Slide 1: TransAlta Corporation Investor Presentation
TransAlta Corporation Investor Presentation April 2017 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation may include forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. All forward-looking statements are based on our beliefs as well as assumptions
Slide 3: TransAlta's Investment Merits
TransAlta’s Investment Merits • Geographic: Over 8,600 MW’s of net generation capacity in Canada (75%) , U.S. (18%) and Australia (7%) • Fuel: Over 70 facilities including wind, hydro, gas, co-generation, coal • Supporting Stable EBITDA: 70% - 85% contracted generation over next four years • Reliabl
Slide 4: Seizing Investment Opportunities in Targeted Markets
Seizing Investment Opportunities in Targeted Markets Region Opportunity Strategic Considerations (MW’s) • ~3,000MW’s of coal-to-gas conversions; extending life of existing depreciated assets • 600 – 900MW’s pump storage at Brazeau; grow site capacity to between 955 – 1,255MW’s Alberta 5,000 • Brownf
Slide 5: TransAlta's Global Generation Portfolio
TransAlta’s Global Generation Portfolio
Slide 6: TransAlta's Generation Asset Overview
TransAlta’s Generation Asset Overview TransAlta is Canada’s largest generator of wind power and the largest generator of renewable energy in Alberta Coal: 4,931MW (~73% in Canada) Wind/Solar: 1,384MW (~84% in Canada) Gas: 1,323MW (~68% in Canada) Hydro: 926MW (~100% in Canada) 6
Slide 7: Gas & Renewables Cash Flow Leading the Way
Gas & Renewables Cash Flow Leading the Way • Gas-fired and renewable assets were approximately 70% of total (1) Cash Flow From Generation in 2016 and approximately 11% higher than in 2015. • $3.3 billion of assets positioned in markets where public policy is promoting clean power; Canada, Australia
Slide 8: Contracted Generation Portfolio Supports Stable EBITDA
Contracted Generation Portfolio Supports Stable EBITDA Total portfolio contractedness(1) Merchant exposure in Alberta and the MW Pacific NW 85% 73% 70% 69% 2017 Hedge prices AB ~$45 - $50/MWh 6,000 PacNW ~$45 - $50/MWh 5,000 2018 Hedge prices AB ~$45 - $50/MWh 4,000 PacNW ~$45 - $50/MWh 3,000 Albert
Slide 9: Key Growth Drivers in Australian Power Markets
Key Growth Drivers in Australian Power Markets Aging coal fleet in Eastern Australia provides opportunity for alternate fuel sources to replace these assets Plant Net Counterpart MW’s Fortescue River Gas - n/a Pipeline South Hedland(1) 150 Horizon Power, Fortescue Metals Group Solomon 125 Fortescue
Slide 10: South Hedland Power Station
South Hedland Power Station 150 MW Combined Cycle Gas Power Station in Western Australia • $585 million project has been funded without increasing TA debt (1) • Expected to generate ~$80 million of EBITDA on an annualized basis • Commissioning expected on budget in mid-2017 (1) Total estimated proje
Slide 11: Seizing Opportunities in Alberta and Canada's Transition to an Off-Coal and Carbon Tax Regime
Seizing Opportunities in Alberta and Canada’s Transition to an Off-Coal and Carbon Tax Regime
Slide 12: Transitioning Off Carbon.. Removing an Uneconomic Input
Transitioning Off Carbon.. Removing an Uneconomic Input “Threading the needle on carbon exposure means transitioning out of carbon sooner rather than later to avoid being subjected to an increasing cost environment.” Dawn Farrell, CEO TransAlta Corporation Pricing carbon is the new reality, it will
Slide 13: TransAlta's Off-Coal Transition Agenda in Alberta
TransAlta’s Off-Coal Transition Agenda in Alberta 1 Required to eliminate coal emissions by 2030. 2 Will receive annual off-coal transition payments from Alberta government starting in 2017. TransAlta’s Response to the Changing Environment • Working with stakeholders to create new capacity market •
Slide 14: Implementing the Climate Leadership Plan: Off-Coal Transition Payments
Implementing the Climate Leadership Plan Off-Coal Transition Payments Agreement • 14 annual cash payments of $37.4 million totaling $542 million • Payments expected to occur in third quarter each year until 2030. • Opportunity to monetize contracted cash flow stream (~$400 – $420 million) • Compensa
Slide 15: Implementing the Climate Leadership Plan: Memorandum of Understanding
Implementing the Climate Leadership Plan Memorandum of Understanding Tangible Cooperation and Collaboration with the Alberta Government in terms of: 1 Creating a new Capacity Market 2 Executing coal-to-gas conversions to extend useful lives of coal facilities 3 Supporting Renewable Electricity • Fai
Slide 16: Alberta's Climate Leadership Plan
