Capital Power Corporation · TSX:CPX
Capital Power — Investor Day (December 2018)
74 slides from Capital Power's investor day presentation, Dec 6, 2018
Slide 1: Capital Power Investor Day: Delivering a Sustainable Future
Capital Power Investor Day Delivering a Sustainable Future December 6, 2018 capitalpower.com
Slide 2: Forward-looking Information Cautionary Statement
Forward-looking Information Cautionary Statement Certain information in today’s presentations and in responses to questions contains forward-looking information. Actual results could differ materially from conclusions, forecasts or projections in the forward-looking information, and certain material
Slide 3: Executive Leadership Team
Executive Leadership Team Brian Vaasjo Jacquie Pylypiuk President & Chief Executive VP Human Officer Resources Kate Chisholm Darcy Trufyn SVP, Chief Legal & SVP Operations, Sustainability Officer Engineering & Construction Bryan DeNeve Mark Zimmerman SVP Finance & Chief SVP Corporate Financial Offic
Slide 4: Agenda
Agenda Time Topic Presenter 9:00 am Introduction Randy Mah Delivering a Sustainable Future Brian Vaasjo Delivering Continued Success Darcy Trufyn Delivering Disciplined Growth Mark Zimmerman Break Delivering on Financial Strategy Bryan DeNeve Delivering on Sustainability Kate Chisholm 2019 Corporate
Slide 5: Delivering a Sustainable Future
Delivering a Sustainable Future • Focus creates shareholder value • Delivering on our focus for 5 years • Positioned to continue to deliver on shareholder value creation Brian Vaasjo President and CEO capitalpower.com
Slide 6: How Investors Should Think About Capital Power
How Investors Should Think About Capital Power Growth-oriented North American power producer Delivering short and long-term value Credible, Competent, Creative, & Competitive capitalpower.com 6
Slide 7: Key Industry Trends Support the Sustainability of Capital Power
Key Industry Trends Support the Sustainability of Capital Power Electrification of the economy Increase in renewable Requirement of natural gas generation Capital Power is well positioned to deliver long term shareholder value capitalpower.com 7
Slide 8: Our Focus
Our Focus AFFO per share Renewables / Wind Natural gas assets Contracted EBITDA Diversification capitalpower.com 8
Slide 9: Our Focus: 5 Years of Delivering
Our Focus 5 Years of Delivering AFFO per share 5-year compounded annual growth of ~14% based on 2019 normalized AFFO(1) Doubled wind facilities to 8 with 854 MW Renewables / Wind Two wind facilities to be added by Q1/20 2,800 MW generation capacity nearly quadrupled Natural gas assets 5 facilities i
Slide 10: Our Focus: Continue to Deliver in 2019
Our Focus Continue to Deliver in 2019 Continued growth in 2019 with $4.35/share AFFO per share Dividend guidance to 2021 Two wind facilities underway, added by Q1/20 Renewables / Wind Two more facilities committed to in 2019 Anticipate acquisition opportunities Natural gas assets Proven competencies
Slide 11: Delivering Continued Success
Delivering Continued Success • Operations Excellence • Consistent Successful Growth • Executing our Transition to Natural Gas Darcy Trufyn SVP Operations, Engineering & Construction capitalpower.com
Slide 12: Our Sustained Excellence in Operations
Our Sustained Excellence in Operations Maximizing Asset Output Fleet Availability 97.0% Year over year high availability 96.5% Optimization driven by plant specific asset management plans 96.0% Industry leading HSE 95.5% performance 95.0% Stable sustaining capital costs 94.5% Doing the rig
Slide 13: An Expanding Fleet
An Expanding Fleet Through Seamless Integration of Acquisitions Arlington Valley, Arizona – 580 MW Successfully integrated Performance confirms York Energy Centre, Ontario – due diligence assumptions Decatur Energy Centre, Alabama – 50% of 400 MW 795 MW Excellent fit with existing operations
