Q4 2024 TransAlta Corp Earnings Call
Okay.
Wanda: Good morning, My name is to Wanda and I will be your conference operator today.
Wanda: At this time I would like to welcome everyone to try an auto Corporation fourth quarter and for year 2024 results Conference call.
Wanda: All lines have been placed on mute to prevent any background noise.
Wanda: After the Speakers' remarks, there will be a question and answer session.
Wanda: If you would like to ask a question. During this time simply press star one on your telephone keypad.
Wanda: If you would like to withdraw your question. Please.
Wanda: Please press star followed by one one again thank you.
Mr. Harris you May begin your conference.
Speaker Change: Thank you to Wanda Good morning, everyone. My name is Stephanie Paris, and I am the Vice President of Investor Relations and corporate strategy of Transalta welcome to Transalta is fourth quarter and full year 'twenty 'twenty four conference call.
Speaker Change: With me today are John Christy Norris, President and Chief Executive Officer, Joel Hunter, EVP, Finance, and Chief Financial Officer, and Blaine Venmo, EVP commercial and customer relations.
Speaker Change: Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are posted on our website.
Speaker Change: Replay of the call will be available later today and the script will be posted to our website. Shortly thereafter.
Speaker Change: All of the information provided during this conference call is subject to the forward looking statement qualification set out here on slide two detailed further in our MD&A and incorporated into it.
Speaker Change: The purposes of today's call.
Speaker Change: All amounts referenced are in Canadian dollars unless otherwise noted.
The non I F or S terminology used including adjusted EBITDA and free cash flow are reconciled in the MD&A for your reference.
John: On today's call John and Joe will be will provide an overview of trends altice quarterly and annual results. After these remarks, we will open the call for questions with that let me turn the call over to John.
John: Thank you Stephanie and good morning, everyone and thank you for joining our fourth quarter and full year conference call for 2024.
Speaker Change: As part of our commitment towards reconciliation I want to begin by acknowledging that our company operates on the traditional territories of indigenous peoples across Canada, Australia, and the United States.
Speaker Change: We recognized a rich and diverse histories cultures and contributions of the first nations and you with my T Aboriginal and Native American communities. It is with gratitude and respect that we think the people who have lived on these lands for generations for reminding us of the ongoing histories that precede us.
Speaker Change: Transalta delivered strong financial and operational performance in 2024 at the upper range of our guidance, reflecting the value of our diversified portfolio and proactive hedging strategy and the exceptional performance of our fleet and energy marketing segment.
Speaker Change: During the year, we delivered adjusted EBITDA of 1.25 billion free cash flow of $569 million or $1 88 per share and average fleet availability of 91, 2%.
Speaker Change: We also delivered on a number of key priorities and strategic initiatives.
Speaker Change: First we closed the Heartland acquisition late last year and are now in the process of fully integrating heartlands 1.75, gigawatts of complementary assets into our Alberta portfolio.
Speaker Change: The transaction enhances our competitive position in Alberta by ensuring we maintain a robust and diversified portfolio in the province.
Speaker Change: Second our growth team had a strong year completing the 200 megawatt Horizon Hill wind facility, the 300 megawatt white rock wind facilities and the Mount Keith transmission expansion.
Speaker Change: We also fully completed the Kent Hills rehabilitation project. These assets will collectively contribute over $175 million and adjusted EBITDA to our company annually.
Speaker Change: Third we returned 214 million or <unk> 71 per share to our shareholders through dividends and share repurchases with our share repurchases executed at an average price of $10 59 per share.
Speaker Change: Returning capital to our shareholders is a key part of our capital allocation strategy, which we adapt to market conditions, and the timing and progress of our growth opportunities.
Speaker Change: Our practice is to always have a normal course issuer bid in place and we expect to continue to make accretive share buybacks in 2025 of up to $100 million.
Fourth we continued to advance the significant contracting and development opportunities that we see at our legacy thermal sites in both Washington State in Alberta.
Speaker Change: Fifth we continue to reduce our C O two emissions.
Speaker Change: Since 2015, we have reduced scope, one and two greenhouse gas emissions by 22.7 mega tons or 70% a remarkable.
Speaker Change: <unk> achievement, considering the size and diversity of our fleet and we will cease coal fired generation from our single remaining coal unit by the end of 2025, which will further reduce our emissions.
Speaker Change: And finally based on our strong performance in 2024, and our confidence in the future. We're pleased to announce that our board of directors has approved an 8% increase to our common share dividend to <unk> 26 per share on an annualized basis.
Speaker Change: This represents our sixth consecutive annual dividend increase affirming the company's commitment to returning value to shareholders.
Speaker Change: Our balance sheet continues to provide us with strength and flexibility with over $1 6 billion in available liquidity, including approximately $334 million in cash, we're very well positioned to execute our strategic priorities.
Speaker Change: We successfully closed the acquisition of Heartland on December four adding.
Speaker Change: Adding 1.75 gigawatts of complementary flexible capacity to our company, including contracted cogeneration gas thermal generation and peaking generation along with transmission capacity all of which will be needed to support the energy transition and reliability in the Alberta electricity market.
Speaker Change: 60% of the revenues are contracted with leading counterparties with a weighted average remaining life of 15 years, providing added diversification to our cash flows and tempering our merchant exposure.
Speaker Change: The regulatory review process for the transaction with the Federal competition Bureau was a lengthy one and resulted in an hour agreeing to divest heartlands popular Hill and Rainbow Lake facilities in order to complete the transaction.
Speaker Change: This led to a purchase price reduction of $80 million.
Speaker Change: The revised purchase price for the transaction was approximately $542 million consisting of a cash payment of $310 million as well as the assumption of $232 million of low cost debt.
Speaker Change: And that can have an economic benefit adjustments of a further $95 million ultimately resulted in the net cash payment of $215 million, which was funded through a combination of cash on hand and draws on our credit facilities.
Speaker Change: The overall net price inclusive of that works out to approximately $270 per kilowatt and an attractive EBITDA multiple of five four times.
Speaker Change: And we're in the process of realizing approximately $20 million of corporate synergies on a pre tax basis in connection with the transaction.
Speaker Change: We're pleased to welcome Heartland to Transalta and are happy with how the integration is progressing.
Speaker Change: At our Centralia side, we're exploring multiple opportunities to meet load growth and enhance reliability in the region.
Speaker Change: We're currently advancing discussions with a customer on a redevelopment opportunity to extend the operating loss of life of our legacy Centralia site through our contracted coal to gas conversion.
