Talen Energy Corporation · NASDAQ:TLN
Talen Energy — Investor Day (September 2024)
51 slides from Talen Energy's investor day presentation, Sep 5, 2024
Slide 1: Investor Day
Investor Day Talen Energy Corporation | September 5, 2024
Slide 2: Disclaimers
Disclaimers The information contained herein, as well as any information that has been supplied orally in connection herewith, speaks only as of the date of this presentation. Talen Energy Corporation (“Talen,” “TEC,” the “Company,” “we,” “our,” or “us”) and our affiliates and representatives expres
Slide 3: Agenda
Agenda 1 Executive Summary 2 Power Markets & Hedging 3 Growth Platform 4 Appendix 3
Slide 4: Executive Summary
Executive Summary
Slide 5: Why Talen?
Why Talen? Pure play independent power producer that directly benefits from growing power demand in premium markets First mover on providing direct-connect power to data center customers and well-positioned to use this advantage Disciplined track record of safe, reliable and cost-effective operation
Slide 6: Substantial Cash Flow per Share Growth, Enhanced by Share Repurchase Program
Substantial Cash Flow per Share Growth, Enhanced by Share Repurchase Program Adjusted Free Cash Flow per Share ✓ Forecasted Adjusted Free Cash Flow growing Assuming Current Share Count of ~51mm quickly, increasingly driven by stable sources2 $17.50 ✓ Reloading our share repurchase program (SRP) capa
Slide 7: Track Record of Unlocking Value
Track Record of Unlocking Value Since May 2023, Talen has identified and executed on multiple actions to unlock value with minimal capital spend Positioned for further growth and actions to Received $300mm of unlock value Repurchased $280mm of remaining Repurchased stock from AWS proceeds Upsized sh
Slide 8: Growing Power Demand Creates Opportunity for the Sector
Growing Power Demand Creates Opportunity for the Sector Unprecedented Change in the Electrifying the Future Creates Talen is Well-Positioned to Capture Power Markets Opportunity the Opportunity Data centers need increasing amounts Significant growth in forecasted power of power that is quick to acce
Slide 9: Talen by the Numbers
Talen by the Numbers Generation Portfolio Overview Generation Portfolio Breakdown1 PJM WECC ISO-NE 3% 2% 1% MAAC 9% Colstrip 56% Montour Lower Mount Bethel ISO-NE Dartmouth WECC 1H 2024 Susquehanna Capacity Martins Creek Generation Keystone by Region Mix Conemaugh Brunner Island Camden Brandon Shore
Slide 10: Introducing 2025 Guidance and 2026 Outlook
Introducing 2025 Guidance and 2026 Outlook Adjusted EBITDA Adjusted Free Cash Flow ($mm) (after Taxes, $mm) Key Drivers of 2025 & 2026 Ranges Adjusted Free Cash Flow Conversion2 Dynamic hedging program; as of July 31, ~35% ~45% ~55% 2024: $1,530 ▪ ~100% hedged for balance of 2024 $895 ▪ ~67% hedged
Slide 11: Reloading Share Repurchase Capacity to $1.25 Billion
Reloading Share Repurchase Capacity to $1.25 Billion Share Repurchase Program Overview ($mm) Executed Repurchases Additional Capacity $2,181 ✓ Targeting return of ~70% of Adjusted Free Cash Flow to shareholders going forward Increasing SRP capacity, given confidence in $1,143 $1,250 ✓ cash flows, mo
Slide 12: Significant Expected Margin Growth, with Increasing Stability
Significant Expected Margin Growth, with Increasing Stability Margin Composition1 2024E 2025E 2026E Talen’s margin is expected to grow over time, with an increasing share coming from stable sources2 28% 30% 40% 70% 60% 50% 50% ✓ Reduces hedging activity and liquidity needs 72% Stable2 ✓ Increases ba
Slide 13: Talen is Now Eligible for Multiple Indices
