, which is approaching completion by the end of this year in Alberta.
Avik: As discussed at the beginning of the call, we are proud of our partnership agreement with MassPortee First Nations at Halcurt 2. It is one example of our ability to constructively engage with stakeholders that distinguishes us from many other operators.
Avik: Legally formalizing this agreement was the culmination of long-term relationship building informed by a deep understanding of the goals of the counterparties at the table.
Avik: I will conclude my business update by highlighting our ability to create balanced energy solutions with a focus on data centers. As I previously mentioned, we have two projects in the ISO connection queue for a total of 1.5 gigawatts of load.
Avik: We felt this was a logical time to initiate a filing for data center load to be co-located at the Genesee site.
Avik: While we are not yet in a position to provide a specific update, we believe we are well positioned to play a leadership role in this rapidly growing market. Here are some quick perspectives as to why.
Avik: We have an existing fleet of flexible generation in Canada and the U.S. with total capacity of 7.8 gigawatts across 14 sites with a combined 18,000 acres of developable land.
Avik: At Genesee, we have approximately 13,000 acres of land alone and 1.8 gigawatt of existing reliable generation capacity with significant expansion potential.
Avik: Our land positions are near major population centers and can access fiber.
Avik: We have a dedicated in-house operational team with engineering, HSS&E, and supply chain experts. We pride ourselves on our constructive stakeholder and government relationships engagement in both U.S. and Canada.
Avik: Lastly, we have a thoughtful and creative approach to commercial discussions and creating comprehensive solutions, which is supported by our investment grade credit rating.
Avik: This combination means we can provide a superior value proposition.
Avik: Speed to market with confidence.
Avik: This is what positions us to meet the unique needs of a growing market with demand at a scale not ever seen before.
Speaker Change: As we continue our journey, we will provide more updates on our progress. With that, I will hand it over to Sandra to provide financial highlights for the quarter.
Speaker Change: and many more. Thank you. Thank you.
Sandra Haskins: Thank you, Avik. I will now review the financial highlights for the third quarter of 2024.
Sandra Haskins: While financial results were modestly lower year over year due to lower EBITDA contributions from the Alberta segment, the U.S. contribution largely offset this.
Sandra Haskins: As Avik mentioned, this quarter, our U.S. assets contributed 53% of EBITDA to the total Q3 total.
Sandra Haskins: This was a record quarterly contribution for our U.S. business, which continues to be a focus for future growth.
Sandra Haskins: For the quarter, adjusted EBITDA of $401 million was down approximately $13 million period-over-period
Sandra Haskins: due to lower generation and lower power prices captured in our Alberta commercial portfolio and full recognition of the off-coal compensation from the province of Alberta at the end of 2023.
Sandra Haskins: Offsetting factors included lower emissions costs from reduced emissions intensity at Genesee, which is now fully off coal, and currently commissioning combined cycle on Units 1 and 2, and increased contributions from newly acquired U.S. assets.
Sandra Haskins: Finally, our U.S. trading results were favorable due to increased activity and higher realized gains from our power and environmental trading portfolio.
Sandra Haskins: AFFO for the quarter was $315 million, up $19 million from Q3 2023, primarily driven by lower income tax expense, higher tax deductions related to the Genesee repowering.
Sandra Haskins: Offsetting factors include higher finance expense and sustaining capital.
Sandra Haskins: The alternate directions of EBITDA and AFFO variance period over period are driven primarily by tax implications.
Sandra Haskins: Overall, the quarter demonstrates progress relative to our strategic initiative with benefits realized from dedication to operational excellence, growth, and disciplined capital allocation.
Sandra Haskins: For the nine months ending September 2024, adjusted EBITDA was $139 million lower year-over-year due to the same factors impacting Q3 results.
Sandra Haskins: AFFO for the nine months ending September 2024 was $22 million lower than the corresponding period in 2023, driven by lower adjusted EBITDA, higher finance expense, and higher sustaining CapEx from our recent acquisitions and larger outage scope this year.