Speaker Change: We're also considering other opportunities to build out the energy campus on our significant land holdings, including potentially wind solar batteries pump storage and next generation technologies.
Speaker Change: We expect to be able to share detailed development plans for centralia during the first half of 2025.
Speaker Change: We are also advancing opportunities that our legacy thermal sites in Alberta, which we believe offer ideal conditions for datacenter opportunities, including speed to power expansion potential tier for reliability competitive power pricing and supportive renewable product offerings.
Speaker Change: Our work is progressing through three phases.
Speaker Change: The first phase, which we completed in the fall was the socialization phase in this phase, we engage with potential customers highlighting our service offerings engaging interesting our Alberta sites.
Speaker Change: The second technical Phase is ongoing and includes location assessments geotechnical work zoning and interconnection applications and we recently submitted our keep whole site into the interconnection queue through a two phased submission over the course of 2027 and 2028 permits.
Speaker Change: Permitting and engineering assessments supply chain engagement and the evaluation of existing fiber optic networks water rights and cooling pond capabilities.
Speaker Change: This phase is advancing well towards detailed and derisked commercial offerings that we can showcase to our potential customers.
Speaker Change: Our next and final phase is commercialization, which includes contracting with high quality Counterparties and the beginning of construction at our sites.
Speaker Change: We aim to secure exclusivity with key partners by mid 2025 with detailed design and definitive agreements expected later in the year we.
Speaker Change: We anticipate operational data centers 18 to 24 months after signing definitive agreements I will now pass it over to Joel.
Joel Hunter: Thanks, John and good morning, everyone.
Speaker Change: We are extremely pleased with our fourth quarter and full year operational and financial performance across all of our business segments.
Speaker Change: The Alberta merchant portfolio, notably outperformed the spot market, thanks to our hedging and optimization strategies, despite the ongoing challenging pricing environment.
Speaker Change: Starting with our full year results.
Speaker Change: <unk> segment generated adjusted EBITDA of $316 million in line with our expectations given lower realized in IGZO re spot prices are.
Speaker Change: A decline year over year was partially mitigated due to realized premiums above spot prices and positive contributions from hedging as well as a greater volume of <unk> services due to increased demand by the ISO.
Speaker Change: We are also able to sell additional environmental attributes to partially offset the power price declines at the merchant Hydro fleet.
Speaker Change: The wind and solar segment delivered adjusted EBITDA of $316 million or 23% increase compared to 2023, primarily due to the addition of the Oklahoma wind assets and a return to service of the Kent Hills.
Speaker Change: The gas segment achieved 92, 2% availability and delivered adjusted EBITDA of $535 million the year over year decline was due to lower power prices in Alberta and increased dispatch optimization from our Alberta gas fleet. However, the impact of lower realized prices was offset by a favorable hedge position.
Speaker Change: The energy transition segment delivered $91 million of adjusted EBITDA, which decreased year over year due to increased economic dispatch driven by lower market prices, which negatively impacted merchant production.
Speaker Change: Our energy marketing segment delivered exceptional performance with adjusted EBITDA of $131 million, an increase of $22 million or 20% year over year. This was due to favorable market volatility across north American power and natural gas markets and finally corporate costs increase year over year, primarily due to increased spending.
Speaker Change: To support our strategic and growth initiatives.
Speaker Change: Our adjusted EBITDA excludes the impact of Brasow penalties assessed ERP integration costs and Heartland acquisition related costs. As these items are not reflective of ongoing operations or performance of our operating assets.
Speaker Change: As John mentioned overall, we delivered another strong year with a $1.25 billion of adjusted EBITDA, reaching the upper range of our 2024 guidance. Our free cash flow was also strong delivering $569 million or $1 88 per share also in the upper range of guidance.
Speaker Change: Shifting now to our fourth quarter results.
The Hydro segment produced adjusted EBITDA of $57 million in line with last year.
Speaker Change: Higher merchant revenues were driven by higher volumes, which were partially offset by lower spot power prices and lower environmental and tax attributes.
Speaker Change: The wind and solar segment produced adjusted EBITDA of $95 million, an increase of 16% primarily due to the addition of our Oklahoma wind facilities and the return to service of Kent Hills.
Speaker Change: The gas segment saw adjusted EBIT decreased by 18% to $116 million, mostly due to lower realized power prices in Alberta and higher carbon pricing.
Speaker Change: The energy transition segment delivered $28 million of adjusted EBITDA in line quarter over quarter.
Speaker Change: Edison energy marketing adjusted EBITDA increased by $13 million to $27 million versus the same period last year due to favorable market volatility and timing of realized settle trades.
Speaker Change: Corporate costs increased quarter over quarter, largely due to higher spend to support strategic and growth initiatives noted previously.
Speaker Change: Overall, we generated $285 million of adjusted EBITDA in the fourth quarter in line with 2023, despite milder weather conditions that contributed to lower merchant power prices in Alberta.
Speaker Change: Lower free cash flow of $48 million in the fourth quarter was primarily due to higher sustaining capital expenditures, which is typical for the fourth quarter.
Speaker Change: Along with higher realized foreign exchange losses higher current income tax expense increased spending on growth opportunities and higher net interest expense due to our lower capitalized interest and interest income.
Speaker Change: Turning to the Alberta portfolio, the 'twenty 'twenty four spot price averaged $63 per megawatt hour, which was notably lower than the average price of $134 per megawatt hour in 2023.
Speaker Change: The decline year over year was primarily due to incremental generation from the addition of new gas wind and solar supply as well as lower natural gas prices.
Speaker Change: Our hydro fleet delivered an average realized price of $91 per megawatt hour or 144% premium to the average spot price.
Speaker Change: The gas fleet also exceeded our expectations, we deployed hedging strategies to enhance our portfolio margins and mitigate the impact of lower merchant power prices throughout 2024, we hedged 9100 gigawatt hours at an average price of $86 per megawatt hour or 137% premium to the average spot price are merchant.
Speaker Change: Wind fleet realized an average price of $35 per megawatt hour in line with our expectations given the evolving of Darden merchant power market.
Speaker Change: Despite relatively benign weather last year, which resulted in lower power prices in average we captured additional margins by filling a portion of our higher priced hedges with purchase power when prices were below our variable cost of production.
Speaker Change: By optimizing our fleet throughout the year and fulfilling hedges with purchase power, we're able to respond to higher demand from the ISO and deliver additional ancillary service volumes across the Alberta fleet and.
Speaker Change: In 2024, our average realized price Springs, Zoe services settled at $46 per megawatt hour approximately 75% of the average spot price.