Slide 14: Successful Greenfield Projects
Successful Greenfield Projects Shepard Energy Centre, Alberta K2 Wind, Ontario Since 2014 Shepard Energy Centre 800 MW (50%) – 2015 K2 Wind 270 MW (33%) – 2015 Bloom Wind, Kansas Beaufort Solar 15 MW – 2015 Bloom Wind 178 MW – 2017 New Frontier 99 MW - 2018 New Frontier Wind, Beaufort Sola
Slide 15: A Robust Development Program
A Robust Development Program 2018 2019 2020 2021 New Frontier Wind Whitla Wind Cardinal Point Wind (North Dakota) (Alberta) (Illinois) • 99 MW • 201.6 MW (Phase 1) • 150 MW • 12-year PPA • 20-year PPA • 12-year PPA • $182M • $315-$325M • $289-$301M • COD in Dec/18 • COD in Dec/19 • COD in Mar/20 • C
Slide 16: More Cost-effective Competitive Advantages
More Cost-effective Competitive Advantages In-house Capabilities Construction Acquisitions Estimating, engineering Specialized engineering and construction expertise and operations expertise Multi-disciplinary project teams for all Standardized processes phases of development Flexible tool
Slide 17: Opens up Various Avenues for Adding Value
Opens up Various Avenues for Adding Value Renewable Operations Center - Expanding responsibilities of our existing energy management centre Surveillance and Monitoring Performance and Risk Managing Contractual • On-going remote monitoring Management Commitments • Weather forecasting • Asset Optimiza
Slide 18: Genesee Performance Standard (GPS) Program
Innovative Programs Developed and Implemented – Genesee Performance Standard (GPS) Program Capital upgrades completed on all 3 units GHG emission intensity now a 4th KPI for operations Major upgrades on Units 1 and 2 in 2019 and 2020 Units 1 and 2 GHG net emission intensity expected to be eq
Slide 19: Significantly Reduced Carbon Footprint
Significantly Reduced Carbon Footprint $40 $35 Carbon Savings Fuel Savings • Program forecasted to reduce GHGs by 10% $30 Avoided Costs ($M) with efficiency improvements $25 • Capital spend reduced $20 from $50M to $35M $15 • Natural gas co-firing will $10 be used to capture economic opportunity $5
Slide 20: Maximize Potential - Genesee
Maximize Potential - Genesee Significant progress in 2018 • Continuing to take advantage of current co- firing capabilities (up to 20%) • All upgrades continue to maintain full co- firing flexibility • Full conversion capital cost continues to be refined (approximately $85M for all 3 units) • Full c
Slide 21: Dual-Fuel Capability
Dual-Fuel Capability A staged approach to ensure maximal operational flexibility is maintained Increase 2 other units to 100% capacity Increase 1 unit to Increase 2 100% capacity 100% other units to 67% capacity % of Site Capacity from Natural Gas Increase 80% 1 unit to New pipeline 67% capacity 35%
Slide 22: Key Takeaways
Key Takeaways Operations Sustained Excellence GPS program benefits accruing Genesee natural gas co-firing transition flexible and on track Growth Continued construction success Acquired assets meet or exceed expectations capitalpower.com 22
Slide 23: Delivering Disciplined Growth
Delivering Disciplined Growth • Development and Acquisition • Contracted Wind and Gas • Disciplined Approach Mark Zimmerman SVP Corporate Development & Commercial Services capitalpower.com
Slide 24: Sustained and Successful Growth Over the Last Years
Sustained and Successful Growth Over the Last 5 Years… >$3 billion Total new investments (1) >2,700 MW 150 Mile House & Savona Waste Heat Shepard Energy Centre Increase in total capacity(1) Whitla Wind East Windsor Cogeneration York Energy Centre New Frontier Wind Bloom Wind >$400 million Arlington
Slide 25: By Executing on Development Opportunities
