Capital Power Corporation · TSX:CPX
Capital Power — Investor Presentation (August 2017)
44 slides from Capital Power's investor presentation, August 2017
Slide 1: Investor Presentation August 2017
CAPITAL POWER Investor Presentation August 2017 Brian Vaasjo, President & CEO Bryan DeNeve, SVP Finance & CFO Bloom Wind, Kansas
Slide 2: Capital Power overview
Overview Capital Power overview Growth-oriented North American IPP with ownership interest in 24 facilities in Canada and the U.S. totaling ~4,500 MW Young fleet with an average facility age of 12.8 years(1) Strong balance sheet and financial flexibility to fund growth Annual 7% dividend gro
Slide 3: Proven track record of high fleet availability
Operational performance Proven track record of high fleet availability Average facility availability of 94% in the past 5 years 18,000 100% 16,000 98% 14,000 12,000 96% Generation 10,000 95% 95% 95% (GWh) 8,000 94% 94% 93% 6,000 4,000 92% 91% 2,000 0 90% 2012 2013 2014 2015 2016 2017T Generation Ave
Slide 4: Executing on growth: acquisitions
Acquisitions Executing on growth Acquired 2 contracted natural gas and 2 waste heat assets Acquired York Energy and East Windsor York Energy (50% of 400 MW) facilities in Ontario and two BC waste heat assets for ~$515M including ~$270M of debt York Energy and East Windsor have long- term PPAs wi
Slide 5: Executing on growth: Decatur Energy Center
Acquisitions Executing on growth Decatur Energy Center Completed the acquisition of Decatur Energy Center in Jun/17 for $603M (US$448M) • 795 MW natural gas-fired facility located in Decatur, Alabama • Fully contracted until December 2022 with high probability of re-contracting based on its histor
Slide 6: Completion of Bloom Wind project
Organic growth Completion of Bloom Wind project Company’s first wind development project in the U.S. Bloom Wind began commercial operations on June 1/17 178 MW project in Kansas completed one month ahead of schedule with construction costs below budget 10-year fixed price contract covering 100
Slide 7: Geographical profile
Diversification Geographical profile Recent acquisitions and completion of Bloom Wind has increased geographical diversification Geographical breakdown based on Adjusted EBITDA U.S. ON 5% 13% U.S. 22% BC 9% AB AB ON 52% 73% 17% BC 9% 2016(1) 2018 Estimate 1) Percentage breakdown for 2016 is based on
Slide 8: AB updates
AB updates Updates on growth in Alberta Alberta power market Environmental regulations Coal facilities Renewables opportunities Transition to a capacity market design 8
Slide 9: Alberta demand
AB power market Alberta demand Alberta demand showing recovery Nine consecutive months (Nov 2016 – Jul 2017) of positive normalized load growth; continues to show signs of recovery Average normalized growth in Q2/17 is the highest quarter since 2012 (1) 1) Alberta Internal Load normalized for we
Slide 10: Alberta market forecasts
AB power market Alberta market forecasts Current low power price environment Oversupply in the market Lower demand from weak AB economy Low natural gas prices Expected uplift in power prices Announced early retirements and mothballing of coal-fired units Balancing Pool’s plan to terminate
Slide 11: Carbon competitiveness regulation
AB carbon tax Carbon competitiveness regulation Specified Gas Emitters Regulation (SGER) effective to the end of 2017. Levy under Carbon Competitiveness Regulation (CCR) effective starting in 2018 2017 2018 2019 2020 Compliance regulation SGER CCR Compliance requirement 20% 55% to 65% (Down to bes
Slide 12: Alberta opportunity set
AB growth Alberta opportunity set Significant investment required over the next 13 years Up to $20 billion Phase-out of coal facilities by end of 2030 or earlier 5,000 MWs in renewables to replace retirement of coal units with balance in natural gas and other to meet demand Capital Power wel
Slide 13: All-in cost assumptions
Coal to gas conversion All-in cost assumptions Components of variable, fixed costs and capital costs for various technologies (1) 1) Subcritical Old is pre-1980 13
Slide 14: Alberta's coal fleet
AB coal fleet Alberta’s coal fleet Retirements under federal & provincial regulations and conversion to gas AESO max Age in 2017 End of coal life Expected Life (coal to gas Facility capacity (MW) (years) (CST & CLP)(1) conversion) Battle River 3 149 48 2019 Decommissioned Sundance 1 288 47 Jan 1/18
Slide 15: Coal-to-gas conversion
Coal to gas conversion Coal-to-gas conversion Genesee will continue to be an industry leading generation facility Decision on timing of converting coal units to gas depends on carbon and natural gas pricing, supply-demand balance, regulatory framework for converted units, and capacity market desig
