Transalta Corporation · TSX:TA
Transalta — Investor Day (July 2005)
91 slides from Transalta's investor day presentation, Jul 12, 2005
Slide 1: Investor Day 2005
TransAlta Investor Day 2005 July 12th
Slide 2: Forward looking statements
Forward looking statements This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation. These statements are subject to a number of risks and uncertainties that may cause actual results to differ
Slide 3: TransAlta Investor Day 2005
TransAlta Investor Day 2005 Steve Snyder President and Chief Executive Officer
Slide 4: TransAlta executive team agenda
TransAlta executive team agenda 1) Tom Rainwater Contracting and commercial operations 2) Linda Chambers Long cycle maintenance 3) Rob Soeldner Availability, costs, and coal mining 4) Ian Bourne Financial strategy 5) Ken Stickland Environmental strategy 6) Fred Gallagher Wind strategy
Slide 5: Investor Day 2004 – Industry at an important inflexion point
Investor Day 2004 – Industry at an important inflexion point Irrational exuberance Steady Recovery Eddie Tough ride 1970 1995 2000 2005 2010 Deregulation Survival Value creation strategies techniques strategies
Slide 6: Our focus in 2004
Our focus in 2004 In 2004 we said we What we did: would: ¾Pay down debt 9Reduced debt $375 million ¾Focus on productivity 9Held OM&A per MWh at $10.50 ¾Capacity growth limited to 9Commissioned 68 MW renewable Summerview Wind Farm ¾Implement new 9Done maintenance cycle ¾Position company for 9Improved
Slide 7: What does this mean for TransAlta?
What does this mean for TransAlta? Down cycle Up cycle EPS potential $ 0.75 – 1.00 $ 1.25 – 1.75 per share per share Cash flow potential $ 500 – 600 $ 700 – 800 million million BBB- BBB+ Credit rating
Slide 8: How to get to $1.25 – Continued operational excellence
How to get to $1.25 – Continued operational excellence Range of EPS 1) Sarnia contract $.10 to .15 2) Centralia Coal and Gas .05 to .15 3) Operational excellence and reduced .05 to .10 maintenance 4) Debt repayment and reduced interest expense .10 to .15
Slide 9: Our focus looking forward
Our focus looking forward 2005 – 2006 2007 – 2010 Increase earnings ¾ Increase earnings Repay debt ¾ Improve ROE Increase productivity/ ¾ Achieve improved credit strengthen margins and rating decrease OM&A per ¾ Grow assets selectively MWh ¾ Achieve environmental Maintenance compliance at le
Slide 10: TransAlta's competitiveness model
TransAlta’s competitiveness model A commercial and marketing driven company Four operational Organizational pillars focus Processes Deliverables Improvements through Reduced labour Daily production Traditional strength benchmarking, SMART Signal, (1 year) Fuel efficiency fuel Reduced forced Improvem
Slide 11: TransAlta executive team agenda
TransAlta executive team agenda 1) Tom Rainwater Contracting and commercial operations 2) Linda Chambers Long cycle maintenance 3) Rob Soeldner Availability, costs, and coal mining 4) Ian Bourne Financial strategy 5) Ken Stickland Environmental strategy 6) Fred Gallagher Wind strategy
Slide 12: Contracting and Commercial Operations
Contracting and Commercial Operations Tom Rainwater Executive Vice-President Corporate Development & Marketing
Slide 13: Key roles of the commercial organization
Key roles of the commercial organization 1) Portfolio design, management, and growth 2) Market assessment and selection 3) Regulatory monitoring, analysis, and intervention 4) Active asset management of generating fleet 5) Energy marketing, trading, and risk management
Slide 14: Portfolio management
Portfolio management
Slide 15: Our portfolio today
Our portfolio today 1999 Integrated Canadian regulated utility Geographic Fuel type Fleet age Contract diversification diversification cover 9 13 15 9 23 2005 25 45 30 57 8 66 47 40 13 Canada Coal 0-5 6 -15 AB PPA U.S. Gas 16-30 31-40 Contracted Mexico & Australia Hydro & renewables > 40 yrs Spot 20