Sandra Haskins: This was partially offset by decreased income tax expense from operations and higher tax deductions related to certain capital projects, including repowering.
Sandra Haskins: and many more. Thank you. Thank you.
Sandra Haskins: To show the changing profile of value in our portfolio, we have provided a simplified breakdown of our quarterly adjusted EBITDA group by region, Alberta, U.S., and the rest of Canada.
Sandra Haskins: This increase in the US Adjusted EBITDA combined with a 36% lower contribution from Alberta reduced the relative contribution from Canada overall as compared with last year.
Sandra Haskins: As discussed, the lower contribution from Alberta was driven by lower prices and lower generation from our Genesee units while we completed the repowering project.
Sandra Haskins: Q3 2024 was slightly higher relative to Q3 2023 for the rest of Canada, indicating the stability of the contribution from these assets.
Sandra Haskins: with a slight increase coming from higher dispatch given the high importance of these assets in the grids where they operate.
Sandra Haskins: which helped mute Alberta Generation and pool price impacts. This has been an especially important factor in 2024 as we advance the Genesee Repower project towards combined cycle operations.
Sandra Haskins: I'll conclude my remarks by reviewing our nine-month performance relative to our revised 2024 guidance.
Sandra Haskins: Sustaining CapEx was $128 million in the first nine months of 2024 and is tracking in line with the guidance range of $180 million to $200 million for 2024.
Sandra Haskins: Our guidance presentation in January 2024 provided financial guidance for 2024 AFFO in the range of $770 to $870 million.
Sandra Haskins: In Q2, we provided revised adjusted EBITDA guidance range of $1,310 million to $1,410 million.
Sandra Haskins: For the nine months end of September 2024, adjusted EBITDA is just slightly above $1 billion and AFFO is $635 million and both are tracking in line with the guidance ranges provided in July and January respectively.
Sandra Haskins: Based on the company's results for the last nine months of 2024 and forecasts for the balance of the year, we are reaffirming our revised guidance that we provided in the second quarter.
Sandra Haskins: Overall, we remain pleased with the financial performance of the business during a pivotal year where we have achieved some significant milestones that have positioned us from a financial perspective as a larger, lower risk, more diverse, and more competitive.
Speaker Change: With that, I will turn it back over to Avik for his concluding remarks.
Avik: Thank you, Sandra. 2024 has been a transformative year for our company with significant strides on multiple fronts.
Avik: delivering record generation and executing on our strategy.
Avik: As we look to close out the rest of the year, we will be providing our budget and outlook presentation in January of 2025, similar to the timing of our 2024 call. This will be virtual.
Avik: For our traditional Investor Day, our intention is to have this in December of 2025. We will provide more details once a specific date and location have been decided.
Avik: I would like to conclude this call by reiterating that we remain steadfast in our focus to deliver reliable, affordable, and clean power.
Speaker Change: With that, I'll now turn the call back over to Roy.
Roy Arthur: Thanks, Avik. Operator, we are now ready to take questions.
Speaker Change: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: And our first question will be coming from Maurice Choi of RBC Capital Markets. Your line is open.
Maurice Choi: Thank you, and good morning, everyone. If we could just start with Avik, your
Maurice Choi: prepared remarks mentioned that your confidence level related to data center opportunities in the U.S. and in Canada.
Maurice Choi: is rising. Can you elaborate a little bit about where you are on these negotiations? Do the potential customers have offers in hand from you already? And what are the top obstacles, or the top obstacle to overcome from here on in?
Maurice Choi: and many more. Thank you. Thank you.
Speaker Change: Thank you, Maryse, for the question.
Speaker Change: We are not in a position to make a comment on any contractual arrangements related to data centers, but as we mentioned, and we've been consistent in our communication to the street, we continue to advocate for Alberta being a excellent location for data centers, in particular with our announcement
Speaker Change: around putting forward the interconnect in at Genesee in Alberta. We we've seen a significant
Speaker Change: in Alberta as a data center location, as
Speaker Change: The focus for hyperscalers has been on the U.S. market.