Slide 16: Renewables in Alberta
AB renewables Renewables in Alberta Targeting 30% of AB’s electricity generation from renewables by 2030 5,000 MW of renewable energy, equivalent to ~2,000 MW of capacity Will still need 4,000 MW of thermal to replace retiring coal generation First call under Renewable Electricity Program (REP
Slide 17: Wind development in Alberta
AB growth Wind development in Alberta Capital Power has two wind projects ready to be bid into the REP Whitla Wind Halkirk 2 300 MW on 33,000 acres in south 150 MW on 18,000 acres in central eastern Alberta Alberta next to existing Halkirk facility 38-41% capacity factor 37-39% capacity factor Avail
Slide 18: Alberta power market design change
Capacity market Alberta power market design change Transition to a capacity market from energy-only market Government committed to ensuring existing investments would be treated fairly, and new market framework would continue to promote a level playing field between existing and potential new capa
Slide 19: Capacity market
Capacity market Capacity market Baseload revenue – Alberta vs. PJM Capacity market creates a more stable revenue stream relative to selling into the Alberta market Revenue under the Alberta energy only market for the period of 2009 through 2021 is $57/MWh for Capital Power’s baseload assets (inc
Slide 20: Growth opportunities
Growth pipeline Growth opportunities Genesee 4&5 Halkirk 2 Development of wind and Whitla Wind thermal in Alberta New Frontier Wind Nolin Hills Wind Garrison Butte Wind Tisch Mills Wind Development of U.S. wind Willow Creek Wind Black Fork Wind • Preserved full Production Tax Salt Springs Cardin
Slide 21: Financial strategy
Finance overview Financial strategy Maintain investment grade credit rating Maintain ongoing Ensure Ensure access to cost economic Financial stable competitive capital discipline in Strategy dividend to fund growth growth growth throughout business cycle Manage financing risk 21
Slide 22: Capital allocation
Finance overview Capital allocation Dividend 1) Maintain growing dividend backed by Growth sufficient contracted cash flow base Capital Growth Allocation Opportunities 2) Fund growth opportunities in the near term with discretionary cash flow Share Buybacks & Debt 3) Consider debt reduction and shar
Slide 23: Continued strong cash flow generation
Cash flows Continued strong cash flow generation ~43% of cash flow in 2017 expected to be discretionary cash flow ($M) $500 $475 $400 Annual cash flow $400 $384 $362 expected to increase 43% ~24% in 2017 $300 37% 45% 42% Including off-coal compensation, $200 34% generating ~$205M in 36% 34% 38%
Slide 24: Improving contracted adjusted EBITDA
Contracted EBITDA Improving contracted adjusted EBITDA(1,2,3,4) $600 Savona & 150 Mile House Decatur East Windsor $500 York Energy Off-coal compensation $400 Bloom Macho Springs and Beaufort ($M) $300 K2 Wind Shepard PD&N $200 Halkirk Quality Wind $100 Island Generation North Carolina Kingsbridge 1
Slide 25: Common share dividend guidance
Dividend growth Common share dividend guidance Annualized dividend Targeting 7% annual per share(1,2) increase $2.05 $1.92 $1.79 $1.67 $1.56 $1.46 $1.36 $1.26 2013 Y/E 2014 Y/E 2015 Y/E 2016 Y/E 2017 Y/E 2018T 2019T 2020T 7.1% increase to quarterly dividend ($0.39 to $0.4175) effective Q3/17 Ext
Slide 26: Attractive yields relative to peers
Relative comparisons Attractive yields relative to peers Capital Power’s AFFO payout ratio is below peer average 2018E Dividend & AFFO Yield(1,2) 2018E AFFO Payout Ratio(1,2) 5.5% 6.1% 94% 5.9% 6.3% 89% Dividend Yield 4.7% 7.9% 76% AFFO Yield 6.3% 8.5% 74% 4.0% 8.6% 64% 3.6% 8.6% 59% 4.6% 8.7% 53% 4
Slide 27: Financial obligations & dividends covered by contracted cash flow
Financial coverage Financial obligations & dividends covered by contracted cash flow Operating margin(1,6) to financial obligations(2) and dividends(3) 140% Contracted(5) + merchant ($60/MWh) 130% 120% Contracted(5) + merchant (forwards(4)) Contracted(5) + merchant ($40/MWh) 110% Contracted(5) margi
Slide 28: Cash flow and financing outlook
Cash flow Cash flow and financing outlook Utilizing cash available for growth with recent acquisitions 2017E Sources of cash flow ($M) Funds from operations + off-coal compensation $475 Proceeds from tax-equity debt $244 Issuance of common shares $175 Issuance of preferred shares $146 $1,040 Uses of
Slide 29: Financial strength