Talen is Now Eligible for Multiple Indices ✓ After uplisting to NASDAQ, Talen is now eligible for several indices, which could drive substantial institutional / passive stock demand: S&P TMI / CRSP TMI / MSCI Small Cap Index Completion Small Cap 1750 Russell 1000 S&P 400 Potential September Septembe
Slide 14: Power Markets & Hedging
Power Markets & Hedging
Slide 15: U.S. Power Demand is Growing, Especially in PJM
U.S. Power Demand is Growing, Especially in PJM 5-Year Nationwide Growth Forecast PJM Demand Forecast1 40 200 2024 Forecast 17 GW Increase 2023 Forecast Summer Peak Demand 190 Summer Load (GW) 30 2022 Forecast 180 Growth (GW) +18 GW increase Forecast 2028 from 2024 to 2030 20 Peak: 852 GW 170 Foreca
Slide 16: PJM Market Fundamentals are Tightening
PJM Market Fundamentals are Tightening Historical Capacity Auction Results by Planning Year (RTO) 23% 22% 22% 20% 20% 20% ▪ PJM reserve margins are shrinking as power 19% demand grows while supply faces retirements and lack of new builds $ 270 ? $ 100 $ 140 $ 77 $ 50 $ 34 $ 29 '19/'20 '20/'21 '21/'2
Slide 17: Hedging Strategy Well-Positioned in Current Market
Hedging Strategy Well-Positioned in Current Market Talen’s commercial strategy creates asymmetric returns Margin & Cash ▪ Protects against downside, providing cash flow stability Flow Protection (Table Stakes) ▪ Retains exposure to upside through both generation and opportunistic hedging Point Hedgi
Slide 18: Growth Platform: Powering the Future
Growth Platform: Powering the Future
Slide 19: Long-Term Agreements with AWS Create Stable Cash Flow Growth
Long-Term Agreements with AWS Create Stable Cash Flow Growth ▪ Susquehanna PPA for up to 960 MW direct-connect, carbon-free power Overview ▪ Increasing by 120 MW in commitments per year, with option to accelerate power ramp of AWS Contracts ▪ Fixed price over 10-year terms, repriced at market ▪ Addi
Slide 20: Financial Impact of AWS Contracts
Financial Impact of AWS Contracts Illustrative Incremental Impact Above Nuclear PTC on Adjusted EBITDA ($mm/year, rounded to nearest $5mm) +$255 960 MW Power Sales + Additional Revenue Related to CFE +$215 480 MW Power Sales + Additional Revenue Related to CFE +$140 +$150 Contractual Minimums +$135
Slide 21: Update on FERC ISA Process
Update on FERC ISA Process The Process Prior Amendment to 300 MW Current Amendment to 480/960 MW Two Separate FERC Processes ▪ No issues ▪ Up to 480 MW: No issues 1 ISA Reliability ▪ Up to 960 MW: Identified a minor grid Review by PJM stability concern under extreme ▪ PJM has responded to FERC, and
Slide 22: Talen Has Built a Valuable Platform to Power the Data Center Economy
Talen Has Built a Valuable Platform to Power the Data Center Economy Talen Understands What is Important to … And Has Built Hyperscalers… Industry-Leading Expertise & Team Speed of Access to Space and Power Technical Stakeholder Scalable to Support 1 GW+ AI Customers Development Engagement 24x7 Reli
Slide 23: Talen is Uniquely Positioned to Power the Future
Talen is Uniquely Positioned to Power the Future Strong Adjusted Free Cash Flow growth enabling reloading of SRP to $1.25B Diverse fleet of nuclear, gas, and reliability assets First-mover in delivering carbon-free power to data centers, with plans to replicate this success Able to capitalize on pow
Slide 24: Talen is Powering the Future
Talen is Powering the Future Susquehanna Powering Data Nuclear Facility Centers Premium PJM Dynamic Commercial Gas Assets Hedging Strategy Disciplined Cost and Reliability Assets Capital Management 24
Slide 25: Appendix: Modeling Assumptions