Speaker Change: but as reliability and speed to market have increasingly become
Speaker Change: more important in the calculus for where to locate these hyper data centers.
Speaker Change: Alberta has become more prominent in that conversation.
Speaker Change: and so we have increased our level of confidence.
Speaker Change: in being able to provide options for data centers here in Alberta in terms of obstacles.
Speaker Change: The obstacles continue to be.
Speaker Change: that we're in, and then ensuring that you've got the appropriate access to transmission distribution for that load, whether it's accessing existing grids or going behind the fence.
Speaker Change: So I think the most important point is our confidence level in Alberta has increased.
Speaker Change: We continue to be active in a number of dialogues on the U.S.
Speaker Change: as well, but we're in a position now that we are seeing real interest in Alberta and we're looking forward to continuing to advance that, which is why we've proceeded on our own path for site preparation at Genesee.
Speaker Change: Maybe this is a quick follow-up to that. Can you comment about your view of the opportunity set, say, six months ago versus today? Like, has that opportunity set changed at all? Have the players gotten broader? Just a little bit of color on that.
Speaker Change: I think six months ago we started ramping up our own data center efforts
Speaker Change: a little over, well over a year ago.
Speaker Change: And those conversations with hyperscalers and data center providers were primarily around their existing locations.
Speaker Change: and existing customer bases in key U.S. markets, whether it be WEC or PJM or MISO. Those are three of the most active markets for data centers in the U.S.
Speaker Change: As deals have gotten announced in the U.S., particularly around nuclear, as reliability and affordability issues have become more prominent in the U.S., the speed to market has risen as the primary challenge and determinant of where this load will go.
Speaker Change: And so, as we were activating on those conversations in the U.S. last year...
Speaker Change: we were starting to advocate for Alberta as a viable location.
Speaker Change: So, relative to six months ago to today, yes, we're having different conversations than we were last summer around data centers. We are in active conversations with large players.
Speaker Change: whether it be hyperscalers directly or major data center providers.
Speaker Change: to place hyper data centers or larger data centers.
Speaker Change: So I think it's really a function of demand and the shifting criteria for where to co-locate these plants.
Speaker Change: Understood, and if I could finish off with a related funding question.
Speaker Change: about how you plan to fund some of these data center related growth. Is the First Nations Agreement your main approach to selling down mature renewable assets or are there other avenues that you're looking at and if so you could just comment on the term in terms of appetite and valuation for these renewable assets in general.
Speaker Change: So, Marisa, you're referring to the contract on Halcrook II?
Speaker Change: That is right. Hopefully it's not one and done, but whether or not that's...
Speaker Change: and Avani to more to come.
Speaker Change: Yeah, no, it is an avenue, potentially, for more to come. On the Halkirk 2 project, we do have the agreement with the offtaker that we would look for Indigenous participation on that particular project. And so what we've announced is exactly that, the opportunity to have them participate in Halkirk 2. We continue to look for other opportunities across our fleet and in our development pipeline to continue building those relationships and having more opportunities to do similar type transactions in the future.
Speaker Change: But for your existing renewable assets, not the new ones, are those still ones that you consider for monetization?
Speaker Change: Yes, we would consider monetization, absolutely. It's something we've been clear on for a period of time with respect to that being an opportunity for us to raise capital to deploy in other projects.
Speaker Change: realizing that there is an opportunity and an appetite out there for people to enter into those projects so that that is something we would continue to explore and as we've said in the past
Speaker Change: It's not just the opportunity to do that, but to time it so that you have the proceeds to redeploy into the next opportunity. So continue to have that in our toolkit of potential avenues of funding.
Speaker Change: Thank you.
Speaker Change: Perfect, thank you very much. And one moment for our next question.