Speaker Change: Turning to the fourth quarter spot prices averaged $52 per megawatt hour significantly lower than the $82 per megawatt hour in 2023, However, our Alberta five drilling gas fleets continue to outperform with average realized prices up $78 and $75 per megawatt hour, respectively, a significant premium to the average spot.
Speaker Change: Price of $52 per megawatt hour.
Speaker Change: Okay.
Speaker Change: Turning to our 2025 outlook, we expect that our results will be broadly in line with 2024 four.
Speaker Change: For 2025, we expect adjusted EBIT to EBITDA to be in the range of 1.15 to $1 5 billion.
Speaker Change: And free cash flow to be in the range of $450 million to $550 million or <unk> 51 to $1 85 per share now.
Speaker Change: Now there are a number of factors influencing our 2025 outlook.
Speaker Change: First we expect Alberta, and mid C spot power prices decline to a range of $40 to $60 and use 50 day use $70 per megawatt hour.
Speaker Change: Second we are well hedged both financially and through our commercial and industrial business, which I will speak to momentarily.
Speaker Change: Third are looking fluids, the full year impact from Heartland, and our Oklahoma wind assets.
Speaker Change: Fourth we expect our <unk> this year to be higher year over year due to the full year impact from the addition of heartland as well as the advancement of our growth initiatives and finally, we expect continued solid performance from the energy marketing segment with a midpoint gross margin of $120 million.
Speaker Change: The confidence in our EBITDA and free cash flow guidance is supported by the performance of the contracted fleet as well as our hedging and optimization strategies.
Speaker Change: 75% of our generation revenue is from our contracted assets and hedging position, which along with our stable energy marketing earnings gives us confidence in our 2025 outlook. There is it is our expectation that our company will become increasingly contracted overtime.
Speaker Change: Looking at this year, we have approximately 7700 gigawatt hours of our Alberta generation hedged and an average price of $70 per megawatt hour. This is well above the current forward curve, we will continue to optimize our fleet and reduced production and low priced high supply hours by fulfilling our financial hedges and customer requirements with <unk>.
Speaker Change: Market purchases.
Speaker Change: Looking to 2026, our team is hedged production at an average price of approximately $75 per megawatt hour also well above current forward pricing levels.
Speaker Change: Turning to capital allocation, we continue to maintain a balanced prudent and disciplined approach.
Speaker Change: First we are focused on keeping adjusted debt to EBITDA in the range of three to four times.
Speaker Change: We will return capital to shareholders through dividends, while maintaining a payout ratio of approximately 50% of free cash flow in 2025.
Speaker Change: Growth and share repurchases will continue to compete for capital our goal is to maximize shareholder value and we will assess each growth opportunity against returning capital directly to shareholders or.
Speaker Change: Our capital allocation strategy adapts to market conditions, and this year, we expect to deploy our free cash flow towards our legacy thermal sites potential M&A as well as our long term growth plan, we believe that investing in our legacy thermal energy campuses will provide the greatest long term value for our shareholders. We also expect to continue to make accretive share.
Speaker Change: Is this with capital that we do not deploy to growth.
At the midpoint of our guidance for 2025, we expect to generate $500 million of free cash flow, which provides continued flexibility as funds to deploy in a balanced approach to capital allocation.
Speaker Change: We are well positioned to return capital to our shareholders, while prudently pursuing growth opportunities and maintaining our balance sheet strength.
Josh: With that I will turn the call over to Josh.
Josh: Thank you Joel as I look at our strategic priorities for 2025, we're focused on the following key goals first improving our leading and lagging safety performance indicators, while achieving strong fleet availability.
Josh: Achieving EBITDA and free cash flow within our 2025 guidance ranges third maintaining a high fleet availability and reputation as a world class operator.
Josh: Fourth maximizing the value of our thermal energy campuses.
Josh: <unk> successfully executing M&A that may arise and advancing our growth plan and finally successfully implementing an upgrade to our ERP system.
Josh: We will remain prudent and disciplined in our approach to growth focusing on delivering value to our customers and our shareholders and we look forward to sharing more with you at our 2025 Investor day that we're planning to host in November.
I believe transalta offers a compelling investment opportunity first we're a safe reliable operator with a highly capable workforce.
Josh: Our cash flows are strong and resilient and underpinned by our diversified hydro wind solar and gas portfolio complemented by our world class asset optimization and energy marketing capabilities.
Josh: We're a clean electricity leader with a focus on tangible greenhouse gas emission reductions as we remain on track to achieve our ambitious 2026 C O two emissions reduction targets.
Josh: Fourth there is tremendous value in our legacy thermal sites, which our team is actively working to repurpose to meet the evolving needs of our customers and markets.
Josh: Fifth we're positioned for growth with a diverse set of high value growth opportunities that our talented development team is focused on realizing for our shareholders and sixth our company has a sound financial foundation, our balance sheet is strong and we have ample liquidity to pursue and deliver multiple growth opportunities with the flexibility to also return.
Josh: Capital to our shareholders through dividends and potential share repurchases.
Stephanie Paris: Finally, we have our people our people are our greatest asset and I want to thank all our employees and contractors for the outstanding work they have done to deliver our results and strong finish to 2024. Thank you I'll turn the call back over to Stephanie.
Stephanie Paris: Thank you John upgraded to why would you. Please open the call for questions from the analysts.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question.
Speaker Change: Star one on your telephone and wait for your name to be announced.
Speaker Change: Withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Robert Hope with Scotiabank. Your line is open.
Robert Hope: Good morning, everyone.
Robert Hope: Just taking a look at the 2025 priorities de includes strategic M&A.
Robert Hope: When you think about kind of the geographies or asset types.
Robert Hope: Or modalities that Youre looking at what are most attractive and what are the least attractive.
Robert Hope: Good morning, Robert.
Robert Hope: Why don't I start.
Joel Hunter: Spotting to the question and maybe I'll turn it over to Joel to add any color.
He has so.
Speaker Change: Look we are seeing a number of opportunities.
Speaker Change: Throughout North America, particularly in the United States from an M&A perspective.
Speaker Change: And broadly speaking they fall into two categories from our perspective, one is legacy gas assets that we see operating in certain jurisdictions.
Speaker Change: And interestingly for US renewables, there's a lot of focus on natural gas fire generation right now and we're actually seeing potentially a time as better value on the renewable side.
On the gas side.
Speaker Change: In terms of the geographies.
Speaker Change: I would say that we're primarily focused on I think Joel it's fair to say kind of Western North America. So.