Appendix: Modeling Assumptions
Slide 26: Energy Revenue and Margin Projections
Energy Revenue and Margin Projections 2024E1 2025E 2026E Energy Energy Energy Generation Prices Revenue Generation Prices Revenue Generation Prices Revenue (TWhs) ($/MWh) ($mm) (TWhs) ($/MWh) ($mm) (TWhs) ($/MWh) ($mm) PJM Fleet2 34.5 $36 $1,235 34.5 $48 $1,665 34.5 $53 $1,835 Montana 1.4 $75 $105 1
Slide 27: PJM Capacity Revenue Projections
PJM Capacity Revenue Projections Planning Year 2023/2024 2024E/2025E 2025E/2026E 2026E/2027E Prices Prices Prices Prices1 Volumes ($/MW- Revenues Volumes ($/MW- Revenues Volumes ($/MW- Revenues Volumes ($/MW- Revenues (MW) day) ($mm) (MW) day) ($mm) (MW) day) ($mm) (MW) day) ($mm) PJM Capacity Reven
Slide 28: O&M and Capital Expenditure Projections
O&M and Capital Expenditure Projections O&M Expenses ($mm) Capital Expenditures ($mm) $225 $580 $570 $570 $200 $180 $90 $100 $80 $135 $100 $100 2024E 1 2025E 2026E 2024E 1 2025E 2026E Nuclear Fuel Maintenance & Other Increases due to investments in continuing operations and hardening assets for reli
Slide 29: Long-Dated Debt Maturities and Solid Credit Ratings
Long-Dated Debt Maturities and Solid Credit Ratings Debt Overview Debt Maturity Summary ($mm) Revolving Credit Facility (Undrawn) Principal Interest Rate1 Tranche Maturity Term Loan B2 / Secured Notes ($mm) as of 8/30 $2,061 PEDFA Bonds3 Revolving Credit Facility May 2028 $- ~8% Secured Notes June 2
Slide 30: Strong Credit and Liquidity Metrics
Strong Credit and Liquidity Metrics Capitalization Summary Credit Metric Summary $mm August 30, 2024 Credit Metrics Unrestricted Cash $692 2024E Adjusted EBITDA Guidance Midpoint ($mm)1 $750 Secured Debt $2,061 Net Debt / 2024E Adjusted EBITDA2 ~2.0x Total Debt $2,192 Total Liquidity ($mm)3 $1,392 N
Slide 31: Other Modeling Inputs
Other Modeling Inputs 2024E 2025E 2026E Nuclear PTC ($mm) $190 $0 $0 Other Margin ($mm)1 $60 $50 $40 Cash Taxes as % of Adjusted EBITDA2 1% 7% 11% Pension Contributions ($mm) $(60) $(60) $(30) Asset Retirement Obligations and Environmental $(20) $(40) $(60) Liabilities ($mm) Note: Represents the mid
Slide 32: Nuclear Production Tax Credit Overview
Nuclear Production Tax Credit Overview Nuclear PTC Overview Nuclear PTC Impact1 $60 ▪ Starting in 2024, the PTC benefit is calculated based on a year’s Gross Receipts + PTC ($/MWh) Below $25/MWh annual “gross receipts” divided by annual generation $55 $1/MWh increase in gross $50 receipts → No decre
Slide 33: Appendix: Supplemental Asset Detail
Appendix: Supplemental Asset Detail
Slide 34: Generation Portfolio Summary as of June 30, 2024
Generation Portfolio Summary as of June 30, 2024 Commercial Plant Owned Asset Location Fuel Type Plant Type Ownership Operations Date Region Configuration Capacity (MW)1 (COD) Susquehanna Nuclear Facility Susquehanna2 PA Nuclear Baseload Dual-Unit 90% 2,228 1983 – 1985 PJM-PPL/MAAC Premium PJM Gas A
Slide 35: Talen's Diverse Asset Fleet
Talen’s Diverse Asset Fleet Susquehanna Nuclear Facility Premium PJM Gas Assets (Brunner Island, Camden, Lower Mount Bethel, Martins Creek, ▪ 6th largest U.S. nuclear facility, with dual units; operated and Montour) 90% owned by Talen (~2.2 GW) Valuable, low-carbon dispatchable generation ▪ Highly r
Slide 36: Susquehanna: Generation and Capacity Factors
Susquehanna: Generation and Capacity Factors Projected Annual Generation (TWh) Projected Capacity Factors2 % of Total Fleet Annual Generation1 51% 52% 52% 94% 96% 96% 18.4 18.7 18.8 2024E 2025E 2026E 2024E 2025E 2026E 1. 2024E excludes January – April contribution from the ERCOT generation fleet. 2.