By Executing on Development Opportunities 1,044 MW Total wind & gas energy developed or in development ~$2 billion New Frontier, North In total capital deployed on development(1) Cardinal Point, Illinois – 150 MW Dakota – 99 MW >$255 million EBITDA annually(2) 10 – 20 years Whitla, Alberta – 202 Con
Slide 26: And Acquiring High Quality Assets
And Acquiring High Quality Assets 1,719 MW Total wind, gas, & waste heat acquired ~$1.6 billion York Energy Centre, Ontario – 50% of 400 MW East Windsor Cogen, In total capital deployed on acquisitions(1) Ontario – 84 MW >$175 million EBITDA annually(2) 6-14 years Decatur Energy Centre, Contract lif
Slide 27: To Strategically Evolve our Portfolio
To Strategically Evolve our Portfolio Generation Contracted North American AFFO (2) technology(1) capacity(1) footprint(1) 2014 33% Gas and renewables 58% Contracted 76% Alberta $2.51 $/shr 2019 64% Gas and renewables 77% Contracted 55% Alberta $4.74 $/shr (3) Renewables and Geographic Greater visib
Slide 28: Core Focus Areas
Ontario Contracted gas and renewables Alberta Gas and renewables, merchant and contracted US Midwest US South Contracted renewables Contracted gas and renewables Core Focus Areas capitalpower.com 28
Slide 29: Capital Power is Well Positioned in Alberta
Capital Power is Well Positioned in Alberta Certainty is returning Young High Advantaged Conversion Market Assets Availability Locations Optionality Knowledge • Competitive fixed and variable costs • Maximal capacity volumes due to high availability and strategically located wind assets • Coal to ga
Slide 30: Improving Power Market Fundamentals
Improving Power Market Fundamentals ($/MWh) Alberta power prices up materially YoY 70 60 50 40 30 20 10 0 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 2019 2020 - 2023 Act/Fwds Fwds Fwds Robust demand growth of 3-4% | Natural gas prices expected to stay low 1) Forward prices as of November 27, 20
Slide 31: High-quality portfolio and experienced team enable competitive advantages in Alberta
Our high-quality portfolio and experienced team enable us to achieve competitive advantages across the whole value chain in Alberta capitalpower.com 31
Slide 32: Ontario Fundamentals are Enticing
Ontario Fundamentals are Enticing… Flexible facilities are required to ensure system reliability Additional energy from gas generators will be required to match supply and demand >3 GW Nuclear capacity retiring by 2024(1) >5 GW >22% Nuclear capacity undergoing Current system capacity sourced from re
Slide 33: Demand for US Wind Projects Remains Strong
Demand for US Wind Projects Remains Strong Supportive state policies, corporate desire for renewables, and an appetite for tax equity partnerships 5.9 GW Of clean energy purchased by companies through PPA’s in the U.S. in 2018 YTD(1) 568 TWh/year Forecasted total RPS demand in 2030, up from 349 TWh/
Slide 34: Gas Generation Remains a Key Long-term Solution
Gas Generation Remains a Key Long-term Solution Intermittent renewables require baseload and flexible generation for integration 1,400 Electrical Generating Capacity Outlook(1,2,3) 1,200 Electrical Generating Capacity (GW) 1,000 800 600 400 200 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202
Slide 35: Alberta advantages allow us to succeed in other jurisdictions
The advantages we enjoy in Alberta allow us to succeed in other jurisdictions capitalpower.com 35
Slide 36: We Will Continue to Power a Sustainable Future
We Will Continue to Power a Sustainable Future >2,000 MW Potential Wind Developments Genesee Expansion Terrace Thermal CBEC Expansion Klo Wind Frederickson 2 Halkirk 2 Whitla 2 New Frontier >3,500 MW Nolin Hills Whitla 1 KWCG Madoc Solar Potential Gas Developments Garrison Butte Tisch Mills YEC Expa
Slide 37: Balanced and Disciplined Approach