Strong financial base Financial strength Strong balance sheet and investment grade credit rating Investment grade credit ratings by Agency Ratings Outlook S&P and DBRS S&P BBB- / P-3 Stable Continued to be well capitalized DBRS BBB(low) / Pfd-3 (low) Stable with capacity for leverage Debt to tot
Slide 30: Credit metrics
Strong financial base Credit metrics Within DBRS financial criteria for current rating Adj. Cash flow/Adj. Debt(1) EBITDA/Adj. Interest 30% 7.0 25% 6.0 20% 5.0 4.0 15% 3.0 10% 2.0 5% 1.0 0% 0.0 2016A 2017T 2016A 2017T Within S&P financial criteria for investment grade rating Adj. FFO/Adj. Debt(1,2)
Slide 31: Financial outlook
Outlook Financial outlook Last half of 2017 will include full AFFO and EBITDA contributions from the acquisitions (Veresen’s thermal power business, Decatur Energy) and Bloom Wind Q3/17 AFFO will include a $52.4M off-coal compensation payment Alberta Commercial baseload positions: 2018 2019 20
Slide 32: Alberta power market trading
AB power trading Alberta power market trading Portfolio optimization activities focused on managing exposure to commodity risks, reducing volatility and creating incremental value Average realized power prices(1) have exceeded spot power prices by 20% since the Company’s inception 8 years ago ($/M
Slide 33: Q2/17 YTD performance vs. annual targets
2017 Targets Q2/17 YTD performance vs. annual targets Facility availability Sustaining capex ($M) $80 96% $75 95% $34 Q2/17 Original Revised Q2/17 YTD Target YTD Target Target Facility O&M expenses ($M) AFFO ($M) $215 to $240 $195 to $215 $340 to $385 $305 to $345 $104 $138 Q2/17 Original Revised Q2
Slide 34: Disciplined growth targets
2017 Targets Disciplined growth targets Bloom Wind and new developments 2017 Targets Q2/17 Status Complete Bloom Wind on time √ Project completed ahead of and on budget for COD in Q3/17 schedule with construction costs below budget Execute contracts for the output On track with target – progre
Slide 35: Attractive investment opportunity
Summary Attractive investment opportunity Leverage to Alberta power market – ownership interest in the most competitive fleet of assets with a solid track record of value- added portfolio optimization trading Executing on growth – well-positioned for success in the renewables opportunities in Al
Slide 36: Appendices
Appendices
Slide 37: Debt maturity schedule
Appendix Debt maturity schedule(1) $1B in committed credit facilities renewed with 5-year tenor maturing 2022, of which ~$778M available in 2017(1) $400 $350 $300 $300 $250 ($M) $200 $250 US $230 US $65 $150 $174 $160 $100 $50 $0 2018 2019 2020 2021 2026 (2) EPCOR Capital Markets CAD Private Placeme
Slide 38: Summary of assets
Appendix Summary of assets Alberta Alberta Commercial Contracted Clover Bar Shepard Genesee Genesee Genesee Keephills Energy Clover Bar Energy 1 2 3 3 Joffre Centre Landfill Halkirk Centre Capacity 430 MW 430 MW 516 MW 516 MW 480 MW 243 MW 5 MW 150 MW 800 MW % owned / 100 / 100 100 / 100 50 / 100 50
Slide 39: Summary of assets
Appendix Summary of assets Ontario & British Columbia Contracted 150 Port Dover Island Quality Mile & Kingsbridge York East Generation Wind Savona House Nanticoke 1 K2 Wind Energy Windsor Capacity 275 MW 142 MW 5 MW 5 MW 105 MW 40 MW 270 MW 400 MW 84 MW % owned / 100 / 100 100 / 100 100 / 0 100 / 0
Slide 40: Summary of assets
Appendix Summary of assets U.S. Contracted Macho Beaufort Roxboro Southport Springs Solar Decatur Bloom Wind Capacity 46 MW 88 MW 50 MW 15 MW 795 MW 178 MW % owned / 100 / 100 100 / 100 100 / 100 100 (sale & 100 / 100 100 / 100 operated leaseback) / 100 Location Roxboro, Southport, Luna County, Beau
Slide 41: Projects under development/construction
Appendix Projects under development/construction Alberta Commercial Alberta Contracted Genesee 4&5 Halkirk 2 Whitla Wind Capacity Up to 1,060 MW 150 MW 300 MW % owned / operated 50 / 100 100 / 100 100 / 100 Location Warburg Halkirk Medicine Hat Fuel & equipment Combined-cycle natural gas Wind Wind (
Slide 42: Non-GAAP financial measures
Non-GAAP financial measures The Company uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense from its joint venture interests, and gains or losses on disposals (adjusted EBITDA), (ii) adjusted
Slide 43: Forward-looking information
Forward-looking information Forward-looking information or statements included in this presentation and in responses to questions are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information m
Slide 44: Investor Relations Contact
Investor Relations Contact Randy Mah 10423 101 Street NW Senior Manager 10th Floor (780) 392-5305 Edmonton, Alberta rmah@capitalpower.com Canada, T5H 0E9 www.capitalpower.com