Speaker Change: There is Alberta, but our focus is much more on the western part of the United States with a particular focus on I would say the Pacific northwest in the desert southwest right now as being sort of core.
Speaker Change: Just focus areas for our organization.
Speaker Change: We have a lot of expertise trading power in the region. We've operated in the Pacific Northwest for a considerable period of time in and are extremely comfortable with the region and candidly like its long term.
Speaker Change: Prospects when we're looking at load growth and all of the opportunities we see there Joe out or if you want to add anything to that and the only thing I would add to that John is we are seeing kind of the multiples converge as you highlighted both for contracted renewables versus thermal generation.
Speaker Change: You know the kind of size that we look for is probably similar to what we saw with heartland kind of in that 500 to 75 $750 million kind of enterprise continues to do well.
Speaker Change: Would be ideal for us. So again, we spent a lot of time on this we get to see everything that comes available in the market. There's always hundreds of transactions per year, and so we remain very disciplined and focused as John highlighted on it kind of more on a geographical focus in the west.
Speaker Change: With being really technology agnostic.
Speaker Change: Alright, I really appreciate that color.
Speaker Change: And then maybe just moving over to the key pillar data Center development you are now in the Technicolor kind of phase.
Speaker Change: Maybe add a little bit more color on what you think a potential outcome could be here is this just bringing back seven existing are improving the reliability and kind of utilization of existing capacity or could there be something more fulsome here, including.
Speaker Change: Further developments can you maybe just put.
Speaker Change: Some outcomes of what this could look like.
Yeah.
Speaker Change: Happy to.
Speaker Change: I think the way we're thinking of it is actually in I think it's fair to say a three phased approach. So keep hills would be the initial campus that we're focused on as an offering for data centers.
Speaker Change: Followed by sharing that so we're quite pleased by what we're seeing at share and that's from a potential perspective, and then with a focus after that more around Sundance, which is probably Joel I think it's fair to say more in the in the vein of a bit more of a redevelopment.
Speaker Change: Piece there for Sundance.
Speaker Change: Right now we would envision and the work that we're doing is primarily around key pillar II at the moment as an offering.
Speaker Change: <unk> would be that that unit would provide.
Notionally behind the fence generation for a data center, but with a connection to the grid. So.
Speaker Change: 90% or so would be powered essentially from our unit there with the remaining 10% of reliability.
Speaker Change: Coming off of the grid.
Speaker Change: We have done is pretty extensive.
Speaker Change: We have you know.
Speaker Change: A lot.
Speaker Change: Of the opportunity mapped out everything from geotechnical work in terms of where the data center would actually locate the day, they actually require quite a large footprint in terms of what they would require.
Speaker Change: Through to looking at how the water would flow to cool the facility how the electrons would would flow either from the grid or from the facility to a substation to be stepped down to actually work for the facility we've done zoning work.
Speaker Change: They're the counties very very supportive and we have a real good handle on the fiber network and what its capabilities are so we're we're optimistic but our goal is to be in a position where we have really done an extensive set of preliminary work to make kind of a commercial offering and the technical assessment for a cut.
Speaker Change: <unk> as easy as possible, so we're front ending <unk>.
Speaker Change: Deliberately from our perspective as much as we can in terms of the offer that will be providing and our discussions continue.
Speaker Change: That's great color congrats thank you.
Speaker Change: Thanks.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Mark Jarvi with CIBC. Your line is open.
Speaker Change: Yes. Good morning, everyone. Just wanted to continue on with the conversation. We just had you had there John.
Speaker Change:
Speaker Change: In terms of like the Counterparties you said, obviously you folks on the technical work.
Speaker Change: What are the range of Counterparties for data centers is there a number of them that you're talking to right now and it sounds like given that you said, 90% served by key pillars unit two kind of in a former megawatt type load is that a fair number for the first sort of phase of data center deals.
Speaker Change: Good morning, Mark I'll answer the second part first the answer to that is yes that is what we're looking at initially the initial offering would be 400 megawatts from Q2, followed by another 400 megawatts at K, three which is the way. We're we're looking at phasing it in.
Speaker Change: In terms of the customers look we've been having con.
Speaker Change: Conversations for a period of time, where we began with our first phase and its continued with our second phase.
Speaker Change: Without getting into specific numbers like our universe of potential customers is in the kind of the range of about 20 I would say they include both hyperscale or and co locators than and we have had discussions with.
Speaker Change: With both end and we continue to.
Speaker Change:
Speaker Change: It'll be as constructive as we can to meeting.
Speaker Change: Their particular needs. So so that's hopefully that gives you a bit of a sense of the way that we're working through it.
Speaker Change: And have any of those conversations evolved at all just in.
Speaker Change: In spite of course are in light of what's happened in the last couple months here, whether it's tariffs economic uncertainty in Canada, a little bit of political attention across the border.
Speaker Change: Is that changing anything pushing that conversation don't.
Speaker Change: Yes, it's a great question not not that we have seen them looking at blame here two blade I can't I can't think of it really.
Speaker Change: Driving either the work that we're doing or candidly the.
Speaker Change: The discussions that we're having with potential customers. The one thing that we're focused on though is just from a supply chain perspective, I mean, if there are tariffs.
Speaker Change: Just being mindful about.
Speaker Change: Time to actual actual delivery of some of the key components that we require and that's mostly around the substation in the transmission, it's less about the actual facility.
Speaker Change: Itself and and you know what that might mean from a cost perspective, I don't think it really changes the economics all that much in terms of the aggregate offer that we're providing them.
Speaker Change: Okay, and then turning to Centralia.
Speaker Change: In terms of when you kind of land on agreement.
Speaker Change: Any sense of the capital required.
Speaker Change: To reposition that asset sounds like a coal to gas conversions first phase maybe some larger you said energy campus.
Speaker Change: In terms of how then the asset then ultimately progresses. After the end of this year or is it sort of down for 2026, and then back up in 2027, just sort of the.
Speaker Change: The timelines and then maybe the capital required for that turnaround.
Speaker Change: Yeah, why don't I start and then I'll get blamed to maybe you can fill in.
Speaker Change: So look on that one.
Speaker Change: Without getting into specifics on what the capital would be and by the way we have done quite a bit of engineering and have a handle on.
Speaker Change: What's the capital would be I mean, there's basically three prongs of work that we need to do there one would be.
Speaker Change: The actual conversion itself and that's largely dealing with the burners the coal burners turning them into gas secondly, there'll be some control work and upgrades that we need to do and thirdly, you have to remember then Blaine. It always reminds me of this you know we were harvesting the plant and the latter phases of its life. So there is a bit of maintenance work I'd say blame that we need to do to bring it up.