Balanced and Disciplined Approach We will continue to augment our portfolio with the right assets as they come to market Timing & Strategic Economics Accretion Attributes Return expectations adjusted for projects’ characteristics capitalpower.com 37
Slide 38: Case Studies on Growth Activities
Case Studies on Growth Activities capitalpower.com 38
Slide 39: Element Power: Delivering Value After Acquisition
Element Power: Delivering Value After Acquisition Bought Element Power portfolio in 2014 for US$69 million(1) Created Opportunity Enhanced Economics Delivered Value Full PTC 12-year $515 M Preserved full Production Tax Secured fixed-price contracts at Capital Expenditures for Credit (PTC) qualificat
Slide 40: Recent Gas Acquisitions: Disciplined Deployment of Capital
Recent Gas Acquisitions: Disciplined Deployment of Capital Initial expected returns vary based on specific opportunity characteristics Market Financial Facility Contract Expiry AFFO Accretion(1) Fundamentals Performance East Windsor 2029 Bullish York 2032 Bullish $0.25/shr BC Waste Heat 2029 N/A Dec
Slide 41: A Strong Past, a Stronger Future
A Strong Past, a Stronger Future Continue to decrease risk and increase cash flows Renewables and Greater Average Geographical AFFO per share Gas growth certainty contract life diversification CAGR 100% >67% >10 <40% ~9% Gas and renewables Contracted Years Alberta CAGR Expectations for 2030 capitalp
Slide 42: Delivering on Financial Strategy
Delivering on Financial Strategy • Synchronized financial and growth strategies • AFFO growth supports dividend growth • Capacity to fund growth without accessing equity • Ability to capture higher Alberta power prices above baseload hedges • Expected share price growth driven by dividend growth and
Slide 43: Overview of Financial Strategy
Overview of Financial Strategy • Annual 7% dividend growth within long term Ensure 7% annual AFFO payout ratio target of 45% to 55% dividend growth • Provide dividend stability through contracted cash flow profile Maintain • Maintain competitive cost of capital investment grade • Ensure access to ca
Slide 44: Prudent Capital Allocation
Prudent Capital Allocation Dividend • Balanced focus between dividend growth and Growth asset growth based on target AFFO payout ratio of 45% to 55% • Dividend growth provides certainty in returns for investors Capital Growth • Share buybacks are considered during periods of Allocation Opportunities
Slide 45: AFFO for 2019
AFFO for 2019 Higher Alberta power prices and AFFO from Arlington and New Frontier offset K2 divestiture $550 $70 $500 ($20) $485 ($10) $450 $65 $445 ($40) $400 $380 $350 $300 2018T AFFO New Facilities AB Uplift K2 Divestiture Other 2019T AFFO Arlington - 2019 2019T AFFO toll (1) Normalized 17% year
Slide 46: AFFO Guidance
AFFO(1) Guidance AFFO ($M) $460 - $510 • 2018 revised guidance range is $390 to $410M $360 - $400 $390 - $410 • 2019 guidance range is $460 to $510M Original 2018T Revised 2018E 2019 Guidance 1) AFFO is a non-GAAP financial measure. capitalpower.com 46
Slide 47: AFFO Continues to Support Dividend Growth
AFFO(1,2) Continues to Support Dividend Growth Discretionary cash flow is forecast to be $295M in 2019 $600 $500 $485 $400 $361 $380 39% $324 $292 Gross common dividends(3) $300 $256 46% 44% Discretionary cash flow 41% 49% $200 51% $100 $- (4) 2014 2015 2016 2017 2018T 2019T Long-term AFFO payout ra
Slide 48: Growing AFFO/Share
Growing AFFO(1,3)/Share $5.00 $4.74 $4.35 $4.00 $3.59 $3.65 $3.21 $3.04 $3.00 $2.51 $2.00 $1.00 $- 2014 2015 2016 2017 2018T 2019T AFFO/share normalized² AFFO/share 1) Represents Adjusted FFO (2018 method), less the portion allocated to the non-controlling interest (calculated consistent with the pr
Slide 49: Young Fleet With Long Asset Lives