Speaker Change: Good morning everyone. I want to dive a little bit deeper into the data center opportunity in Alberta. We did see an announcement earlier this week for 90 megs and it does seem like that will take power from the grid.
Looking forward, how do you think the data center opportunity evolves in Alberta? Will there be an element of utilizing some of the excess supply that's in the market? Or at what point do you think that the data centers will have to come with their own new generating capacity?
Speaker Change: Thanks, Rob.
Speaker Change: You know, I think to echo the comments of...
Speaker Change: Minister Nate Gloobish as he and Minister Nudorf and the Premier
Speaker Change: have been advocating heavily for the industry and to bring data centers into the province of Alberta. The focus on hyperscalers and data centers is to bring...
Speaker Change: their own load to the market.
Speaker Change: I think from our perspective, as we look at the market being oversupplied by 2 gigawatts, we think there's an opportunity to bring some of that load and grid connected, but with an eye towards...
Speaker Change: you know, what we've been advocating all along.
Speaker Change: these balanced energy solutions that recognize
Speaker Change: the need for growing load and increased reliability in the market.
Speaker Change: So it's one of the reasons why we're so.
Speaker Change: keen and excited about the Genesee generating station.
Speaker Change: is that we believe we can meet the needs.
Speaker Change: of the market, as well as introduce new demand.
Speaker Change: So, the answer is it's going to need to be in all of the above, but given our existing capacity and transmission distribution in the province, point one, point two, our existing excess capacity, and then thirdly, the support of the government to bring this industry to the province. I think we're uniquely positioned relative to other jurisdictions in North America to bring this capacity and bring it in a timely fashion ahead of other locations.
Speaker Change: Thank you.
Speaker Change: Thanks for that. And then maybe moving south of the border, you did note in your prepared remarks that there could be a willingness for your offtakers to enhance and extend their existing contracts.
Speaker Change: So answering the last question first, we continue to see a number of opportunities to either upgrade or expand on our existing footprint on U.S. generation capacity. We are not in a position to comment on potential contracting opportunities, but as I indicated in the prepared remarks,
Speaker Change: We are getting approached about potential recontracting opportunities and they're happening well in advance.
Speaker Change: of the typical time frame that we would historically engage.
Speaker Change: So, I think what you can read from that comment is, you know, for those expiries that are beyond 2026, we are being approached about recontracting and recontracting for longer duration.
Speaker Change: And, you know, as we mentioned in the prepared remarks, the proof in the pudding on this one is really what we've seen in terms of increasing capacity factors in our U.S. generation assets over the course of the last few years.
Speaker Change: So we feel very good about where we are on our existing fleet and the growing opportunity there.
John Mould, Pauline McLean, John Mould, Pauline McLean
Thank you. And one moment for our next question.
Our next question will be coming from Mark Jarvie of CIBC, your line is open.
Good morning everyone. So maybe just, Avik, picking up on the comments about the 1,000 megawatts and then 500 more you file with the ASO for data center load, can you walk us through how that's been sequenced, why there's sort of two applications, was it just from conversations that
Speaker Change: You could see the demand grow beyond the thousand, or is that across one customer? How have you seen this evolve in terms of the potential solutions you're bringing to the market?
I can't comment on the specifics of why but what I can say is
Speaker Change: We've taken a holistic view.
on how we think large capacity.
could be built out and it's reflective of what we've heard from the market.
and it's reflective of what our view in managing that load growth in Alberta is.
So I would say in response to your question, it's not in response specifically to any one party or any single negotiation, but more reflective of what we think we can do and the timing of what we can do optimally.
in coordination in conjunction with government entities and regulatory approvals to facilitate load coming into the province. So it's more specific to what we believe we can do than in response to a specific customer.
Speaker Change: Okay, and then, from the conversations, what are you thinking about, you know, the asset mix when you're thinking about what the right solution of mix is, or generation is, and emissions profile? Are customers wanting a blend of renewables and firming gas? Would people be willing to sign up for just...