Slide 16: Improving portfolio management
Improving portfolio management 1) 1999 – 2002: developed portfolio view of business as a risk mitigation strategy MPT The Efficient Frontier 2) 2003 – 2004: portfolio management concepts applied to improve short-to medium-term earnings: Done Return Determine where each √ Detailed asset condition ass
Slide 17: Contracting remains high … for stability
Contracting remains high … for stability At 2004 Investor Days we reaffirmed our minimum of 75% forward contracting levels TransAlta contracting levels 1) Current contracting levels: ~ 80% in 2006 - 2007 10,000 ~ 70% in 2008 - 2010 Capability in MWs 8,000 2) Recontracting plans have 6,000 83% specif
Slide 18: Market assessments and contracting updates
Market assessments and contracting updates
Slide 19: Western markets are interconnected
Western markets are interconnected Pacific NW Alberta • Hybrid market without retail • PNW hydro conditions access affect AB pricing • Growing IOU desire for self-build • BC often plays “swing role” • Capacity additions may be required after 2012 We understand Western Wyoming/ Rockies market interde
Slide 20: Alberta: coal-based PPAs provide stability
Alberta: coal-based PPAs provide stability Alberta Assets in TA Portfolio Profitability drivers • Ability to meet and surpass PPA availability and performance targets • Achieve all contractual Alberta 58% commitments All Other • Optimize regional portfolio of various asset types PPAs (~78%) and coal
Slide 21: Pacific NW: prospects improving
Pacific NW: prospects improving PNW Assets in TA Portfolio Profitability drivers Centralia • Meet contractual commitments at lowest Coal 16% cost (make vs. buy) Centralia • Determine optimal contracting strategies to Gas (BHP) 3% balance cash flow stability with market Sarnia 7% upside potential All
Slide 22: Centralia Coal contracting upside
Centralia Coal contracting upside Portfolio Capacity #DIV/0! MIDC Onpeak calender 2008 Centralia $62 Coal 16% $57 Centralia US$/MWh $52 Gas (BHP) $47 Sarnia $42 All other 2004 2005 $37 $32 Nov-02 Oct-03 Oct-04 Oct-04 Oct-04 Nov-04 Nov-04 Nov-04 Nov-04 Jul-04 Aug-04 Aug-04 Dec-04 Dec-04 Jan-05 Jan-05
Slide 23: Centralia Gas (BHP) upside potential
Centralia Gas (BHP) upside potential Portfolio Capacity MidC OnPeak and Flat HRs 9.50 Centralia 9.00 Coal HR in mmBTU/MWh 8.50 Centralia Gas (3%) 8.00 Sarnia 7.50 All other 7.00 2006 2007 2008 2009 Market Flat Market OnPeak • BHP dispatch expected to improve as market heat rates widen in WECC Spark
Slide 24: California: CE Gen outlook
California: CE Gen outlook Profitability drivers CE Gen ( ~ 2% ) •Availability and OM&A expenses associated TA Overall with geothermal. Market prices have only nominal affect. •Annual capacity tests during summer with California utility customers 10 geothermal units under long-term contracts; expiry
Slide 25: Ontario market overview
Ontario market overview Profitability drivers Sarnia (7%) •NUGs: Ability to meet contractual commitments NUGs (3%) (availability) and capture short-term fuel arbitrage Balance of TA opportunities (make vs. buy) •Sarnia cogen: Ability to deliver customer steam requirements at lowest possible costs •S
Slide 26: Sarnia merchant upside
Sarnia merchant upside Portfolio capacity 2005 - 2006 upside Centralia • Government directive issued Coal 16% 15th June 2005 to OPA Centralia Gas (BHP) 3% • Initial discussions held with Sarnia 7% OPA promising All other • Expect to conclude OPA negotiations and OEB review by year-end • Anticipate d
Slide 27: Western Australia and Mexico: promising prospects
Western Australia and Mexico: promising prospects Western Australia assets in ~3% of TA Outlook TransAlta portfolio capacity by MW • Stable, solid earnings from highly reliable gas • Strong demand from SE Asia for metals driving load plants (LM 6000s) growth from resource companies in Western Austra
Slide 28: Energy marketing, trading, and risk management