Young Fleet With Long Asset Lives Average age 14 years(1) Bloom Wind K2 Wind Beaufort Solar Shepard Energy Centre Port Dover & Nanticoke Halkirk Quality Wind • Only 3% of current generation York Energy portfolio is expected to retire in Macho Springs the next decade Keephills 3 East Windsor CBEC - U
Slide 50: High Level of Average Contracted Life
High Level of Average Contracted Life Average PPA term remaining 11 years(1,2) Forecast average PPA 0 5 10 15 20 term remaining(2,4) (3) Island Generation 15 (3) Decatur Energy 14 Arlington 13 Kingsbridge I Bloom Wind 12 Savona 11 150 Mile House 10 East Windsor 9 Coal compensation 8 Beaufort Solar N
Slide 51: EBITDA From New Assets has Supported Dividend Growth
EBITDA From New Assets has Supported Dividend Growth(1-5) $500 Arlington Valley 2019 toll Arlington Valley Whitla $400 New Frontier Decatur EnPower Waste Heat $300 East Windsor York Energy Bloom Beaufort $200 Macho K2 Shepard $100 PDN Halkirk Quality $0 2012 2013 2014 2015 2016 2017 2018E 2019T Grow
Slide 52: Dividend Guidance Extended to 2021
Dividend Guidance Extended to 2021 Annualized dividend $2.19 per share(1,2) $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 2018 Y/E 2019T 2020T 2021T Target long-term annual AFFO payout ratio of 45-55% Delivering consistent annual dividend growth should
Slide 53: Asset Growth Supports New Dividend Guidance
Asset Growth Supports New Dividend Guidance • Since the last dividend guidance in July 2017, have crystalized additional contracted growth with the New Frontier, Whitla 1 and Cardinal Point projects. Arlington has been offset by the K2 Wind divestiture. • Projects are being built without having to a
Slide 54: Discretionary Cash Flow Supports Dividend Growth Target
Discretionary Cash Flow Supports Dividend Growth Target(1) $500M $50M $36M(2) 8.1% 7% AFFO/share Dividend Capital EBITDA AFFO Growth Growth AFFO growth from discretionary cash flow covers 7% annual dividend growth without dilution to existing shareholders 1) Assumes a 10x EBITDA multiple and a capit
Slide 55: Cash Flow and Financing Outlook
Cash Flow and Financing Outlook Sufficient funding for current growth projects 2019T Sources of cash flow ($M) Funds from operations(3) + off-coal compensation $615 Proceeds from disposal of K2 Wind $215 Debt issuances $650 $1,480 Uses of cash flow Dividends (common & preferred shares) ($235) Debt r
Slide 56: Portfolio Optimization
Portfolio Optimization AB commercial portfolio positions Nearly 500 MW 2019 2020 2021 (gas peaking, wind) % sold forward(1) 73% 31% 1% available to capture the upside from low Contracted prices(2) ($/MWh) Low-$50 Low-$50 Low-$70(3) natural gas prices, higher power Forward prices(4) ($/MWh) $56 $46 $
Slide 57: Financial Strength
Financial Strength Strong balance sheet and commitment to investment grade credit ratings Within S&P financial criteria for current rating Agency Ratings Outlook S&P BBB- / P-3 Stable Adj. FFO/Debt(1-4) Adj. Debt/EBITDA(1-4) 20% 5.0 DBRS BBB(low) / Pfd-3 (low) Stable 4.0 15% • Strong liquidity from
Slide 58: Modeling Guidance for New Frontier
Modeling Guidance for New Frontier 40 35 • Main difference between EBITDA and cash flow is driven by the 30 accounting of the production tax EBITDA credits (PTCs) and tax ($M) 25 depreciation credits allocated to the TEI prior to the flip-date 20 15 • Cash flows increase after 2030 as hedge expires
Slide 59: Sustainability and Dividend Growth
Sustainability and Dividend Growth Dividend yield 9.5% 9.0% 8.5% Coal compensation Alberta Government announced announces Climate 8.0% Leadership Plan 7.5% 7.0% 6.5% Long-term average of 6% 6.0% Dividend yield closer to historic 5-6% 5.5% range with recovery in Alberta power prices and more clarity
Slide 60: Key Takeaways
Key Takeaways • Growth in AFFO per share has and will continue to support 7% annual dividend growth • Financial capacity in 2019 to fund $500M growth without accessing equity market • In addition to hedges on 700 MW of baseload generation, have ability to capture upside from higher Alberta power pri