Natural gas fired supply, any perspective on that?
Well, I think in, you know, in response to that question, the hyperscalers have been a crystal clear in terms of their focus on
over the long term, and our actions have been consistent with that.
I think as we can look at the speed...
Speaker Change: to market issue.
That clearly needs to come from flexible generation or natural gas fire generation as it relates to Alberta. Can you tie this back to the strategy we laid out?
at Investor Day earlier this year.
Speaker Change: a Our First Data Center deal. Will it include all three of those components?
flexible generation, renewable, you know, trading and origination support. It may or may not.
At Genesee, for example, the opportunity today and in the near term is very focused on natural gas fire generation.
Speaker Change: But as these conversations are growing...
You know, I think the opportunity set will be for us to do both.
We continue to see the opportunity being in the same ratios as we outlined at Investor Day.
in terms of 7, 8, 20, 10.
coming from flexible generation at 70, renewables at 20, and other being low carbon solutions and trading and origination support being at 10% so.
It's a little bit of a high-level answer, but hopefully that answers your question.
Understood. And then maybe turn to the voluntary departure program you announced. That seems like a decent number of headcount at the corporate level.
Is the view that some of those jobs will be picked up in the U.S.? Is there a message that maybe you'll be having a bigger U.S. presence just in terms of...
corporate overhead and are you thinking at all as the U.S. fleet grows and U.S. de-exposure that you change your functional currency or even look at a U.S. listing now?
Speaker Change: I am sorry.
With regard to the Voluntary Departure Program, as we outlined at Investor Day in April, we have four key priorities for the company.
Speaker Change: which is expand flexible generation with a focus on the U.S. market, grow our renewables portfolio with a focus on U.S. solar, enhance trading and origination capabilities, and build these balanced energy solutions.
and many more. Thank you. Thank you.
Hey, sorry, I got cut off there. Maybe I'll just start again on that, Mark. On the Voluntary Departure Program, as I mentioned, our focus is four-pronged in terms of our strategy, expand flexible generation, grow renewables, enhance training and origination, and really focus on this balanced energy solution as we just described around renewables. The reorganization is focused on aligning our organ...
Aikido, Aikido, Aikido Aikido, Aikido, Aikido. I love you. Aikido, Aikido, Aikido. I love you.
Speaker Change: Thank you for any questions.
Our next question will be coming from Patrick Kenny of NBF. Your line is open.
Patrick Kenny: Thank you. Good morning.
Hopefully you can hear me okay.
Maybe just sticking with the Alberta Data Centre opportunity, given the CCS project was cancelled in part due to the inability to lock in the price of carbon long-term. Just wondering on the flip side, how are you thinking about mitigating the risk for your hyperscaler customers around a potentially rising carbon tax? Is that something that...
you think that they'll be willing to accept on a flow-through basis or is it something that you might have to come up with a longer-term solution for?
Speaker Change: Thank you.
Speaker Change: Please stand by. Your conference will resume momentarily. Please stand by. Your conference will resume momentarily.
Thank you for joining us.
Hey Pat, it's Avik here. Can you hear me?
Speaker Change: Yeah, I can hear you
Maybe I'll just go back to Mark's question before answering yours.
Speaker Change: just on the Voluntary Departure Program.
Speaker Change: So, I won't repeat what I said there, but the focus of the reorganization is very much in aligning the organization.
with the growth strategy that we outlined at Investor Day.
So, it is focused on moving positions towards the U.S. and aligning with where we want to grow the company over the coming years.
Speaker Change: So it's really about repositioning.
Speaker Change: the organization in preparation.
Speaker Change: for growth.
And in particular, what got us here won't get us to where we want to go.
What got us to the position we're in right now was very much a centralized organization where we expanded the organization and our capacity
Speaker Change: and EBITDA through a centralized organization.
and as we now are expanding and scaling our business.