Energy marketing, trading, and risk management
Slide 29: Energy marketing, trading, and risk management
Energy marketing, trading, and risk management Primary responsibilities Success measures 1) Manage commodity risks of 1) Implement contracting plans to meet the generating fleet P/L targets and manage cash flow risks 2) Gather market intelligence 2) Make and adjust plans to capture and and dissemina
Slide 30: Delivering predictability in proprietary trading
Delivering predictability in proprietary trading Focus and strength of proprietary trading is physical in WECC with Objective: Deliver $20 to $40 million growing capabilities in East of annual operating income within (Ontario and adjacent regions) approved risk limits Year to date 2005 margin contri
Slide 31: Bringing it all together
Bringing it all together
Slide 32: Delivering sustainable improvements
Delivering sustainable improvements The commercial organization expects to deliver 15 to 30 cents of EPS upside in 2006 from: •Contracting Sarnia •Recontracting Centralia Coal •Capturing optionality of Centralia Gas Finding the right balance … with additional upside in 2007 and beyond from: 1) Portf
Slide 33: Long Cycle Maintenance
Long Cycle Maintenance Linda Chambers Executive Vice-President, Technology
Slide 34: Last year we said for 2004 – 2006 . . .
Last year we said for 2004 – 2006 . . . Coal • Age related pressures • Increased CAPEX tied to component replacements • Range of OPEX/CAPEX shifts from (40%/60%) to (30%/70%) Gas • Convergence of C inspections G a s M a in te n a n ce C o sts A in sp e ctio n 8 0 0 0 h rs $300 - $500K B in sp e ctio
Slide 35: We showed you cost profile examples…
We showed you cost profile examples… 2 x 100 MW 11N2 Gas 2 x 400 MW Coal 80.0 35.0 70.0 30.0 60.0 25.0 50.0 CAPEX & OPEX 20.0 40.0 $Millions 30.0 15.0 20.0 10.0 10.0 5.0 0.0 0.0 0 yrs OEM Cost Profile 25 yrs 0 yrs OEM Cost Profile 50 yrs • Original Equipment Manufacturer (OEM) cost structures • Gas
Slide 36: …Then challenged those cost structures
…Then challenged those cost structures 2 x 100 MW 11N2 Gas 2 x 400 MW Coal 35.0 80.0 30.0 70.0 60.0 25.0 CAPEX & OPEX 50.0 20.0 $Millions 40.0 15.0 30.0 10.0 20.0 10.0 5.0 0.0 0.0 0 yrs OEM Cost Profile 25 yrs 0 yrs OEM Cost Profile 50 yrs • Original Equipment Manufacturer (OEM) cost structures • Ga
Slide 37: How did we do it?
How did we do it? • Productivity initiatives • Technical programs/innovations • Strategic supplier alliances • Outage interval extensions • System tools for real time outage tracking • Long range planning Results: Current annual maintenance spend of $200 - $225 million drops to new run rate of $150
Slide 38: Costs improve . . .
Costs improve . . . Total Major Maintenance Cost ($millions) $300 $300 7144 MW 7934 MW 7934 MW 8159 MW 8159 MW 8159 MW 8159 MW $200 $200 Millions Millions $100 $100 $0 $0 2002 2003 2004 2005 2006 2007 2008 Capex Opex Total • 2007 resets run rate • 1,000 MWs of growth since 2002
Slide 39: Durations improve…
Durations improve… Margin Impact GWh 3,500 3,000 2,500 2,000 GWh 1,500 1,000 500 - 2002 2003 2004 2005 2006 2007 2008 Margin impact • Greatest impact remains in Q2/Q3 each year
Slide 40: Going forward…
Going forward… Long cycle planning is a competitive opportunity Long range Short range Execution Engineering planning planning real time 2 - 20 years plus 0 – 2 years • Condition • Optimization • Leverage suppliers • Reduce durations assessment scenarios • Productivity • Real time productivity • Tec
Slide 41: Focus on strategic investment in assets
Focus on strategic investment in assets • Disciplined execution continues • Life cycle condition knowledge • Technical programs/innovations • Risk tied to market • Strategic supplier relationships • Long range planning, 20 years plus • End of plant life matches end of book life • Link to portfolio m
Slide 42: What's our competitive advantage?
