Slide 1: Investor Presentation October 2015
Investor Presentation October 2015 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 Today
TransAlta Today We believe TransAlta’s stock will provide strong value to investors Persistent Low Power Prices • TransAlta’s hedging strategy provides short-term protection Current value reflects an over reaction to Alberta business risk • Uncertain future for coal assets; addressed by ‘Dial-down D
Slide 4: TransAlta's Diversified Portfolio
TransAlta’s Diversified Portfolio Coal: 4,931 MW ~88% contracted 6 facilities in Canada and U.S. Remaining contract life of 5.5 years Gas: 1,315 MW ~100% contracted 12 facilities in Canada and Average contract life of 12.4 years Australia; also 270km pipeline Wind: 1,381 MW ~65% contracted 22 facili
Slide 5: EBITDA by Business Segment
EBITDA by Business Segment $M 2015 Guidance: 2014 Free EBITDA (1) $980M - $1,010M $1,100 9% 25% $900 24% 7% $700 35% $500 Canadian Coal $300 U.S. Coal Gas Wind $100 Hydro Corporate -$100 Energy Marketing 2012 2013 2014 2015E Avg. Price $68 $80 $50 $40 $/MWh (1) Free EBITDA = EBITDA – Sustaining Capi
Slide 6: Contracted Portfolio Supports Stable EBITDA
Contracted Portfolio Supports Stable EBITDA Total portfolio contractedness1 Merchant exposure in Alberta and the MW Pacific NW 89% 86% 80% 70% 2015 Hedge prices 6,000 AB ~$50/MWh PacNW ~$40/MWh 2016 Hedge prices 4,000 AB ~$45 - $50/MWh PacNW ~$40 - $45/MWh Alberta 2,000 • Well hedged through 2016 •
Slide 7: Energy Marketing Capability - A Competitive Advantage
Energy Marketing Capability - A Competitive Advantage • Transacting in multiple markets provides us with a competitive Proprietary Trading advantage (20%) • Targeting $40 to $60 million in gross margin annually from Proprietary Trading Energy Marketing • Preparing for roll off of Alberta PPAs and •
Slide 8: TransAlta's Strategic Goals
2015 Strategic Objectives TransAlta’s Strategic Goals • Deliver results from the base business • Strengthen our financial position • Grow strategically 8
Slide 9: Executing on our Strategic Objectives
Executing on our Strategic Objectives Customer • Serve Alberta with diverse energy generation fleet; serve 30% of provincial customers by 2021 Focus • Provide customers with reliable and low cost power • Leverage world class energy marketing team to deliver value for customers and shareholders Opera
Slide 10: Funding Strategy
TransAlta Funding Strategy
Slide 11: Strengthening our Financial Position – Why?
Strengthening our Financial Position – Why? 1 Access to capital markets Competitiveness 2 Lower cost of debt Financial Flexibility 3 Access to customers Strategic Growth Agency Rating Outlook Current Ratings: S&P BBB- Stable DBRS BBB Stable Fitch BBB- Stable Moody’s BAA3 Negative Maintain investment
Slide 12: Strengthened Financial Position
Strengthened Financial Position • Deliver on FFO and debt reduction targets and achieve FFO to Debt target of 20% • As at Sept 30, 2015, ~$0.9 billion in available liquidity. We used our liquidity to repay a USD$500 million Senior Note that matured in January $M Senior Debt FFO / Debt (1) 4,500 20%
Slide 13: Significant Financial Capacity
Significant Financial Capacity TransAlta needs to raise between $900 million and $1.1 billion over the next 3 years to meet our current funding requirements Committed Funding Requirements (2015 - 2017) $ millions Low High Debt Reductions $ (300) - $ (500) Committed Growth Capital - South Hedland $ (
Slide 14: Leveraging TransAlta Renewables
Leveraging TransAlta Renewables • TransAlta is the largest shareholder of TransAlta Renewables and will TransAlta Public maintain ~65-75% ownership • Unlocks the value of long-life contracted assets on attractive terms ~65-75% ~25-35% • Provides access to lower cost funding • Funds growth and debt r
Slide 15: TransAlta Renewables (TSX:RNW)
TransAlta Renewables (TSX:RNW) • Provides stable and consistent returns for investors through the ownership of highly contracted power generation and other infrastructure assets. Enterprise Value¹ $3.0 Market Cap. $2.4 $176million in 2014 $3.0 Billion $0.84 $2.2 Billion billion Enterprise Value bill
Slide 16: Executing Our Funding Strategy
Executing Our Funding Strategy In May 2015, TransAlta completed the previously announced $1.78 billion investment by TransAlta Renewables in an economic interest based on the cash flows of TransAlta’s Australian portfolio The transaction delivered significant benefits to TransAlta: • Raised ~$217 mi
Slide 17: Significant Drop-Down Inventory
Significant Drop-Down Inventory Potential Drop-Down Candidates from TransAlta Corporation • ~1,000 MW in Alberta & Ontario including: • 244 MW Poplar Creek facility in AB Gas Fired • 506 MW Sarnia facility in ON Generation • ~150 MW from 4 facilities through TA Cogen • ~$220M in EBITDA • ~800 MW fro
Slide 18: Growth Strategy
TransAlta Growth Strategy
Slide 19: Growth Strategy
Growth Strategy Targeting accretive growth transactions while continuing to strengthen our balance sheet • Pursuing options to extend the life of our existing Positioning for the assets final stages of • Further diversifying our portfolio by investing in gas de-regulation in the and renewable genera
Slide 20: Recent Growth Accomplishments
Recent Growth Accomplishments U.S. Wind and Solar Acquisition • Acquired 71 MW of fully contracted renewable assets - 50 MW wind facility in Minnesota, and 21 MW of solar facilities in Massachusetts • Potential drop-down candidates for TransAlta Renewables Poplar Creek Re-Structuring • Poplar Creek