We need to grow our presence in the U.S. So that's really...
the background for why we're going through this reorganization, but on the back end of it we expect to be very well positioned to expand the business aligned with what we outlined at Investor Day.
with regard to CCS in Alberta and carbon tax.
Speaker Change: I think when we talked about Alberta
with regard to building data center capacity last year.
That was one of the major considerations, was the overall cost of power when including transmission distribution costs and carbon tax, and the relative competitiveness of the price of electricity here relative to other markets.
as speed to market has become an increasing issue and the need to find a combination of behind the fence solutions and grid connected solutions for data centers.
the relative positioning of Alberta.
Speaker Change: inclusive of those costs.
are now more attractive to hyperscalers.
Speaker Change: and I would add in the context of
the hyperscalers looking at nuclear, for example, for long-term clean solutions.
Speaker Change: the cost of abatement as it relates to CCS.
is expected to come well within what a new build or a repowered nuclear would look like, and that would be inclusive of the costs around carbon. So I do think CCS
is possible.
Speaker Change: It's not a core focus today around the speed to market opportunity around Genesee, but certainly as you look at some of the deals that have been announced in the U.S.
Speaker Change: particularly around the repower or potential new build in Washington State.
CCS plus gas is something that could be very interesting in the future in Alberta.
Thank you.
Okay, thanks for that. And then maybe shifting gears to the REM.
So, it looks like you've already submitted comments and expressed, you know, your apprehension towards the ASO.
looking at contracting strategic reserves.
Just wondering if you could distill the impacts that you see to your portfolio or perhaps your outlook for the merchant market in general?
Speaker Change: Yeah, thanks, you know, as we are in the midst of that active engagement.
on the consultation. I think we...
Speaker Change: take comfort primarily in
Speaker Change: the announcement that Minister Newdorf made in July with regard to the support of
the, you know, the energy-only market. And as we work through things like
you know, the price cap and offer cap and look at everything in context.
I think our position on the medium to long-term market remains the same.
which is today we're oversupplied.
We are focused on bringing new load into the market.
I think the announcement by the minister in the summer reaffirming support for
Speaker Change: the energy-only market, the introduction of the day-ahead market are key market changes that reinforce us being an energy-only market. So I think our view, our medium to long-term view, hasn't changed.
It's now our focus is supporting the government through our participation in the technical engagement to get the I's dotted, the T's crossed, and the specifics around the policy in place as quickly as possible.
Speaker Change: But any one thing in itself, we don't think fundamentally shifts the market, but we've got to look at everything in context and make calls and get to the goal line as quickly and efficiently as possible. And we believe the ASO is focused on that as well.
Speaker Change: Okay, that's great. I'll leave it there. Thanks, Avik.
And one moment for our next question.
Our next question will come from Benjamin Pham of BMO, your line is open.
Hi, thanks, good morning. I'm just staying with the Alberta power price, more specifically on the quarter, maybe the last week of the quarter, you saw some power price
prices of five, six, maybe even two dollars in some cases.
Can you just comment on that more holistically? Is that supply driven, market mitigation? Is that an ongoing trend that you expect given the oversupply in the market?
Speaker Change: Thank you.
So I think what you will continue to see, Ben, and what we've said in the past is you will see volatility in power prices.
Speaker Change: The incremental supply has driven down prices lower and the addition of wind in particular will have a depression on prices.
you'll continue to see periods of high volatility that will be driven by weather events and when certain plants are unavailable or renewables aren't performing. So I think that we will expect that, you know, going into 2025 is what we've always signaled would be the low end of the market on power prices until we start to see some of that supply being
consumed even absent the impact of data centers potentially on that but you will see volatility or more volatility in power prices in Alberta as we go forward so not not unusual to to see that sort of price price
Speaker Change: performance.
Speaker Change: Okay, and then on the the HALCRA 2 agreement...