What’s our competitive advantage? Traditional plant cost curve Competitive opportunity $ X X X X 0 – 5 yrs 25 yrs Life extension Gas / G3 AB Thermal / Centralia Age X = strategic investment opportunities
Slide 43: Contribution to portfolio
Contribution to portfolio Margin + OPEX + CAPEX: • Beat OEM cost profiles to achieve lower run rates • Use long range planning to drive down and smooth current life cycle equipment costs • While we drive down current life cycle costs, answer strategic investment questions – life extension, uprates,
Slide 44: Availability, Costs, and Coal Mining
Availability, Costs, and Coal Mining Rob Soeldner Executive Vice-President, Operations
Slide 45: Since the last time we met ....
Since the last time we met …. 1) Focus remains on availability and costs 2) Testing ourselves against the competition 3) Applying technology to get better 4) Using our greatest resource – people – to “generate more megawatt hours”
Slide 46: How we define operational excellence
How we define operational excellence 1) Availability 2) Unplanned outages/derates 3) OM&A
Slide 47: Availability
Availability “Available when market demands” 1% improvement = $14M earnings after tax • 0.3% unplanned events • 0.7% planned maintenance 2006 - 2009 2004 2005 90.5% average over 4 years Availability 88.5% 89.5% Upside of 0.5% – 1% due to reduced Moving to Reducing unplanned unplanned outages/derates
Slide 48: Unplanned outages/derates
Unplanned outages/derates “Manage the outage – not vice versa” Business risk assessment Flexplant 0.3% = $4.2M earnings after Coal mill optimization tax 2006 - 2009 2004 2005 5.5% average over 4 years Unplanned Outages/ 7.3% 5.8% Derates Predictive condition monitoring Wireless rounds Upside increme
Slide 49: Operations excellence
Operations excellence Planning Productivity Long range plan SMART Signal RFID Tags IP21 Data Predictive Historian maintenance Operator Rounds Reliability Mobility Risk assessment dashboard Boiler & Auxiliary Plant ATP Risk Profile - Do P2/3 Workscope Turbo-Generator & Auxiliary Plant Balance Of Plan
Slide 50: Generation operations' technology
Generation operations’ technology Proactively managing assets Risk mitigation 9 9 Increased reliability 9 9 9 Increased productivity 9 9 9 9
Slide 51: OM&A excluding major maintenance
OM&A excluding major maintenance “Get a handle on what we can control” SCM Initiatives MRO 8.50 Wireless Warehouse 8.00 Inflation, labour and escalation @ 3% $0.50/MWh $/MWh Productivity 7.50 2009 Forecast Improvements $7.35/MWh Stable high 2004 performance plant $6.80/MWh $0.55/MWh 7.00 management
Slide 52: People
People 1) Measurement, reporting, and follow through by managing • Safety is good business . . . Target Zero has driven Injury Frequency Rates down since 2001: - 1997 to 2000 average IFR = 2.26; 2004 IFR = 1.69 - 2004 savings of $4M • Absences • Labour costs 2) Performance and retention incentives •
Slide 53: TransAlta coal operations
TransAlta coal operations Canadian operations Highvale Mine, Alberta Opened 1972 Fuels Keephills & Sundance (2,750 MW) TransAlta owns, Luscar operates Dragline operation (4 operating) Largest surface strip mine in Canada (12.8M t/year) Multiple pit/multiple seam Whitewood Mine, Alberta
Slide 54: Alberta mines