Slide 37: Susquehanna: Operational Highlights
Susquehanna: Operational Highlights Journey to Today Looking Forward ▪ Engaged workforce at all levels to ▪ Continue to identify and eliminate focus on safety, reliability and cost risk through proactive efficiency maintenance ▪ Improved cost structure and simplified ▪ Continue to focus on keeping r
Slide 38: Susquehanna: Nuclear Fuel Update
Susquehanna: Nuclear Fuel Update 2025 Outage Fuel Cost Breakdown % Nuclear Fuel Contracted by Outage Year1 13% 3% 43% Uranium (U308) 7% Conversion Open 100% 100% 97% Enrichment 87% Contracted 25% Fabrication 25% 2025E 2026E 2027E 2028E Note: As of July 2, 2024. 1. % of nuclear fuel capex that is ope
Slide 39: Premium PJM Gas Assets: Generation and Capacity Factors
Premium PJM Gas Assets: Generation and Capacity Factors Projected Annual Generation (TWh) Projected Capacity Factors2 % of Total Fleet Annual Generation1 37% 34% 33% 13.2 28% 12.3 12.1 26% 25% 2024E 2025E 2026E 2024E 2025E 2026E Note: Premium PJM Gas Fleet includes Brunner Island, Camden, Lower Moun
Slide 40: Premium PJM Gas Assets: Brunner Island
Premium PJM Gas Assets: Brunner Island MAAC Three-unit, dual-fuel plant near the Susquehanna River Meaningful revenues from capacity payments RTO Can switch between coal and gas within hours without going offline, a big advantage during peaking periods Owned 1,429 MW Capacity1 No coal-fired generati
Slide 41: Premium PJM Gas Assets: Lower Mount Bethel
Premium PJM Gas Assets: Lower Mount Bethel Dual-unit combined cycle gas turbine plant near the Delaware MAAC River that shares a site with Martins Creek Low-cost Marcellus gas supply (TETCO M3), with firm transportation agreement through 2029 RTO Owned 606 MW Low heat rate, fuel costs and operating
Slide 42: Premium PJM Gas Assets: Martins Creek
Premium PJM Gas Assets: Martins Creek Dual-unit gas plant near the Delaware River that shares a site MAAC with Lower Mount Bethel Meaningful revenues from capacity payments RTO Owned 1,716 MW Capacity1 Units capable of cycling daily to capture peak energy prices Market PJM-PPL Heat Rate ~10 MMBtu/MW
Slide 43: Premium PJM Gas Assets: Montour
Premium PJM Gas Assets: Montour Dual-unit gas plant in the heart of the Marcellus shale near MAAC Leidy Hub Meaningful revenues from capacity payments RTO Owned 1,508 MW Capacity1 Leidy gas typically trades at discount to TETCO M3 in winter and often is the cheapest natural gas in PJM Market PJM-PPL
Slide 44: Reliability Assets: Brandon Shores
Reliability Assets: Brandon Shores Dual-unit coal plant on a large site near Baltimore Harbor MAAC that shares a site with H.A. Wagner PJM has determined that plant is needed through 2028 for reliability RTO Assuming acceptable RMR arrangement is reached, only revenues would be monthly payments from
Slide 45: Reliability Assets: H.A. Wagner
Reliability Assets: H.A. Wagner Four-unit1, oil-fired plant on a large site near Baltimore MAAC Harbor that shares a site with Brandon Shores PJM has determined that Units 3 and 4 are needed through 2028 for reliability RTO Owned 848 MW Capacity2 Assuming acceptable RMR arrangement is reached, only
Slide 46: Reliability Assets: Colstrip
Reliability Assets: Colstrip WECC Coal plant with two active units in which Talen has a minority stake and is the operator ND MT Important part of Montana’s economy and grid, which is ID SD experiencing elevated power pricing due to tightening reserve WY margins Other co-owners include Puget Sound E
Slide 47: Appendix: Reconciliation of Non-GAAP Financial Measures
Appendix: Reconciliation of Non-GAAP Financial Measures
Slide 48: Definitions of Non-GAAP Financial Measures
Definitions of Non-GAAP Financial Measures Non-GAAP Financial Measures The following non-GAAP financial measures of Adjusted EBITDA and Adjusted Free Cash Flow discussed below, which we use as measures of our performance and liquidity, are not financial measures prepared under GAAP. Non-GAAP financi
Slide 49: Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2024 Guidance
Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2024 Guidance The reconciliation from forecasted "Net Income (Loss)" to Adjusted EBITDA and Adjusted Free Cash Flow for the year ended December 31: ($Millions) 2024E Low High Notes Net Income (Loss) $730 $790 a) Excludes income taxes paid fro
Slide 50: Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2025 Guidance
Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2025 Guidance The reconciliation from forecasted "Net Income (Loss)" to Adjusted EBITDA and Adjusted Free Cash Flow for the year ended December 31: ($Millions) 2025E Low High Notes Net Income (Loss) $ 190 $ 410 a) Excludes income taxes paid f
Slide 51: Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2026 Outlook
Adjusted EBITDA / Adjusted Free Cash Flow Reconciliation: 2026 Outlook The reconciliation from forecasted "Net Income (Loss)" to Adjusted EBITDA and Adjusted Free Cash Flow for the year ended December 31: ($Millions) 2026E Low High Notes Net Income (Loss) $ 350 $ 720 a) Excludes income taxes paid fr