Slide 1: Fourth Quarter and Full Year 2018 Results
TransAlta Corporation Fourth Quarter and Full Year 2018 Results Wednesday, February 27, 2019 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation includes 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 ba
Slide 3: Agenda
Agenda CEO Annual Update Coal to Gas and Hydro Update Fourth Quarter and Full Year 2018 Highlights Questions and Answers 3
Slide 4: Executive Team
Executive Team Dawn Farrell Christophe Dehout Jane Fedoretz Brett Gellner President and Chief Chief Financial Officer Chief Talent & Chief Strategy & Executive Officer Transformation Officer Investment Officer John Kousinioris Dawn de Lima Kerry O’Reilly Wilks Wayne Collins Chief Growth Officer Chie
Slide 5: 2018 Accomplishments
2018 Accomplishments Generated Record Free Cash Flow ⚫ FCF of $367 million, or $1.29 per share after adjusting for the one-time PPA termination payment ⚫ Cash flow generated from diversified portfolio of 72 assets spanning multiple regions Strengthened the Balance Sheet ⚫ $1.1 billion reduction in n
Slide 6: Current Development Projects For RNW
Current Development Projects For RNW Big Level - 90 MW Pennsylvania project ⚫ 15-year PPA with Microsoft ⚫ Construction fully underway ⚫ Capital cost of ~US$165 million ⚫ Commercial operation expected in Q3 2019 ⚫ Funded in TransAlta Renewables Antrim - 29 MW Windrise - 207 MW Alberta New Hampshire
Slide 7: Financial Highlights – Twelve Months Ended December 31
Financial Highlights – Twelve Months Ended December 31 Comparable EBITDA(1) FFO(1) FCF(1) ($ millions) ($ millions) ($ millions) $1,028 $966 $770 $770 $367 $311 2017 2018 2017 2018 2017 2018 Increased Free Cash Flow 18% compared to 2017 (1) Adjusted to exclude the $157 million received during the fi
Slide 8: Greenlight Transformation has Gained Positive Momentum
Greenlight Transformation has Gained Positive Momentum RIGHT-SIZED FOCUS ON CUSTOMER-FOCUSED WORKFORCE GROWTH SAFETY Lowered headcount by over 15% in Added four new investment grade Lowered Total Injury Frequency (TIF) 2018 and aligned workforce with customers to our portfolio in 2018 by over 50% si
Slide 9: Greenlight Transformation Examples
Greenlight Transformation Examples Financing: Restructuring Capital/OM&A: Achieving Gross Margin: Burning less financing products competitive pricing with e- fuel by lowering our minimum to minimize interest auctions load point for our gas turbines expense Gross Margin: Increasing Capital/OM&A: Cate
Slide 10: Realizing Value from Both Companies
Realizing Value from Both Companies TransAlta Corporation TransAlta Renewables ⚫ Maximize the long-term value from our ⚫ Grow and diversify the portfolio and Alberta assets cash flows ⚫ Develop long-term contracted assets ⚫ Utilize the low cost of capital and debt that can be financed and owned by c
Slide 11: Executing Coal to Gas Conversions
Executing Coal to Gas Conversions Modest Investment to • Coal units must retire between end of 2026 and 2029 if not converted Significantly Extend • Conversion extends the assets out to 2034 – 2039 the Life of the Assets • Conversion costs of less than $90/KW Avoids Cost to • NOx & SOx regulations w
Slide 12: Coal to Gas Strategy is on Track
Coal to Gas Strategy is on Track Gas Supply Strategy Boiler Conversions 2019 Deliverables • Pioneer pipeline with • Engineering underway • Maximize co-firing Tidewater Midstream under construction with COD • Received AUC regulatory • Issue Limited Notice To expected in the second half of approvals P
Slide 13: Modest Investment to Significantly Extend Asset Life
Modest Investment to Significantly Extend Asset Life • Conversion extends the assets life out to 2034 – 2039 • Investment significantly lower by utilizing our existing infrastructure CAPITAL COST ($/KW) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Boiler Conversion¹ Hybrid Combined New Combine
Slide 14: Conversions Result in Significantly Lower Costs
Conversions Result in Significantly Lower Costs ⚫ In addition to longer asset life, operating and capital costs are significantly lower once the units are fully converted to gas ⚫ Staying on coal would result in significantly higher costs in order to meet provincial NOx and SOx regulations ⚫ Convert
Slide 15: Pioneer Pipeline
Pioneer Pipeline • Project progressing well • Pioneer Pipeline capital costs significantly lower than other projects • TransAlta’s EBITDA from Pioneer increases significantly as the volumes increase and without incurring any significant incremental capital COMPARATIVE NATURAL GAS PIPELINE CONSTRUCTI
Slide 16: Legislated Expiry of the Power Purchase Arrangements
Legislated Expiry of the Power Purchase Arrangements “The remaining term of the hydro PPA is three years to December 31, 2020.” – Balancing Pool, 2017 Annual Report PPA End of Term Genesee December 31, 2020 Battle River 5 Terminated “A power purchase arrangement ceases to Sheerness December 31, 2020
