Capital Power Corporation · TSX:CPX
Capital Power — Investor Presentation (July 2023)
47 slides from Capital Power's investor presentation, July 2023
Slide 1: Investor Presentation
Investor Presentation Avik Dey President & CEO Sandra Haskins SVP Finance & CFO July 2023 1
Slide 2: Table of Contents
Table of Contents • Company Overview / Strategy Page 3 • Robust Growth Opportunities 7 • Genesee 1&2 Repowering Project 16 • Decarbonization – Advancing Genesee CCS Project 20 • Strong Positioning in the Alberta Power Market 25 • Executing on Financial Strategy 29 • Attractive Investment Opportunity
Slide 3: Growth-oriented North American energy transition company
Growth-oriented North American energy transition company • Capital Power builds, owns and operates high-quality, utility-scale generation facilities (wind, solar, natural gas and coal) across North America • Committed to achieving net zero by 2045 via our strategic path – off coal by end of 2023, ac
Slide 4: North American footprint
North American footprint 29 operating facilities (~7,500 MW) Fuel split (by MW) Natural Gas / Coal 12% Renewables 20% Natural Gas 68% Projects under development • 224 MW renewable generation in Alberta (Halkirk 2) and North Carolina (Maple Leaf Solar) • 512 incremental MW from Genesee repowering • ~
Slide 5: Our strategy – Powering our Future
Our strategy – Powering our Future To acquire and/or optimize natural gas assets • Public and investor sentiment evolving on natural gas for reliability and affordability • Re-contracting proving out • Excellent opportunities in AESO (Alberta), IESO (Ontario) and MISO (US Midwest) Renewables growth
Slide 6: Pathway to Net Zero
Today–2024 Pathway to • • Complete Genesee repowering and off-coal Complete Genesee CCS FEED study and Net Zero • • commence construction Invest in renewables paired with storage Invest in strategic natural gas • Explore DAC solutions • Advance C2CNT research and development 2024–2030 • Complete Gen
Slide 7: Robust Growth Opportunities
Robust Growth Opportunities • Growth strategy aligns with our sustainability goals • Decarbonization is an immense opportunity for gas and renewables technologies • Strong renewable growth pipeline in Alberta and the United States with one project announced and another planned for 2023 • Ontario rep
Slide 8: Key trends and market drivers
Key trends and market drivers Key criteria we look for in energy markets that we invest in includes: Strong long-term fundamentals • Positive economic outlook underpinned by population growth and a trend of growing electricity demand • Opportunities for contracting and re-contracting assets Comm
Slide 9: Sources of adjusted EBITDA from growth since 2013
Sources of adjusted EBITDA(1) from growth since 2013 ($M) $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E Natural Gas Renewables 1) Adjusted EBITDA is averaged over the periods starting with the first full year of operations after commissioning
Slide 10: Our growth pipeline: 4,700 MW and growing
Our growth pipeline: 4,700 MW and growing Significant near-term growth opportunities in Western Canada, Ontario, North Carolina and MISO market 924 MW wind 2,486 MW solar 700 MW 295 MW gas 2,300 MWh battery storage Wind Solar Gas Battery Storage Solar + Battery Storage 10
Slide 11: Our midlife natural gas strategy in action
Our midlife natural gas strategy in action Acquire midlife gas Enhance value Re-contracting Leverage brownfield advantages in Ontario • Island Generation • Accretive & contracted • CT upgrades extended through 2026 • Efficiency upgrades: York • Advantaged location • Carbon mitigation Energy and Gore
Slide 12: Natural gas critical to North American reliability
Natural gas critical to North American reliability 12
Slide 13: Ontario IESO capacity procurement
Ontario IESO(1) capacity procurement Significant near-term need for supply 1,500 MW of natural gas 2,500 MWh of storage 15-year contracts 22-year contracts Dec 2022 Q1 & Q4 2023 Final contract details Awards Nov 2022 Dec 2022 / Feb 2023 2025-2027 Deliverability test Submissions due Commercial operat
Slide 14: Success in Ontario IESO capacity procurement
Success in Ontario IESO capacity procurement 5 successful bids adding ~350 MW in incremental natural gas and battery storage York Energy Centre Efficiency upgrades 228 MW • Goreway (40 MW) and York Energy (38 MW) with contract extensions to 2035 Goreway Power Expedited Long-term RFP Station 875 MW E
Slide 15: MISO: highly favourable market fundamentals
MISO: highly favourable market fundamentals MCV’s output will be even more critical in the mid-2020s Midland Shifting generation mix Cogeneration 1633 MW • Peak demand of ~12GW , Population of ~10 million • Legacy energy production from coal • 5 GW of baseload retirements over the next 5 years • Maj
Slide 16: Genesee 1&2 Repowering Project
Genesee 1&2 Repowering Project • Conversion to highly efficient combined cycle units increasing its competitiveness • Significant reduction in carbon emissions • Strong project economics 16
Slide 17: Genesee 1 & 2 repowering project update