Speaker Change: To a place where the plant would be able to run for well over a decade.
Speaker Change: Going forward the cost of doing that work would be a fraction of what it would cost to do a newbuild and when I think of that it would be in the order of I don't know Blaine around 25%, probably maybe a third of what a newbuild would be so hopefully that gives you a bit of a sense Blaine.
Speaker Change: No. If you want to add any color on I think that's right and if you remember Mark we have a lot of experience doing conversions with all the units. We did here in Alberta. So we're building off that work and using the same teams that we did that.
Speaker Change: The kind of value engineer the project at Centralia and come up with the best capital outcomes. After Ken and then just.
Speaker Change: The other timing market.
Speaker Change: That would shut down at the end of 'twenty five in terms of coal fire generation and then it would be down for 2026 for us to do a bunch of the work that we need to do and make sure. Our gas supply is set up appropriately and I think Blaine realistically it would be a 2027 ish.
Speaker Change: Kind of a return to service I would think and its in its new cut point roughly speaking.
Speaker Change: And then Joe just maybe what's the gas supply was constrained how much capacity then you could actually provided the customer.
Speaker Change: Right now.
Speaker Change: Yes, I think so the customer has.
Speaker Change: Gas supply I think it's and transportation I mean, the pipeline is literally across the street from our facility.
Speaker Change: I think we would view this in a phased.
Speaker Change: Kind of approach and I think that that we're working with them to come up with a way that.
The gas supply wouldn't be an issue a little bit of a constrained probably blend in the first three to five years I would say a minute the expectation would be that it would be unconstrained thereafter, but we're working to kind of debottleneck. It even in the initial period.
Speaker Change: And can you put a sort of a megawatt of capacity around what's the gasify it could enable right off the gate.
Speaker Change: So the unit would be there to backstop.
Speaker Change: Reliability in the region and our and our intention right now is to have the 60 70 available.
Speaker Change: If a gas supply issue would be how often it would be able to run at full tilt as opposed to the size of what the unit offering would be but the capacity factor for the unit, it's not like we're talking 50% it would be significantly.
Speaker Change: Below that in terms of providing reliability given the intermittency that with what we're seeing in the region. There. Okay that makes sense. Thanks for the time today.
Mark Jarvi: Thanks, a lot mark.
Speaker Change: Please standby for our next question.
Mark Jarvi: Yes.
Speaker Change: Our next question comes from the line of Maurice Choy with RBC capital markets. Your line is open.
Maurice Choy: Thanks, and good morning, everyone.
Maurice Choy: Just wanted to follow up on that potential M&A legacy gas assets in the U S.
Maurice Choy: Absolutely absolutely recognizing that you havent announced anything and may not even happen.
Maurice Choy: And you already have some share there in the region as well, but just thinking holistically what is the strategic a peer like I wonder is it to create a platform to grow in a nonrenewable energy way in the states to capture the growth in electric in the states.
Speaker Change: Send that Keith.
Maurice Choy: Yeah.
Maurice Choy: So.
Maurice Choy: I'd say from an M&A perspective, Maurice I think.
Maurice Choy: You've actually kind of got it right. So what we have done is we've looked at our organization and looked at what our particular skill sets are and we have a number but two of them that are quite striking at least from our perspective is we do have the ability to run all types of generation, our ability to run generation and.
Maurice Choy: Technology agnostic way.
Maurice Choy: Is is excellent to we're very good at dealing with customers.
Maurice Choy: And being able to provide solutions to them directly and then finally, our trading and energy marketing expertise.
Maurice Choy: Super strong and a differentiator a number of people don't realize this I mean, we're the largest trader in the Pacific Northwest for example in mid C. In terms of power, we have transmission that goes up and down the west coast and we've spent literally years and years moving power from the desert southwest up through California into the Pac northwest them back down again.
Maurice Choy: So we think that that is a region that with the expertise that we have and kind of the overall long term growth prospects that it has that we can have a.
Maurice Choy: A significant position in and be able to do extremely well for our shareholders. So it's really about mirroring the opportunity in our region and aligning it with the internal skills and capabilities that our organization has to create value for our shareholders and I think it'll be a mix of greenfield brownfield and frankly legacy app.
Maurice Choy: So that we could get from an M&A perspective so.
Maurice Choy: That's in essence, what we're trying to do.
Maurice Choy: Okay.
Maurice Choy: Understood and maybe you could just bring it altogether then looking at all the options that you have from key pillars to M&A share buybacks.
Maurice Choy: You mentioned I think Joe you mentioned that the target debt to EBITDA is three or four times in that range can you share how much investment capacity you have before reaching the high end of that range.
Maurice Choy: And I think in the past you mentioned potentially seeking an investment grade credit ratings, that's still on the table.
Maurice Choy: Yes, yes, Murray I'll start with the the investment grade rating, which as a reminder, we do have an investment grade rating today with <unk>. We are at Triple B low with a stable outlook with them and we are double b plus with a stable outlook with both Moody's and S&P.
Maurice Choy: They've asked I said in the past would we want to go into investment grade in our view right now is that the sweet spot for US. If you will it gives us the most financial flexibility is to maintain the double b plus ratings with both S&P and Moody's and the triple B minus rating with with <unk>.
Maurice Choy: And with that comes in a range of as we've highlighted around three to four times, we exited last year at three six times. So we do have some capacity here going forward and as the balance sheet growth that we'll see additional capacity come with it.
Maurice Choy: The one item two is the Brookfield.
Maurice Choy: Convertible option, if you will into the hydro's.
Maurice Choy: The agencies treat that as debt today at <unk>.
Maurice Choy: <unk> were to convert that option between now and the end of 2028.
Maurice Choy: The option is available to them that does free up additional capacity as well. So when we look at where we sit today with our debt to EBITDA at around three five times and we look at our strong free cash flow generation.
Maurice Choy: I think it looks very similar to where we were last year Murray as far as the amount of capacity that we have so you think about for the Heartland acquisition, where we are at a fund that with our free cash flow along with draws on our credit facility. So when we think about what we can spend going forward here kind of living within our means.
Maurice Choy: Without looking to any portfolio management or.
Maurice Choy: A rotation if you will our common share issuance.
Maurice Choy: You are kind of in that 500, probably $750 million that we could spend.
Maurice Choy: And just to be clear, while it's here.
Maurice Choy: <unk> $500 million to $700 million, you said living within your means of you you.
Maurice Choy: You are not ruling out asset sales and equity issuance is to do so.