Slide 17: Ancillary Services Market
Ancillary Services Market • TransAlta is an active participant in the ancillary services market • Hydro has historically serviced ~47% of the active market • Our coal units have been participating in the ancillary services market since the termination of their PPAs • Ancillary services sell, on aver
Slide 18: EBITDA Currently Generated by TransAlta Hydro
EBITDA Currently Generated by TransAlta Hydro 2018 HYDRO BRIDGE ($ MILLIONS) Hydro assets currently generating ~$240 million of EBITDA prior to payment of obligations to the Balancing Pool TransAlta EBITDA excluding PPA Capacity Payment Ancillary Obligation Energy Obligation Capacity Payment Assumpt
Slide 19: Alberta Electricity Prices
Alberta Electricity Prices ALBERTA ENERGY AND CAPACITY PRICES FORECAST ($/MWH) $100 $90 $80 $70 2008 to 2015 Avg - $62/MWh $60 2008 to 2018 Avg - $53/MWh $50 $40 $30 $20 $10 $- Energy Only Market Energy Capacity Notes: 2019 to 2025 forecast prepared by EDC & Associates. 2021 is a partial Energy Only
Slide 20: Impact to Alberta Portfolio from Higher Pricing
Impact to Alberta Portfolio from Higher Pricing ALBERTA COAL-TO-GAS AND HYDRO EBITDA SENSITIVITY ($ MILLIONS) $1,000 $900 $800 $700 $600 $500 $400 2018 Actual $300 $200 $100 $- $50 $55 $60 $65 $70 $75 $80 Combined Energy & Capacity Price ($/MWh) Coal-to-Gas Hydro Key Assumptions: Coal units have bee
Slide 21: Fourth Quarter and YE 2018 Highlights
Fourth Quarter and YE 2018 Highlights 3 Months Ended 12 Months Ended December 31 December 31 (in $CAD millions) 2018 2017 2018 2017 Comparable EBITDA(1) $233 $275 $1,123 $1,062 FFO(1) $217 $219 $927 $804 FCF(1) $98 $101 $524 $328 Adjusted Availability(2) 91.5% 88.4% 91.3% 86.8% FULL YEAR 2018 EBITDA
Slide 22: Cash Flow by Business Bridge
Cash Flow by Business Bridge Q4 2018 CASH FLOWS BY BUSINESS ($MILLIONS) ⚫ All operating businesses outperformed last years quarterly results ⚫ Successfully transitioned the Sundance facility to merchant generation ⚫ Hydro cash flows increased due to higher energy and ancillary prices FULL YEAR 2018
Slide 23: FCF Bridge
FCF Bridge ⚫ Lower sustaining and productivity capital were driven through further optimization of capital expenditures across the company; in particular at AB Coal as we position the fleet for coal-to-gas conversions ⚫ Increased FCF reflects the successful execution of our strategy of repositioning
Slide 24: Maintaining Targeted Debt Reduction
Maintaining Targeted Debt Reduction DEBT COMPONENTS ($ BILLIONS) $4 $3 $2 TA Recourse $3.4 B $1 TA Recourse $1.8 B $0 YE 2015 YE 2018 24
Slide 25: Capital Allocation
Capital Allocation Dividend Increase and Share Buyback Growth $400 Million 2020 Debt Repayment Coal-to-Gas Dividends Conversion Capital Existing Dividends Amortizing Debt Amortizing Debt Sustaining the Business Sustaining the Business Note: Dependent on government policy and pricing 25
Slide 26: TransAlta Focused on Debt Reduction and Coal-to-Gas
TransAlta Focused on Debt Reduction and Coal-to-Gas TRANSALTA CORP DECONSOLIDATED SOURCES AND USES 2019-2021 ($ MILLIONS) Credit Facility Drawings Amortizing Debt Repayment $1,600 Coal-to-Gas $1,400 Capital Common and $1,200 Preferred Dividends $1,000 Cash Flow Before Common Senior Debt and Preferre
Slide 27: RNW Focused on Growth
RNW Focused on Growth RNW DECONSOLIDATED SOURCES AND USES 2019-2021 ($ MILLIONS) $1,600 Credit Facility Drawings/DRIP Sustaining Capital $1,400 Tax Equity and Amortizing Debt Repayment Project Debt $1,200 $1,000 Growth Capital $800 Cash Flow Before $600 Dividends and Sustaining Capital $400 Dividend
Slide 28: On Track for Targeted $1.2 Billion Over Three Years
On Track for Targeted $1.2 Billion Over Three Years ILLUSTRATIVE CONSOLIDATED FCF BUILD-UP ($ MILLIONS) $1,200 $1,000 $620 Remaining FCF over 2019/2020 to Reach Target • 2019 FCF Outlook range of $270 to $330 million(1) $800 $600 $56 Disputed portion of PPA Termination Payment $157 PPA Termination P
Slide 29: RNW Growth Projects EBITDA
RNW Growth Projects EBITDA EBITDA(1) GENERATED BY NEW ASSETS ($ MILLIONS) $125 $100 TransAlta EBITDA excluding PPA Capacity Payment $75 Windrise * Ancillary Big Level/Antrim Obligation Kent Hills 3 $50 Energy South Hedland Obligation Capacity Payment $25 $0 2018 2019 2020 2021 2022 (1) Excludes tax
Slide 30: Executing on our Strategy
Executing on our Strategy TransAlta Execution Plan Value Proposition ⚫ Execute on our transition to gas ⚫ Transitioning to profitable and clean ⚫ Achieve balance sheet targets generation ⚫ Grow RNW ⚫ Long-term cash flows from diversified ⚫ Replenish development pipeline asset base ⚫ Position the com
Slide 31: Question and Answer
Question and Answer ¥ « Tra nsAl ta pachiiner