Genesee 1 & 2 repowering project update • Revised commissioning timelines due to construction delays • Start of simple cycle commissioning of unit 1 expected in Dec/23 (delayed 60 days) and Mar/24 for unit 2 • Start of combined cycle commission expected in Apr/24 (unit 1) and Jun/24 (unit 2) • Revis
Slide 18: Genesee repowering delivers long term value
Genesee repowering delivers long term value Lower operating costs, useful asset life extension, long-term cash flow growth • Well positioned in the merit order • 512 MW net capacity increase – total 1,392 MW • Best-in-class NGCC technology – heat rate (6.6-6.7 GJ/MWh) advantage over all current and
Slide 19: Repositioning Genesee 1&2 on Alberta merit curve
Repositioning Genesee 1&2 Retired Capacity Asset (MW) Estimated Alberta Merit Curve Battle River 3 149 Least Keephills 1 395 Sundance 6 Competitive Sundance 4 Sundance 1 280 Battle River 5 Keephills 2 Sundance 2 280 Sheerness Battle River 5 Keephills 3 Sundance 3 368 Variable Costs ($/MWh) Battle Ri
Slide 20: Decarbonization - Advancing Genesee CCS Project
Decarbonization - Advancing Genesee • CCS on Genesee repowered units 1&2 with CCS Project 95% capture rate at full capacity capturing 3 million tonnes of CO2 per year • Utilizing proven Mitsubishi amine-based technology • Enbridge’s Open Access Carbon Hub located 10 kms from the Genesee facility • A
Slide 21: Genesee CCS progress and LNTP
Genesee CCS progress and LNTP Limited Notice to Status Full Notice to Status Proceed Expectations Proceed Expectations FEED Study • Current capital cost of $2.3B • Firm capital costs • Technology works • Technology confirmation • Due diligence • Performance guarantees CCS Hub • Granted pore space •
Slide 22: Genesee CCS project update
Genesee CCS project update • Targeting final investment decision (FID) in Oct/23 • FEED study essentially completed • 2023 Federal Budget • Reaffirmation of role and mandate for Canada Growth Fund to support de-risking of large scale decarbonization projects • Enhancements to the 50% refundable ITC
Slide 23: Strong government support
Strong government support • Genesee CCS project continues to receive positive signals and feedback from key government agencies • Announced LNTP based on increasing policy certainty Federal Finance Selected as one of 10 projects Canada Infrastructure Canada Growth Fund will released Draft to advance
Slide 24: Genesee CCS project financing
Genesee CCS project financing After-tax returns expected to be commensurate with risk • Current construction cost estimate of Expected Financing Plan $2.3B • After consideration of ITCs, expect the ITCs(1) remaining costs to be funded ~50/50 Capital Power/ between Government sources (SIF Partner 29%
Slide 25: Strong Positioning in the Alberta Power Market
Strong Positioning in the Alberta Power • New supply (thermal and renewables) under construction adds ~6,300 MW over the next Market few years • New renewables and efficient gas supply will displace less efficient thermal units • Demand expected to increase modestly year- over-year • Capital Power w
Slide 26: Alberta power market
Alberta power market Large volume of new capacity under construction MWs Under Construction 4500 • Currently ~36,000 MW of projects in the AESO 4000 Storage queue and AUC e-filing 3500 • ~1,800 MW belonging to Capital Power Other 3000 Suncor Cogen Wind • Close to 6,300 MW are under construction 2500
Slide 27: Alberta power pricing
Alberta power pricing Market progresses through supply-demand balance cycle Alberta Energy Market Prices - Third-Party Range 7x24 APP ($/MWh) 180 160 140 120 100 80 60 40 20 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 (2) Range Historical APP(1) Forwards as of Jul 06, 202
Slide 28: Alberta power pricing
Alberta power pricing Forward prices for balance of 2023 remain strong $/MWh 2023 Alberta Power Market $250 • Q1/23 settled prices were well below forwards $200 coming into 2023 but recovered in Q2 $173 • Forward prices show $150 $136 additional strength relative to guidance $100 • Assets well posit
Slide 29: Executing on Financial Strategy
Executing on Financial Strategy • Strong and resilient cash flow generation funds growth capex and maintains investment grade credit rating • Strong track record of annual dividend increases with dividend growth guidance of 6% per year to 2025 • 5-year TSR of 123%(1) (trailing 5-year period ending J
Slide 30: Stable financial strategy
Stable financial strategy Maintain Funding growth Maintain Deliver annual financial stability towards a net investment grade dividend growth zero future credit rating • Strong liquidity available • Internally generated • Credit metrics exceed • 6% annual dividend on $1B of credit facilities cash flo
Slide 31: Alberta commercial portfolio
Alberta commercial portfolio Reducing volatility and risk through hedging Power Hedged Volume 2024 2025 2026 GWh 10,000 Power 9,000 8,000 Hedged volume (GWh) (3) 8,000 6,500 4,000 7,000 Weighted average hedged prices(1) ($/MWh) (3) Low-$70s Low-$70s Low-$70s 6,000 5,000 Forward Alberta power prices
Slide 32: Delivering 9 consecutive years of dividend growth