Speaker Change: Can you move some more for me to understand this a bit more, the thought process on a three-year
Speaker Change: term and use of these deals. Have you negotiated the valuation?
Speaker Change: ahead of time.
to come in. So the actual contract will be determined once we hit that date, three years out. So it's a unique construct that is just because of the particular circumstances for ourselves and our partners on that project.
And can you clarify, is evaluation set ahead of time or is that negotiated when when the option is potentially exercised? It will be finalized when it's settled when it is finalized.
For more information, visit www.FEMA.gov
Speaker Change: Okay.
I know there's been a lot of questions on AI.
Speaker Change: a call session in Alberta, and I'm curious, like, when you just take a step back,
Speaker Change: And let's say you you build out the data center and support on it. And I'm like, what what are you trying to achieve strategically? And in the end, what's this like? Is it expect more you but do you just want more?
Speaker Change: our contracted assets, and how do you think about your greenhouse gas emission targets as referenced to that in the MD&A?
Speaker Change: Yeah, thanks for the question. Look, I think at the end of the day we are a power company. We're a generator.
So what we're trying to do is increase the net present value of each and every one of our assets.
and increasing the duration under which we can.
Speaker Change: continue producing power.
I think with regards to greenhouse gas emissions.
I think one of the key tenets of where we are
relative to where we were is we've gone from transitioning the existing electricity supply stack into one where we collectively, and this is North America, are expanding energy demand.
And so, we believe we have to meet that demand by growing flexible generation, which will increase absolute greenhouse gas emissions.
but we have to continue to look at ways.
to decarbonize the grids in which we participate. So as you look at our portfolio, we've got 1.1 gigawatts of new expansion capacity, and that's a combination of flex gen, where we're reducing our greenhouse gases in half by having gone from cool to high efficient gas.
but we're also adding renewables, we're also adding battery storage projects.
Speaker Change: which collectively reduce greenhouse gases in the markets in which we're in.
Speaker Change: So, I think that's something that we're evaluating, I think with us coming off of CCS.
at Genesee with the cancellation of that project.
you know, we're evaluating what our pathway is on decarbonization. But I think it is fair to say that we expect to increase absolute emissions but remain steadfast in our focus on finding ways to decarbonize.
our portfolio, as well as the more active players in the markets that we're in to provide lower carbon electricity into those markets.
Okay, that's great. Thank you.
One moment for our next question.
And our next question will be coming from John Mould of TD Cohen. Your line is open.
Thanks morning everybody. Just turning back to the data centers in Alberta, I'd just like to touch on
you know, this concept of speed to market and bring your own power. I guess, you know, Avik, can you provide your perspective on what gas turbine availability looks like, you know, how that plays into the ability for data center proponents to bring their own power? What's the sweet spot here in terms of...
Speaker Change: a timeline for for the start and I'm just seeing generally not your specific projects but you know
For the timeline, we could see for a start of this potential data center buildup.
Speaker Change: they can meet hyperscaler timelines, but it's also achievable in terms of potentially seeing more thermal capacity built in Alberta.
Speaker Change: Look, I think what's created the opportunity in Alberta is the speed, when I say speed to market.
to build a data center. So if you cut, if you isolate the opportunity to the footprint of the data center itself, you know, the construction period is going to be 24 to 30 months for a data center. The bottleneck overall in the North American market is not that.
Speaker Change: It's the substation, the interconnect, transmission, distribution to the extent that's required. And that's really pushing out, I mean, just in the interconnect queue, on average, you're talking about three years.
and so from the moment of conception today where you're looking out at a potential new build, it's putting you out at, you know, five, six years for new build construction.
So your average, so why is that important? The reason why Alberta is important is
you can actually go deliver capacity, inclusive of building generation, inclusive of getting interconnect.
Speaker Change: in a timeline that's three or four years relative to five or six years plus.
Speaker Change: So the role of thermal is really one that will meet short to medium term demand to get the ball rolling on the hyper data centers.