Alberta mines Cost performance vs. PPA revenue 2001 - 2008 Highvale Mine 2001-2008 PPA Cumulative Revenue vs. Actual Cumulative Mine Operating Expense Savings in mine operating costs from 2001 - 2004 = $20M and 1150 1050 950 forecast from 2005 - 2008 = $18M 850 Achieving performance Million CDN $ 75
Slide 55: U.S. coal operations – Centralia mine
U.S. coal operations – Centralia mine • Acquired May 2000 • Fuels Centralia Plant (1,400 MW) • TransAlta owns and operates • Truck and shovel operation • Mountainous terrain • Multiple pit/multiple seam • Centralia is a mine mouth power plant, with some imports (10% - 15% of requirements) for blendi
Slide 56: Centralia coal costs
Centralia coal costs 20.00 $18.30/MWh 19.00 18.00 17.00 $18.50/MWh US $/MWh 16.00 15.00 14.00 $15.00/MWh 13.00 12.00 11.00 10.00 2000 - 2003 2003 - 2005 2005 - 2009
Slide 57: Centralia coal costs
Centralia coal costs Just In Time Fueling 20.00 Operator Score Card $18.30/MWh 19.00 18.00 17.00 $18.50/MWh US $/MWh 16.00 Kopiah Expansion 15.00 - Increase efficiency 14.00 $15.00/MWh 13.00 12.00 Global market costs New truck shovel increasing fleet 11.00 - diesel - tires 10.00 2000 - 2003 2003 - 2
Slide 58: Centralia coal costs
Centralia coal costs Pit #7 Increase yield by 10% - Expansion in low cost - Coal Wash Plant 20.00 areas - Coal Recovery increase 19.00 $18.30/MWh 18.00 17.00 $18.50/MWh US $/MWh West Fields 16.00 Expansion 15.00 14.00 $15.00/MWh 13.00 Overburden increasing Plant heat rate improvement New equipment 1
Slide 59: TransAlta's coal resources
TransAlta’s coal resources Coal resource is defined as: ¾ “An occurrence of coal in such form and quantity that there are reasonable prospects for eventual economic extraction.” (Society of Mining, Metallurgy and Exploration) Highvale mine • TransAlta owns or has secured the rights to sufficient coa
Slide 60: Centralia permitting – progress report
Centralia permitting – progress report Three key initiatives in progress to permit Status and expand the Centralia Coal Mine: Prepare mine and 1) Kopiah Excess Spoil Area & Kopiah West Fields reclamation plans Expansion (KESA) and submit to regulators •Planned for 2005 •Extends production of the Kop
Slide 61: Financial Strategy
Financial Strategy Ian Bourne Executive Vice-President and Chief Financial Officer
Slide 62: Investor expectations of TransAlta's financial goals
Investor expectations of TransAlta’s financial goals Investors Management Response Expect Increased EPS and Ö Driven by increased contracting increased cash flow margins, interest savings, and reduced maintenance expenditures Improved credit metrics Ö BBB+ metrics by 2007 Improved ROIC and Ö Maintai
Slide 63: Sensitivities in the TransAlta financial model
Sensitivities in the TransAlta financial model Change After tax EPS Cash flow Targets and (millions) assumptions Availability 1% $0.07 $14 91.7% Spot electricity $1.00/MWh $0.05 $10 AB - $47 prices (non- MIDC - US$39 contracted fleet) Long bond rates 100 bps $0.04 - $0.05 $13 - $16 4.99%* (PPA reven
Slide 64: Total capital expenditures declined significantly since 2002-2003
Total capital expenditures declined significantly since growth expansion in 2002 - 2003 1,200 1,000 800 $millions Sustaining 600 Maintenance 400 200 Growth (incl. acquisitions) 0 2002 2003 2004 2005E 2006E 2007E Prior to 2005, sustaining capex was included in maintenance 2005E – 2007E are based on e
Slide 65: Interest costs
Interest costs $300 Interest expense ($ millions) $250 $200 Expensed $150 Capitalized $100 $50 $0 2002 2003 2004 2005E 2006E 2007E