Slide 61: Delivering on Sustainability
Delivering on Sustainability • Strategically Delivering Sustainable Returns • Shifting Our Fuel Mix to Deliver Sustainable Results • Delivering A Reliable & Low Carbon Future Kate Chisholm SVP, Chief Legal & Sustainability Officer capitalpower.com
Slide 62: Sustainability
Sustainability • Background & Context • Early Results • Sustainability Strategy • Next Steps capitalpower.com 62
Slide 63: Shifting Our Fuel Mix to Deliver Sustainable Results
Shifting Our Fuel Mix to Deliver Sustainable Results 2013 – 2,660 MW 2018 – 5,075 MW Renewables Renewables 20% 17% Coal 28% Coal Natural Gas 53% Natural Gas 27% 55% Growth in natural gas and wind assets has resulted in a significant decline in coal as a fuel type capitalpower.com 63
Slide 64: Delivering a Reliable and Low Carbon Future
Delivering a Reliable and Low Carbon Future Historically – Coal • 2007-2017: Continue to participate with Canadian Clean Power Coalition (CCPC) studies on Carbon Capture Options • 2008 -2012: Four CCS projects on coal units Today – Natural Gas • Participating in Cosia Carbon X Prize for developing c
Slide 65: Strategically Delivering Sustainable Returns
Strategically Delivering Sustainable Returns 1. Innovation & Continuous Improvement 2. Becoming Responsibly Future-Ready Via Emission Reductions 3. Sustaining Leadership in Wind Development capitalpower.com 65
Slide 66: Sustainability & Integrated Reporting Milestones
Sustainability & Integrated Reporting Milestones • Mandated Board Oversight • C-Suite Chief Compliance Officer • TCFD Compliance in 2018 Annual Report • Fully Integrated Report in 2019 Annual Report capitalpower.com 66
Slide 67: 2019 Corporate Priorities and Investment Summary
2019 Corporate Priorities and Investment Summary Brian Vaasjo President and CEO capitalpower.com
Slide 68: Operational Targets
Operational Targets Deliver strong operational performance from a young, well-maintained generation fleet 95% Capacity-weighted average plant availability $80 - $90M Sustaining maintenance capex capitalpower.com 68
Slide 69: Growth from Development and Construction Projects
Growth from Development and Construction Projects • Complete Whitla Wind on time and on budget for commercial operations in Dec/19 • Continue construction of Cardinal Point for commercial operations in Mar/20 • Committed capital of $500 million for contracted growth capitalpower.com 69
Slide 70: Financial Targets
Financial Targets 2019 Key Assumptions • Based on 70% of the Alberta Commercial baseload generation sold forward at an average contracted price in the low-$50/MWh range • Excludes any impacts from $500M of committed capital for growth Adjusted funds from operations(1) Adjusted EBITDA ($M) ($M) $600
Slide 71: How Investors Should Think About Capital Power
How Investors Should Think About Capital Power Attractive investment opportunity • Delivering on or exceeding 2018 targets • Excellent 2019 outlook with strong financial targets, normalized 2019 AFFO up 17% • Stability returned to Alberta power market • Proven track record and guidance for sustainab
Slide 72: 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 and depreciation expense from its joint venture interests, gains or losses on disposals and unrealiz
Slide 73: Forward-looking Information
Forward-looking Information Forward-looking information or statements 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 may not be
Slide 74: Investor Relations Contact
Investor Relations Contact Randy Mah 10423 101 Street NW Director 11th Floor (780) 392-5305 Edmonton, Alberta rmah@capitalpower.com Canada, T5H 0E9 www.capitalpower.com capitalpower.com 74