Alberta’s Climate Leadership Plan Changing the Supply Mix CLP Requires • Retirement of 6,200MW of baseload coal-fired generation by 2030 = ~40% of current installed capacity • Installation of 5,000MW of intermittent renewable electricity by 2030 = ~2,000MW of reliable generation Issues: Energy-Only
Slide 17: Energy Only vs. Capacity Markets
Energy Only vs. Capacity Markets Energy-Only Market Capacity Market Energy/AS Capacity Energy/AS • All costs and return of capital • Energy market revenues recover must be recovered from marginal costs energy prices in the power market • Capacity market revenues recover fixed operating & capital cos
Slide 18: Capacity Market – A Stable Investment Environment
Capacity Market – A Stable Investment Environment TransAlta advocates for, and supports, a Capacity Market 1 TransAlta is well positioned to compete in a capacity market with highly depreciated coal units that will be converted to gas- fired generation 2 Allows existing and new dispatchable generati
Slide 19: Capacity Market Transition Timeline
Capacity Market Transition Timeline • Biggest market change in two decades. • Timelines are aggressive; need to align with the first coal retirements. • Schedule risk has been identified by the AESO 2017 2018 2019 2020 2021 Design Implementation First Procurement Legend: First Delivery Schedule risk
Slide 20: Alberta's Capacity Market Transition - Unknowns
Alberta’s Capacity Market Transition - Unknowns Key Market Design Considerations • What is the best capacity contract term (e.g. 1 year, up to 7 years)? • Resource eligibility – should demand participation and renewables be allowed? • Will subsidization of renewables distort price formation? • Requi
Slide 21: TransAlta's Coal Fleet – Leveraging Critical Mass
TransAlta’s Coal Fleet – Leveraging Critical Mass • ~3,000MW of coal-fired installed capacity eligible for coal-to-gas conversion; representing ~50% of total coal capacity in Alberta • Majority of TransAlta’s coal units are highly depreciated – providing for low-cost capacity in Capacity Market • Fe
Slide 22: Coal-to-Gas Conversion Attributes vs. Coal Generation
Coal-to-Gas Conversion Attributes vs. Coal Generation Competitive • Utilizes existing capital, sites and transmission Capital Costs • $125 - $150/KW cost for burner conversion Lower Operating • 40-50% lower operating & sustaining capital Cost • 65% lower carbon costs Conversion & • ~60 days required
Slide 23: Coal-to-Gas Conversion – A Comparative Analysis
Coal-to-Gas Conversion – A Comparative Analysis Coal-to-Gas Reciprocating New CCGT Conversion Engine Facility Cost (per KW) $125 to $150 $1,300 to $1,400 $1,500 - $1,700 Carbon Tax Higher Lower Lower Capacity Baseload/Mid-merit Peaking Baseload Ramping Slower Faster Faster Time to Build 60 days 2.5
Slide 24: Examples of Executed Coal-to-Gas Conversions
Examples of Executed Coal-to-Gas Conversions The conversion of coal units to gas-fired generation has been taking place in the United States for a number of years. Plant Owner Conversion Details Harding Street Indianapolis 2015/16 650MW (Units 5/6/7) Station Power & Light Commissioned: 1958 – 1973 C
Slide 25: Brazeau Investment Supports System Reliability
Brazeau Investment Supports System Reliability 1 600 to 900 MW pumped storage expansion Current Capacity of Brazeau is 355MW 2 Increases Brazeau’s capacity to 955 - 1,255 MW. 3 Low cost alternative to greenfield build out 4 Investment of ~$1.8 billion to ~$2.5 billion Brazeau 5 Targeting 2021 commen
Slide 26: Brazeau Hydro – Looking Forward
Brazeau Hydro – Looking Forward 1 New Turbines 2 New Dam 1 2 Brownfield Expansion Utilizes existing site and infrastructure Reliability Provides system support as wind build-out occurs Flexibility Fast ramping Sustainability Perpetual assets – existing hydro fleet is 100 yrs. old 26
Slide 27: Brazeau Hydro – Our Action Plan
Brazeau Hydro – Our Action Plan 2017 2018 2019 2020 2021 2022 2023 2024 2025 Secure Contract Environmental Studies Engineering Regulatory Applications Procurement Construction Stakeholder Engagement COD Securing long-term contract with AESO is a key stage gate 27
Slide 28: Leveraging TransAlta's Operating Advantage in Alberta
Leveraging TransAlta’s Operating Advantage in Alberta 1 History of developing and operating renewables facilities has lead to: • Strong understanding of wind resources and hydrology • Long-standing land owner and stakeholder relationships aid future development plans • Trusted developer and supporte
Slide 29: Financial Strategy
Financial Strategy