Slide 66: Earnings power of TransAlta's business model
Earnings power of TransAlta’s business model $ millions unless noted 2004 - 2005 2006 - 2007 Comparable earnings per share $0.70 - $0.80 $1.00 - $1.25 Comparable earnings $135 - $160 $200 - $225 Plus: depreciation, amortization, and non-controlling interests $455 - $495 $525 - $550 Less: maintenance
Slide 67: Alternatives for cash
Alternatives for cash 1) Pay down debt First priority until credit metrics achieved 2) Buy back shares Improve ROE 3) Expand assets selectively
Slide 68: Financial ratios
Financial ratios Non-Recourse Debt Debt to Capital Recourse Debt 60% BBB - Baa3 55% BBB low Forecast 50% BBB + BBB high 45% Baa1 40% 35% 30% 25% 20% 2003 2004 2005 2006 2007 2008 2009
Slide 69: Improving credit ratios
Improving credit ratios C a s h F lo w to In te r e s t 7 x F o re c a s t 6 x 5 x B B B + B B B h ig h 4 x B a a 1 3 x B B B - B a a 3 2 x B B B lo w 1 x 0 x 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 C a s h F lo w to T o ta l A v e ra g e D e b t 3 5 .0 % F o re c a s t 3 0 .0 % B B
Slide 70: TransAlta's financial strategy – manage cyclicality
TransAlta’s financial strategy – manage cyclicality Balance acquisitions with new build Maintain high contract cover Diversify markets and fuels GROW STRENGTHEN FINANCIAL INTEGRATE CAPACITY Non-growth capex Pay down debt and/or and dividend from buy back shares operating cash flow
Slide 71: Environmental Strategy
Environmental Strategy Ken Stickland Executive Vice-President, Legal
Slide 72: Agenda
Agenda I. Regulatory landscape II. Near term initiatives III. Contribution to portfolio
Slide 73: I. Regulatory landscape - dealing with uncertainty
I. Regulatory landscape - dealing with uncertainty Currently in regulatory compliance at all plants in all jurisdictions - solid starting point Anticipate new regulations in next decade, focused on air emissions from fossil-fired assets, primarily coal - asset teams are managing in each region 2005
Slide 74: Most costs are transferred- PPA and contract protection
Most costs are transferred- PPA and contract protection All compliance costs for PPA plants In most cogen plants, a portion of are flowed through to Buyers under compliance cost is contractually Change-in-Law provisions shared with host/partners Change-in-Law • Sarnia • Poplar Creek •Clearly identif
Slide 75: Greenhouse gas impacts
Emission Greenhouse gas impacts Estimated reduction TransAlta obligation Forecast- Canada is focus cost impact TransAlta has costs for non-PPA plants only. Kyoto rules and About $5-$6M/yr Alberta targets still evolving. Anticipate 12% reduction requirement operating costs. for all fossil plants, lik
Slide 76: Mercury impacts
Emission Mercury impacts Estimated reduction obligation Forecast – Alberta only TransAlta cost impact Alberta TransAlta costs for non-PPA plants only. Alberta $2M/yr - $5M/yr requires 70%-80% reductions by 2010. Control levelized capital technology required. Technology selection and costs and operat
Slide 77: NOx and SO2 impacts
Emission NOx and SO2 impacts Estimated reduction obligation Forecast – A mixed bag of regulations TransAlta cost impact Government policy based on CASA recommendations. No Only G3 in 2015 controls required until end of PPAs or 30 years for gas. Only Alberta exception is G3 – requires NOx reductions.