Maurice Choy: Yeah.
Maurice Choy: We're not <unk> not at all what I'm, saying is that right now just based on what we see in front of us whether it's with data center opportunities here in Alberta, along with the Centralia opportunity along with kind of what I call bite sized if you will are M&A opportunities. We think we can do all that with living within our means to the extent that we see bigger opera.
Maurice Choy: <unk>, we would certainly look to rotate capital and or issue common equity, but again as a reminder, here it has to be accretive to the shareholder has to be accretive to our earnings per share to our cash flow per share has to be within strategy has to be underpinned by a long term contract asset check all those boxes.
Maurice Choy: Before we look to to rotate capital, but certainly if we see an opportunity where we can sell an asset at a 11 times and redeploy that into something at six times, we will do that a really great example that with heartland.
Maurice Choy: We bought that at a 5554 turns multiple.
Maurice Choy: Again, we see those types of opportunities, we will do that and look to rotate capital.
Speaker Change: You've got 88 facilities Murray's now in three different countries.
Maurice Choy: Some of them are you know.
Maurice Choy: So I would say strategically important than others being candid about it. So I think we've got quite a bit of flexibility. The other thing I would say Joel is that the legacy asset opportunities have a bit of a slower burn in other words, it's not like you're doing an acquisition, where you need to come up with $500 million executed today dealing what we're dealing with here in Alberta from a thermal output perspective.
Maurice Choy: Active and also dealing with the opportunity that we're seeing at Centralia, it's a bit more butter spread over a couple of year period. So we do have capacity.
Speaker Change: It makes perfect sense, thanks for the color.
Maurice Choy: Thank you.
Speaker Change: Please standby for our next question.
Maurice Choy: No.
Speaker Change: Our next question comes from the line of Patrick Kenny with National with National Bank. Your line is open.
Patrick Kenny: Yeah. Thank you good morning.
Speaker Change: Maybe just first on your free cash flow guidance.
Patrick Kenny: First expenses up year over year for obvious reasons.
Patrick Kenny: But so as sustaining capital so I'm just wondering.
Patrick Kenny: If you could provide a bit more color on the key drivers there and then I guess as we look into 2026 and beyond you know how your sustaining capital budget might evolve at least directionally towards a more normalized run rate.
Patrick Kenny: Yeah, Good morning, Patrick.
Youre right, our sustaining capital kind of in that.
Patrick Kenny: 145 to 165 in terms of the guidance, we're providing for 'twenty for 2025 is a little bit higher than it would have been over the last few years, we were plugged by in the range of around $20 million or so that is reflective of the increase is reflective of.
Patrick Kenny: Two things one of them would be candidly. The addition of the Heartland.
Patrick Kenny: Assets into the organization, which we're going to we've added one seven gigawatts of generation there we need to maintain that and that's something that we're going to need to do as part of the normal course of the operations of those facilities, which which has an impact on I'd say our run rate Joel from a from a capital spending perspective, and we're also doing a little more.
Patrick Kenny: More of what we would call life expense extension Slash Dam safety spending I think is what you would see that we're doing I mean are those facilities are perpetual facilities from our perspective and we're in a place where we have a few projects that.
Patrick Kenny: We're focused on doing and we're executing on that I think those are really the main drivers I'd say, Joel yes, and Pat I think your point on non interest expense, we did see that higher in the fourth quarter year over year.
Patrick Kenny: Due to its closing the Heartland acquisition.
Patrick Kenny: Along with just lower cash balances and our guidance here, we're seeing kind of our interest expense to be probably about $15 million higher kind.
Kind of year over year compared to where we were in 2024 and maybe one more thing Patrick we're taking a.
Patrick Kenny: A pretty conservative approach in our growth expenditures. So I think there would've been a time in the past, we would have sort of capitalized maybe a little bit more of that.
Patrick Kenny: We're going to do that at a later stage I'd say in the development lifecycle of a project.
Patrick Kenny: And and having some of those expenditures kind of flow through in the year that that isn't a big driver, but it is a little bit of a change from our perspective I'd say.
Speaker Change: Okay. Thanks for that color I appreciate that.
Speaker Change: Shifting gears.
Speaker Change: The update on the Acos proposal or process here to look at.
Speaker Change: Securing strategic reserves and.
Speaker Change: And I guess, if things are progressing on the datacenter front, how you might be thinking about the relative value.
Speaker Change: Contracting any of your CTG assets.
Speaker Change: Either the ones that are operating or mothballed.
Speaker Change: With the ACO as opposed to holding them back and being available for contracting with any.
Speaker Change: Private behind the meter customers.
Speaker Change: Yep.
Speaker Change: So look on the on the.
Speaker Change: Just broadly speaking in very quickly just on the ramp on the market redesign and blayne can can jump in here as well I would say that that is progressing there was a lot of work to be done I think we've seen kind of the first sort of overall proposal that the ICL is looking at for the market construct Blayne I guess late last year and now theres been input that has been provided in that <unk>.
Speaker Change: <unk> continues its thematic Lee, though I would say.
Speaker Change: We're seeing in the market construct particularly with the development of a cut of that day ahead market.
Speaker Change: A.
Speaker Change: A construct that favors dispatch of generation.
Speaker Change: Generation that.
Speaker Change: Has capacity that it can provide into the market so given.
Speaker Change: The mix of fleet that we have in the province of Alberta that bodes well certainly for our gas fleet at our Hydro fleet as we go forward. So from that perspective, it's positive in terms of the more direct issue of where would you direct your thermal generation I mean hydro would be a premium product.
Speaker Change: We believe there is more value in having those units around to contract.
Speaker Change: Directly with customers from a data center perspective, then.
Speaker Change: Earmarking them for let's just call it broadly reliability products and Thats what R. R.
Speaker Change: Our current focus is there was a bit of a discussion for example about reliability contracts earlier on that that would have had as a requirement that a unit would be taken off for example from the grid at the end of that that that period of time, that's not something that I would say blayne, where all that particularly interested in and I think there's tremendous option value.
<unk> in the fleet in and right now given our hedging ability, we'd rather have our units available to us to operate in the market. We like what we're seeing from a day ahead perspective, Incentivising dispatch able generation in the market design going forward and really working to meet their datacenter needs I don't know Blaine anything to add there was new ancillary.
Speaker Change: This product fresh the ramping products that would favor, our peaking capacity as well as our hydro facilities. So a lot of like John mentioned market design components that favor <unk> vast wrapping generation that we kind of positioned our fleet for.
Speaker Change: Okay, and then a follow up.