Slide 30: Sufficient FCF to Fund Growth and Strengthen B/S
Sufficient FCF to Fund Growth and Strengthen B/S (1) $280 to $315 million of Comparable FCF between 2013 and 2016 $M 500 Comparable FCF Growth 450 400 350 Range Growth(2) 300 250 200 150 Debt(2) 100 50 0 2013 2014 2015 2016 2017 2018-2020 Outlook Target Expect capacity market to deliver similar FCF
Slide 31: Upcoming Debt Maturities
Upcoming Debt Maturities Upcoming Debt Maturities ($ millions) $1,200 $1,000 $296 $800 1 $600 $167 $400 $700 2 $520 $200 $400 $400 $400 $0 2017 2018 2019 2020 2021-2040 USD CAD $360M of non-recourse debt raised in 2016 will be used to settle 2017 maturities (1) Debt related to RNW. (2) Includes USD$
Slide 32: Finance & Treasury Overview
Finance & Treasury Overview Area of Focus Execution • Average liquidity of $1.3B since 2014; liquidity of ~$1.7B at Liquidity December 31, 2016 including cash of $305 million Area of Focus Execution Financial Ratios • Ratios expected to improve once South Hedland is operational Ratio 2013 2014 2015
Slide 33: Outlook and Priorities
Outlook and Priorities
Slide 34: Executing on our 2016 Priorities
Executing on our 2016 Priorities Secured a mutually beneficial coal transition arrangement with the Alberta Government Continued to reposition our capital structure Continued to grow TransAlta Renewables Inc. Continued to focus on delivering strong operational, safety and financial performance 34
Slide 35: Executing on 2016 Financial Goals
Executing on 2016 Financial Goals Comparable EBITDA Comparable FFO $1,200 $1,000 $1,000 $800 $800 $600 $1,100 $1,065 $600 $990 $835 $763 $755 $400 $400 $200 $200 $- $- (1) Low 2016 High Low 2016 High Comparable FCF CAD Coal Availability $400 90% $300 $200 85% 89% 89% $300 $299 87% $250 $100 $- 80% L
Slide 36: 2017 Priorities – Positioning for Competition
2017 Priorities – Positioning for Competition 1 Work collaboratively with the Government of Alberta • Advance our investment in Brazeau by securing long-term contract • Contribute to the design of a new capacity market • Establish terms and conditions to convert coal plants to gas 2 Commission South
Slide 37: 2017 Outlook
2017 Outlook 2017 Outlook Ranges ($M) Comparable EBITDA $1,025 $1,135 Comparable Funds from Operations $765 $855 Sustaining Capital (260) (280) Pfd Share/Other Distributions (205) (210) Comparable Free Cash Flow $300 $365 Comparable Free Cash Flow Per Share $1.04 $1.27 Annual Dividend $0.16 $0.16 Di
Slide 38: Executing Our Strategic Objectives
Executing Our Strategic Objectives 2016 2017 • Reduced OM&A costs by $20 million year over year through improved Operational • Continued focus on delivering mine planning and mine strong operational, safety and Excellence methodologies, reduced equipment financial performance. requirements and optim
Slide 39: TransAlta Renewables
TransAlta renewables”
Slide 40: Leveraging TransAlta Renewables Inc.
Leveraging TransAlta Renewables Inc. • TransAlta is the largest TransAlta Public shareholder of TransAlta Renewables Inc. and will maintain ~60-80% ownership • Unlocks the value of long-life contracted assets on attractive ~60-80% ~20-40% terms • Provides access to lower cost funding TransAlta Renew
Slide 41: TransAlta Renewables
TransAlta Renewables (TSX:RNW) • Provides stable, consistent returns through the ownership of highly contracted power generation and other infrastructure assets Enterprise Value¹ $4.8 Billion Market Cap.2 $3.7 Billion 2017 Comparable EBITDA (guidance) $425 - $450 million 2017 Comparable CAFD (guidan
Slide 42: Significant Drop-Down Inventory
Significant Drop-Down Inventory Potential Drop-Down Candidates from TransAlta Corporation • ~400 MW in Alberta & Ontario including: Gas Fired • 244 MW Poplar Creek facility in AB Generation • ~150 MW from 4 facilities through TA Cogen • ~$140M EBITDA • ~800 MW from 13 units in Alberta, representing
Slide 43: Appendix
Appendix
Slide 44: Financial Performance by Business Segment
Financial Performance by Business Segment (1) (1) Business 2011 2012 2013 2014 2015 2016 Segment Comparable EBITDA ($M) Canadian Coal $273 $373 $311 $389 $393 $393 U.S. Coal $211 $148 $67 $65 $67 $41 Gas $275 $312 $332 $312 $330 $372 Wind and Solar $163 $151 $181 $179 $176 $195 Hydro $105 $127 $148
Slide 45: Australia – Years of Investment Experience
Australia – 20 Years of Investment Experience $200 Original Investment Mid-2017 600 Parkeston (55 MW net to TransAlta). 150 MW South Hedland facility expected to on-line $180 January 1999 TransAlta acquired a 85% interest in Southern Cross; cash consideration of $187 500 $160 million. September 2015