Slide 78: II. Near term initiatives
II. Near term initiatives Mitigation Status Competitive strategy position GHGs -Build offsets portfolio Portfolio growing, first Canadian years covered leader Ensure compliance -Pursue internal reductions All capital projects being √ by 2008 with offsets reviewed – no drag on -Grow renewables Added
Slide 79: III. Contribution to the portfolio
III. Contribution to the portfolio - Cost mitigation and risk management 1. Direct input into portfolio management •Environmental response options and cost forecasts are integrated into asset profitability models, on par with other major operating factors. - all assets have regulatory cost forecasts
Slide 80: Summary
Summary • TransAlta is ahead of the curve on environmental planning • Our asset diversification is advantageous • Policy engagement is a competitive advantage
Slide 81: Wind Strategy
Wind Strategy Fred Gallagher Executive Vice-President, Vision Quest Windelectric
Slide 82: Wind power is a solid long-term growth business
Wind power is a solid long-term growth business Wind business fundamentals 1) High, fixed capital costs, but low operating costs 2) Zero operating fuel cost, but requires exploration expertise to establish highly productive sites 3) 8 - 10 year simple payback 4) 30 year asset life (refurbished at mi
Slide 83: A short construction cycle allows wind to be rapidly productive
A short construction cycle allows wind to be rapidly productive Timing from investment to revenue Legend Combustion project capital expenditure $ of revenue or expenditure Combustion annual project revenue Wind project capital expenditure Wind annual project revenue Gap narrowed between investment a
Slide 84: The margin for wind is dramatically better than other fuel sources
The margin for wind is dramatically better than other fuel sources Operation cost vs. value of electricity sources $ 55/MWh WPPI Market Clearing Price VERs $ 40/MWh Gas margin WPPI – Federal Wind Power Wind Production Incentive $10/MWh Coal VERs – Verified Emissions margin margin Reduction – current
Slide 85: While currently the industry leader, TransAlta expects more entrants
While currently the industry leader, TransAlta expects more entrants Canadian Wind Energy Market Share TransAlta & Partners of Producing MW as of June 22, 2005 AXOR KHD Suncor & Part. Canada’s installed PEI Energy capacity is 3CI 570 MW Sask Power Others • TransAlta has built 33% of the Canadian MWs
Slide 86: TransAlta is consistently competitive with costs and wind resources
TransAlta is consistently competitive with costs and wind resources TransAlta’s cost and resource competitiveness Wind Project Capital Cost Comparison McBride (2002) and Summerview (2004) 200 Pro je ct Size (MW) 150 TransAlta’s capital costs are 100 below most competitors (all costs 50 from press re
Slide 87: TransAlta actively manages risks and opportunities inherent in wind
TransAlta actively manages risks and opportunities inherent in wind Risks we can manage best • Site identification • Resource assessment • Equipment procurement • Permitting • Interconnection • Construction Hedged risks • F/X • Commodities
Slide 88: Outlook: Wind energy is growing rapidly across Canada
Outlook: Wind energy is growing rapidly across Canada Factors driving growth 1. Growing financial incentives for wind 2. Long-run costs are declining 3. Favorable structures and low cost of capital 1000 MW 2000 MW 20 MW 4. Provincial green 2200 MW procurement initiatives 1150 MW 150 Installed capaci
Slide 89: Early contracts largely awarded to new entrants
Early contracts largely awarded to new entrants ¾ 2004, of the 1,830 MW awarded, 2004 Activity 93% was won by new entrants 1) Large capital strategic players Existing Wind Players 2) Numerous new small New To Wind developers have surfaced 3) Trust/LP financing Totally New Entrants introducing financ
Slide 90: Expect industry shakeout as new entrants get their sea-legs or fail
Expect industry shakeout as new entrants get their sea-legs or fail Emerging issues for Canadian wind energy 1) Several new players who lack wind experience 2) Unrealistic wind resource assessments •Wide range of production estimates due to: •Lack of experience, reliable data, and production history
Slide 91: TransAlta is in the wind business to achieve value for the long-term
TransAlta is in the wind business to achieve value for the long-term TransAlta’s objectives with wind 1) Achieve returns commensurate with the TransAlta portfolio through discipline and expertise: •Greenfield – develop best resources at lowest costs •Brownfield – evaluate distressed opportunities fo