Speaker Change: In terms of offering.
Speaker Change: Our green option for your potential datacenter customers in Alberta can you just walk us through.
Speaker Change: The various ways you can help.
Speaker Change: Help your customers decarbonize their footprint over time.
Speaker Change: How are you thinking about.
Speaker Change: Bearing the cost of sharing the risk related to the industrial carbon tax going forward.
Speaker Change: Yeah.
Speaker Change: A couple of things there so.
Speaker Change: First of all.
Speaker Change: We have a significant portfolio of environmental attributes and that portfolio was supplemented every year as our wind generation in our hydro generation operates in the province of Alberta, which is helpful. I think for mud industrial carbon pricing perspective, which I think Patrick is probably fair to say, it's a bit of a question Mark you know as we go forward given.
Speaker Change: Where auto while might be going 2345 months from now and how that trickles down into the province more directly we do have merchant wind generation in the province of Alberta, which uniquely I think we have and are able to kind of bundle, which the with the offerings that we have for example at he pill key pills to create a gree.
Speaker Change: Or product and then finally, we also have.
Speaker Change: Projects that we had put a bit on hold.
Speaker Change: Given the uncertainty around the room that we can bring to also.
Speaker Change: By Green power to supplement the datacenter and Tempus is a great example, that's a one.
Speaker Change: 100 megawatt wind farm that we can bring on we've continued to advance that product. So that it can be available and we even have a bit of work around doing potential solar up at the old mine sites that we have in west Central Alberta. So it's a combination of things that we're working through to kind of provide that option to the extent it's.
Speaker Change: It's required and we think longer term it will be candidly I think the focus right now is on speed to power and and reliability and thermal is a critical component of that but I, but I. We haven't lost I'd say blame kind of a threat on the need to be responsible from a decarbonization perspective overall.
Speaker Change: Okay. That's great I appreciate all the comments I'll leave it there.
Speaker Change: Thanks, a lot Patrick.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of John Mould with TD Cowen Your line is open.
Speaker Change: Hi, good morning, everybody maybe just.
Speaker Change: And hearing on the Alberta seem here.
Speaker Change: On where youre seeing surplus capacity in the province right now.
Speaker Change: You previously characterized as around one to two Gigawatts how has your thinking evolved based on the generation dynamics, you've seen so far this year with the new supply.
Speaker Change: And you've got to have a mothballing some six.
Speaker Change: Just success of key bills on the data Center front.
Speaker Change: From your perspective is that potentially directly drive the need for that Sundance site redevelopment over the mid term you know, whether it's more coal to gas conversions or.
Speaker Change: Potentially bringing back to some five repowering.
Speaker Change: Are you thinking of all those moving parts in the broader supply dynamic in the province.
John Mould: Good morning, John.
Speaker Change: We could probably spend hours responding to that to that question, but let me try.
Speaker Change: So we do think the market is oversupplied at the moment I mean, we've got 23 and a bit thousand megawatts of installed capacity and we peak at around call. It 12000, sometimes a little bit more kind of between 12 and 13000. So there is quite a bit.
Speaker Change: Supply in the province, and then when we think of for example load growth in the province, which we do think will occur for example from data centers. So I think the market can comfortably absorb.
Speaker Change: One to two gigawatts some number in that range that would be a trans out of you in terms of what it can absorb and keep it.
Speaker Change: And that has two things associated with it one I think the reliability of the market stays intact, which I think is critically important.
Speaker Change: Just to the ISO candidly is very important from a transalta perspective that that's the case.
Speaker Change: And secondly, there is the generation to be able to just.
Speaker Change: Deal with that from a speed to power perspective.
Speaker Change: People have heard the premier say people need to bring their own power from our perspective, having units that are more in the vein of peaking units, which.
Speaker Change: With capacity factors that are below 50% like our coal to gas units up in the region are ideally suited to actually meeting that need given that they can flex up and actually provide additional capacity.
Speaker Change: In the market when it's needed I think kind of a new generation and by the way is that as the data centers come in I think it helps to rebalance the supply and demand.
Speaker Change: Imbalance that exist today in the marketplace with more constructive pricing.
Speaker Change: Cause I think where we are today is not I think pricing that in sense from your generation coming into the province in terms of the redevelopment opportunity, we do see that more in the 2000 <unk>.
Speaker Change: I think we need to see what's going to happen in terms of the ramp and how it's going to perform.
Speaker Change: I think youre going to see quite a bit of natural gas retiring just end of life candidly in that time period beginning in the early 2030. Then we're also looking to see how technology develops as a gas is at hydrogen do do we need dual fuel capability, how does that progress as we go forward. So it is a bit of a longer timeframe I would say.
Speaker Change: I don't know if you want add any color to that but that's just a firm nail sketch I think that's pretty good.
John Mould: Hopefully that helps John.
Speaker Change: No that does thank you and then maybe.
John Mould: Just on on the Ram.
Speaker Change: The higher level framework I think it's fair to say no, but still lots of details to sort out.
Speaker Change: Are you expecting there'll be sufficient clarity on those details later in the year and the market structure elements, so that both U S and IPP.
Speaker Change: Large loans in the Hyperscale or co locators.
Speaker Change: Our comfortable signing a firm firm agreement like do you see that as a barrier is the Ram and its progress a barrier at all to those deals being finalized.
Speaker Change: At least we're not seeing it right now as being a barrier and candidly.
Speaker Change: Our strategy is by doing the work that we're doing candidly in Centralia here in Alberta, we're really focused on contracting.
Our assets, so I think youll see overtime, our merchant exposure probably decline, but a blade I know you are in those discussions as well as I am I mean, just your view on that I am not sure. It's no I think that's right. John is that we are trying to insulate ourselves from market events and market design elements why contracted assets as best we can.
Speaker Change: On the timing comment Jon that you asked about.
Speaker Change: I would expect that as we progress through 2025, those higher level design elements will be further refined it will have a good sense of what those actually looked like and what the impacts will be we are doing our own modeling even with the higher level design elements right now to understand the impacts on both on our fleet and how we can communicate that to potential customers and what we should be.
Speaker Change: <unk> done.
Speaker Change: When I say the timing, we would expect to be kind of moving through 2025 and getting to the stage by the end of the year, where we have a pretty clear picture is that the implementation plan that the ISO has to get.
Speaker Change: The market.
Speaker Change: Kind of running and then <unk>.
Speaker Change: <unk> market type of framework, so that they can fully implement by the end of 2027 needs to start happening.
Speaker Change: At the end of this year.
Speaker Change: Okay.