Speaker Change: So, we've seen these big announcements in the space around large renewables, nuclear repowering that are all extended beyond that.
But the short-term focus on generative AI is getting the capacity built out to actually
run and bring these LLMs up to speed.
for all of these Gen I LLMs, it's to build that capacity as quickly as possible.
And so, yes, there's urgency around it, and we believe and we understand that natural gas is going to play a critical role, not only just because of the build times for the generation.
but because of the utility and necessity to go off of existing interconnects and the timeframe of doing an expansion or a repower relative to a new build.
Does that answer the question, John?
Speaker Change: Yeah, no, that's helpful. Thanks. And then I'd just like to, you know, touch on U.S. M&A briefly. You know, you've talked about
are caught in PGM potentially being of interest, your Investor Day, and you've been active historically in your other core markets. As you've seen this change in utilization that you covered earlier on your gas assets and broader tailwinds for
Reliability, how does this change what you're seeing in in US M&A markets for thermal assets just in terms of the scale of opportunities, valuations and and you know how much are you considering like how would you say you're thinking about
potential deals versus you know how you can leverage your existing footprint and land that you have in the U.S. where you could you could build more capacity.
I think we look at all of them exactly the same way, which is...
what are we building or buying for? And how do we optimize, you know, the dollars per KW of net present value on each and every one of those underlying assets? So, you know, what we are looking at and have always looked at is,
What's the cost of new entry? What's the new build capacity?
cost to get into one of these markets or build new capacity? And then what can we buy and optimize that same capacity for?
what's been interesting over the last and you know as you've seen us deliver over the last decade.
We've demonstrated time and time again that we can buy and optimize and create net present value and a creative returns for investors through enhancing and using our operating capabilities to recontract those assets.
Speaker Change: On the M&A front, what we've seen in the last year, as you know, our public peers in the U.S. have remained focused on not acquiring thermal gas fire generation.
So what we've seen a marked pickup in is activity by private equity players in the space.
So, we saw earlier this year a private equity firm buy an operating platform with their assets in the PGM, you know, that was a large transaction.
KKR and Energy Capital Partners for a $50 billion.
Speaker Change: partnership focused on generation solutions for data centers.
So that's what we're seeing. We're seeing more private equity and alternative asset managers come into the space and look.
and our ability to work with stakeholders differentiates us.
And so, now that we're completing the integration of our acquisitions from last year.
Harkahala, La Paloma, and Fredrickson, we're turning our eyes towards, you know, expanding the fleet and looking at new opportunities.
But I would say we're focused completely around the same types of assets we were focused on before. We continue to see the opportunity around those assets that we think we can optimize.
So the fact that data centers is a new source of load has not in one Not in a single way Changed how we're underwriting these assets. It's just that the thesis that we had laid out
Speaker Change: for ourselves a year ago, and what we indicated at the Investor Day, that's actually bearing fruit and proving out, which is shown in our results in particular on capacity utilizations in our U.S. fleet.
Okay, great. I'll leave it there. Thanks very much for all that, Colin.
And I would now like to turn the conference back to Roy for closing remarks.
Roy Arthur: Thank you, everyone. If there are no more questions at this time, we will conclude our call.
Thank you for everyone for listening in.
Speaker Change: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Let me go Let me go Let me go Let me go Let me go Let me go Let me go Let me go Let me go
Bill Niehaus, Taylor Swift, The Illusionist. Bill Nye. Little Red Riding Hood, Jay Hill, The Medium. Billy Pamela. The doormat. The bet changer. The Image Thaste. Sarah Cunningham. Or Toni Bryant. Hilary Chandler.
Speaker Change: Music
Thank you for watching. Please subscribe to my channel. I hope you enjoyed this video. Please leave a comment if you have any questions.
Speaker Change: The End
Please see the complete disclaimer at https://sites.google.com
Music Music Music Music Music Music Music Music Music Music