Delivering 9 consecutive years of dividend growth Annual dividend increase guidance of 6% to 2025 6% per year ~7% CAGR $2.32 $1.26 Forecast to be below AFFO payout ratio target range of 31% ~40% 45% to 55% payout average payout through 2025 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 202
Slide 33: Cash flow and financing outlook
Cash flow and financing outlook(1) AFFO funds dividend and committed growth capex in 2023 Surplus cash Debt repayments $40M $90M(3) $835M (1) $835M AFFO Common $275M dividends $430M (4) $835M(2) Committed growth/ (3) enhancement capex Expected Sources Expected Uses 1) Figures represent financing pla
Slide 34: 2023 operational and financial targets
2023 operational and financial targets Financial forecast and fleetwide performance remain on track Facility availability Sustaining capex ($M) Adjusted EBITDA ($M) AFFO ($M) 94% 94% $135 to $145 $1,455 to $1,515 $805 to $865 $401 $210 $23 Q1/23 2023 Target Q1/23 2023 Target Q1/23 2023 Target Q1/23
Slide 35: 2023 growth targets
2023 growth targets Continue progress on Genesee 1 and 2 Repowering project based on revised schedule (2024) and $1.35B(1) budget Advance Genesee CCS project with final investment decision by October 2023 Continue progress on Halkirk 2 Wind project on time (Q4/24) and on budget ($274M) Announce inve
Slide 36: Attractive Investment Opportunity
Attractive Investment • Leading transition story Opportunity • Positive outlook for Genesee CCS project and Resilient strategy drives growth carbon emissions reduction and accelerates net zero by 2045 • Positioned for significant renewable growth from large pipeline • Continue to be a leader in ESG
Slide 37: Appendix
Appendix • Alberta power market - supply • Alberta power market - fuel source breakdown • Natural gas critical to North American reliability • Credit rating metrics • Debt maturity schedule • Decarbonization approaches across our portfolio • Political and environmental regulations 37
Slide 38: Alberta power market
Alberta power market A market in transition Unit Additions and Retirements (MW) 4000 3000 2000 Storage Coal Dual Fuel 1000 Coal-to-Gas Cogen 0 Gas CCS Gas Other -1000 Solar Wind -2000 -3000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Source: AESO actuals
Slide 39: Alberta power market
Alberta power market Gas provides the majority of electricity output 2022 Generation 2025 Generation 2030 Generation Other 3% Hydro 2% Other 1% Other 1% Hydro 2% Hydro 2% Solar 5% Solar 1% Solar 6% Converted Coal 12% Gas 3% Gas CCS 9% Converted Wind 22% Converted Gas 1% Gas 12% Gas 53% Wind 9% Gas 6
Slide 40: Financial stability and strength
Financial stability and strength Strong balance sheet and continued commitment to investment grade credit ratings On the back of a strong 2022, 2023 forecast to be BBB- / Stable a solid year with credit • Target FFO to Debt > 20% • Target Debt to EBITDA < 4x metrics above current ratings threshold B
Slide 41: Debt maturity profile
Debt maturity profile(1) Well spread-out debt maturities supported by long asset lives • Strong liquidity with $1B in sustainability linked credit facilities maturing in 2027 • Underlying on refinancings in 2024 – 2026 hedged well below current rates ($M) $600 $500 USD 65 $400 $160 $300 USD Private
Slide 42: Decarbonization approaches across our portfolio
Decarbonization approaches across our portfolio CCUS = Carbon Capture Utilization & Storage, DAC = Direct Air Capture, NBS = Nature Based Solution • Continue to work through the technical viability and economics of these approaches in the short term to enable their deployment in the medium to long t
Slide 43: Political and environmental regulations
Political and environmental regulations Government of Canada Confirmed Alberta, Ontario and B.C. will continue to implement their own carbon pricing systems for industrial emitters through 2030 (Nov 2022) Budget 2023 significant funding and programs to support investment across zero/low-emitting
Slide 44: Political and environmental regulations
Political and environmental regulations Alberta Amendments to TIER Regulation in effect January 1 in accordance with framework confirmed as part of 2022 Federal benchmark equivalence review (Jan 2023) “Alberta’s Emissions Reduction and Energy Development Plan” established 2050 carbon neutrality
Slide 45: Non-GAAP financial measures and ratios
Non-GAAP financial measures and ratios 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 a
Slide 46: Forward-looking information
Forward-looking information Forward-looking information or statements included in this presentation are provided to inform our electricity and other energy and carbon prices; shareholders and potential investors about management’s assessment of Capital Power’s future plans and performance; opera
Slide 47: Investor Relations
Investor Relations Randy Mah Common Shares Director, Investor Relations • Toronto Stock Exchange (TSX: CPX) (780) 392-5305 rmah@capitalpower.com • 52-week low/high share price ($40.06 / $51.90) • Shares outstanding: ~117 million • Market cap: ~$4.9 billion 10423 101 Street NW 11th Floor • Trailing 1