Speaker Change: Okay got it maybe one last one on renewables and how much of your of your BD times being spent on potential renewable projects versus thermal site optimizations acquisitions and not not asking for you to preview.
Speaker Change: November Investor Day, right now, but just looking for a sense of how your broader corporate thinking around.
Speaker Change: Capital allocation versus towards renewables.
Speaker Change: Versus thermal is evolving.
Speaker Change: So I would say.
Speaker Change: Trying to answer that so I would say our M&A team is busy.
Speaker Change: Right now I would say in terms of our commercial and business development teams are writ large.
The majority of their time would be spent on extracting value from the legacy.
Speaker Change: Facilities.
Speaker Change: That.
Those returns are really constructive returns and it's a real focus for the organization and we think it benefits our shareholders. The most so renewables development would be the minority of the time that we're spending right now and that.
Speaker Change: It's not just progressing projects I think we often lose sight of is that team is also the one that is more focused on the renewables also focus on pipeline. So we think we're in a phase where legacy assets and I would say more thermal related opportunities are kind of where our sweet spot is in kind of the immediate foreseeable sort of future M&A.
Speaker Change: And then kind of more into a normal cadence, where you would see renewables coming in a little bit later in the in the decade. So all of that gives you a bit of a set on the like I think it is critical for growth teams to.
Speaker Change: To be able to pivot towards the best opportunities that they see in front of them in a particular period and that's exactly what we've done I think that will be critical going forward.
Speaker Change: Okay. Those are my questions. Thank you very much.
Thanks Charles.
Speaker Change: Please standby for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Benjamin Pham with BMO. Your line is open.
Benjamin Pham: Hi, good morning.
Speaker Change: Just going back to the Alberta.
Speaker Change: Redevelopment opportunities.
Speaker Change: Uh huh.
Speaker Change: Have conversations.
Speaker Change: The Counterparties at 28, or so you've mentioned you get the sense that the amount of megawatt needs.
Speaker Change: Way outstrip the supply out of here and you can provide.
Speaker Change: Good morning, Ben.
Speaker Change: Hello.
Speaker Change: It's hard to answer that question honestly.
Speaker Change: I think.
Speaker Change: Maybe the best way to answer it is sort of twofold I think the.
Speaker Change: The phased offering that we have and in particular, beginning with sort of 400 megawatts at K two.
Speaker Change: Is more than adequate I would say for meeting the needs of a very substantial data center presence in the region and I'm just going from memory. You also need about an acre of land I think roughly speaking for every one megawatt of generation to kind of build out effectively as part of their social land supply is critically important.
Speaker Change: So I don't think were constrained in terms of what we're proposing at key pills. For example, both with K two in Q3 in terms of meeting.
The needs of a customer and that would be very impactful to our company.
Speaker Change: Not seeing on a more macro basis.
Speaker Change: Not seeing any let up.
Speaker Change: In the <unk>.
Increasing load.
Speaker Change: Data centers AI, driven electrification generally I would say and I think thematic Lee we're seeing jurisdictions be short power like like weather, if anything what's interesting about Alberta, it's actually a bit long power compared to many jurisdictions and when we look at kind of the immediate jurisdictions around us and even looking at.
Speaker Change: Places like North, Virginia, and places like that people are short power. So the time it takes to.
Speaker Change: Get to market effect or get to the end state, where you can kind of plug in and do it is elongated and I think that's an advantage that Alberta has and that we have in particular.
Speaker Change: Got it and can you walk through I know you mentioned transfer.
Speaker Change: Transmission connection application.
Speaker Change: In service dates and whatnot.
Speaker Change: Can you can you talk about beyond the connection is is there what's the regulatory process beyond that.
So.
Speaker Change: There's a there's a few things that we need.
Speaker Change: To have in place and they range everything from.
Speaker Change: Just to give you a sense of the work that is required everything from rezoning of the land that we have there. So that it is appropriate to be used for a data center, we actually have a road.
Speaker Change: We need to close so we need permitting and when relaxations around that we need.
Speaker Change: To be able to go through the interconnection process, which.
Speaker Change: Go through multiple stages in the first stage is pretty straightforward blame theirs.
Speaker Change: Three or four stages that you need to go through.
Speaker Change: It would take some time months to be able to see.
Speaker Change: Is that true.
Speaker Change:
Speaker Change: What other permits that we need up building permit frankly to be able to get the data center built our assessment is that the time.
Speaker Change: To actually.
Speaker Change: Getting to where we need to go the critical path item isn't really the permitting process I think the critical path item for us is making sure that we can get things like breakers transformers candidly to be able to move the power from our plants.
Speaker Change: The distance, which isn't a long distance that would go to the site that would be ideal for the datacenter to locate and go from a high voltage out of the plan to be stepped down toward the appropriate voltage to go down into the data center, that's a critical path item like getting.
Speaker Change: Getting transformers Breakers, I don't know Blaine 18 months two years to get some of that done we know that the build of the datacenter itself is roughly a two year time period 18 months.
Speaker Change: Two years. So there is broad alignment around that and we're actually thinking about maybe going out and ordering some of that equipment. Just so that we can get ahead of the queue.
Speaker Change: Okay got it and just one more if I may that thanks, a lot for that he referenced set here for reliability in that that's effectively no doubt downtime.
Speaker Change: It is the requirement for <unk>.
Speaker Change: <unk> III to is it more availability.
Speaker Change: Above 90% and then the bts affected by the difference from.
Speaker Change: The spot market or some other source.
Speaker Change: That is correct you broke up there a little bit, but I think you're 100% right. So what do we think of tier four you're right. It's 99.999 I think it's five nines.
In terms of what the availability is so the work that we have done is what do we need to do to make sure that our units will be available I'd say blayne, roughly 90% of the time and that engineering work is done.
Speaker Change: And that's not that far off from where frankly the unit is now with the residual 10% coming from the grid to be able to give you that additional 10% of availability that you need I would say there is also a difference in the customer I think with the hyper scaler.
Speaker Change: They do want to have that.
Speaker Change: Availability all of the time no matter, what with a co locators, sometimes your flexibility to be able to deal with things like maintenance and maybe out of shape to the availability periodically is a little bit better, but then I think the way you articulated is exactly right.
Speaker Change: Okay understood. Thank you.
Speaker Change: Thank you Ben.
Speaker Change: Thank you.
Stephanie Paris: Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back to Stephanie for closing remarks.
Stephanie Paris: Thank you everyone that concludes our call for today. If you have any further questions. Please don't hesitate to reach out to the <unk> Investor Relations team.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].