Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TransAlta Corp (TAC, Financial) reported strong operating and financial results for Q2 2024, with an adjusted EBITDA of $312 million and free cash flow of $172 million.
- The company achieved commercial operations at its 200-megawatt White Rock East and 200-megawatt Horizon Hill wind facilities in Oklahoma, contributing over $100 million to adjusted EBITDA annually.
- TransAlta Corp (TAC) maintains a strong balance sheet with over $1.7 billion in available liquidity, including $350 million in cash.
- The company has hedged a significant portion of its Alberta portfolio generation at favorable prices, mitigating the impact of lower spot prices.
- TransAlta Corp (TAC) is actively involved in regulatory consultations and supports market reforms in Alberta, which are expected to provide long-term signals for investment and promote grid reliability.
Negative Points
- The regulatory review process for the Heartland generation transaction has proven to be more challenging and protracted than anticipated, creating uncertainty around its completion.
- Alberta's second-quarter spot price averaged $45 per megawatt hour, significantly lower than the $160 per megawatt hour average for the same period in 2023, impacting revenue.
- The energy transition segment saw a decrease in adjusted EBITDA due to an extended planned outage at Centralia and increased economic dispatch from lower market prices.
- The interim market power mitigation regulations in Alberta, which constrain bid prices, may limit the company's ability to capitalize on high pricing during peak demand periods.
- The company faces challenges in securing long-term contracts and regulatory approvals for its legacy thermal sites, which are crucial for future growth and reliability.
Q & A Highlights
Q: Regarding the Heartland transaction, how do you see the merits of the deal stack up against new opportunities, and what assets might you consider if the competition approval falls through?
A: (John Kousinioris, CEO) We continue to work on completing the Heartland transaction and are engaged with regulators. We see benefits in the transaction but are also exploring opportunities on both sides of the border, particularly with our legacy assets in Alberta and Centralia. We are disciplined in our investment approach and will reassess if the transaction does not meet our expectations.
Q: Can you expand on your comments around pursuing repowering and re-contracting opportunities in Alberta?
A: (John Kousinioris, CEO) We are actively engaged in discussions about data centers and the reliability of coal-to-gas converted units. These units will play a critical role in Alberta's future energy needs. We are exploring both bilateral contracts with new load customers and potential support from the government for reliability.
Q: What are your initial thoughts on potential capital recycling opportunities to maximize asset value?
A: (Joel Hunter, CFO) Capital recycling will be an important part of our strategy. We will be opportunistic, selling assets at higher multiples and redeploying capital into undervalued opportunities to add shareholder value.
Q: Is there a likelihood that the $150 million share buyback target will be increased given strong free cash flow?
A: (John Kousinioris, CEO) We are comfortable with the $150 million target and are over 60% of the way there. We continually evaluate the value to shareholders of buybacks versus other opportunities and will reassess if we reach the cap.
Q: Are you open to concessions if the Competition Bureau suggests changes to the Heartland transaction?
A: (John Kousinioris, CEO) We are considering concessions if they align with our investment thesis. We have internal return expectations and will remain disciplined. If the transaction does not meet our criteria, we will reevaluate.
Q: How do you see the future of coal-to-gas converted assets in Alberta given the current forward curve and market conditions?
A: (John Kousinioris, CEO) We continually assess the viability of these units. They provide reliability and optionality. We are exploring both market participation and potential mothballing or reserve options. The role of these units will evolve over time.
Q: What caused management and the Board to think about an active capital recycling program?
A: (John Kousinioris, CEO) We have always evaluated our portfolio for value maximization. The need for a broader portfolio approach has become more acute given the opportunities we see. We have core and non-core assets and will recycle capital to create shareholder value.
Q: How do you evaluate the success of your capital allocation program?
A: (Joel Hunter, CFO) We look at risk-adjusted returns, accretion to EBITDA, earnings per share, free cash flow, and fit within our credit metrics. We aim to extend the duration of our portfolio with long-term contracts and appropriate returns for shareholders.
Q: How does the age and emissions level of your subcritical coal-to-gas units figure into re-contracting discussions?
A: (John Kousinioris, CEO) These units can run reliably with high availability and are cost-effective. We have a mix of levers to create attractive offerings, including hydro and wind assets for emissions offsets. The units are well-maintained and have a strong operating team.
Q: Can you give a flavor of the redevelopment discussions for your Alberta fleet?
A: (John Kousinioris, CEO) Discussions vary by jurisdiction. In the US, we are looking at gas with clean electricity options like solar and storage. In Alberta, discussions are more focused on gas. We see storage becoming increasingly important for reliability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