Slide 21: Alberta Market
TransAlta Alberta Market
Slide 22: TransAlta's Position in the Alberta Market
TransAlta’s Position in the Alberta Market Current By 2020 • 40% of total generation; ~15% of total • 30% of total customers under customer business 1 - 5 year contracts • 11% of total offer control • ~30% of total offer control • ~80% contract coverage through • Offering to large-scale customers Al
Slide 23: Managing Low Merchant Prices in Alberta
Managing Low Merchant Prices in Alberta $60 Alberta Forward Curve Oversupply in the Alberta power market and low gas prices $55 are driving historic lows for Alberta power prices $50 $45 $40 $35 $30 $25 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 Opportunities • The Alberta PPA’s were designe
Slide 24: Competitive Position - Low Cost Generation in Alberta
Competitive Position - Low Cost Generation in Alberta $/MWh Marginal Costs Customer Representation $60 $50 $40 TransAlta’s Average Marginal Cost in AB $30 $20 $10 $- Hydro Wind Coal Cogen/CC Gas Peakers • TransAlta has the largest and most diverse fleet in the Alberta market • Low-cost structure all
Slide 25: Value Potential as Alberta Legislated PPAs Expire
Value Potential as Alberta Legislated PPAs Expire Current Post PPA TransAlta 11% Other Other TransCanada 15% 22% 2% TransAlta Capital Power ~30% 10% Oil and Gas ATCO 15% 11% TransCanada 17% ENMAX ENMAX 8% Capital Power Uncontrolled 18% 15% 11% ATCO 12% Total Market Capacity: 15,777 MW TransAlta curr
Slide 26: Alberta Requires Significant New Investment Longer-term
Alberta Requires Significant New Investment Longer-term Projected load growth and MW capacity replacement 8,000 • Oil and gas sector remains a major 7,000 economic driver even 6,000 with weaker world oil Peak load growth prices 5,000 • 3% average 4,000 historical load growth 3,000 • ~ 1M barrels/d o
Slide 27: Near-term Growth Potential
Near-term Growth Potential Significant incremental EBITDA by 2021 when Alberta PPAs expire $M $2,000 $1,500 Upside at Upside at $75/MWH Upside at $65/MWH $55/MWH $1,000 $500 $- 2014 2017E 2018E 2021E Existing Business Australian Growth Post PPA upside Post PPA upside Committed growth cash flows & Po
Slide 28: Environmental Regulations
Environmental Regulations 28
Slide 29: A Change of Leadership in Alberta
A Change of Leadership in Alberta A new NDP Government was elected in Alberta in May 2015 and has created a review panel to address climate change in the province. TransAlta is engaged in active discussions with the government and believe in their vision for Alberta: “Alberta’s vision is of a health
Slide 30: Coal Transition in Alberta – The Facts
Coal Transition in Alberta – The Facts • There is currently 6,277 MW of coal-fired installed capacity in Alberta, representing approximately 39% of the overall supply • Federal regulations amended in 2012 designate useful life of coal plants as 50 years • Eight of TransAlta’s coal units, totaling 2,
Slide 31: Coal Transition – Comparative Factors
Coal Transition – Comparative Factors United Alberta Ontario Texas California Germany Kingdom Installed Capacity 16,151 34,780 80,149 78,865 177,140 84,987 (MW) Coal – 39% Nuclear – 37% Gas – 63% Gas – 59% Coal – 28% Gas – 40% Capacity Cogen – 28% Gas – 29% Coal – 25% Cogen – 28% Solar – 22% Coal/Oi
Slide 32: Emissions Regulations in Alberta – The Facts
Emissions Regulations in Alberta – The Facts Specified Gas Emitter • Intensity based approach Regulation (SGER) • Target of 12% below a baseline emission level • $15/tonne payment to Technology Fund or supply credits • NDP amended these in June 2015 - • 2016 – 15% target and $20/tonne • 2017 – 20% t
Slide 33: "Dial Down – Dial Up" – Proposed Environmental Strategy
“Dial Down – Dial Up” – Proposed Environmental Strategy TransAlta submitted a proposal to the Alberta Climate Change Advisory Panel that would see a “Dial Down” of coal-based electricity generation while the province “Dials Up” renewables-based generation Dial Down Coal Dial Up Renewables Mandatory
Slide 34: Dial Down Coal - Dial Up Renewables
Dial Down Coal - Dial Up Renewables Generation by fuel type for the Dial Down - Dial Up policy 100,000 90,000 80,000 Annual generation (GWh) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Coal Gas Cogen Renewables 20% dia
Slide 35: Alternate Solutions – Cost Comparison
Alternate Solutions – Cost Comparison • Pool prices in the Dial Down Dial Up scenario are similar to Business as Usual • RPS is driven by a large volume of renewable generation bidding in at $0 • Cap & Trade is the highest average Pool Price due to projected price of $75/tonne price of carbon 140 Av
Slide 36: Options for Life Extension of Canadian Coal Assets
Options for Life Extension of Canadian Coal Assets Our goal is to meet Federal and Provincial regulations with investments that will reduce GHG emissions and maintain cost competitiveness • Currently evaluating Coal to Gas Conversion to extend the life of coal assets • Carbon Capture & Storage has s
Slide 37: Appendix
TransAlta Appendix
Slide 38: Financial performance by Business Segment
Financial performance by Business Segment Business Segment 2011 2012 2013 2014 EBITDA ($M) Canadian Coal $273 $373 $309 $386 U.S. Coal $211 $148 $66 $62 Gas $275 $312 $327 $309 Wind $163 $151 $180 $177 Hydro $105 $127 $147 $85 Energy Marketing $101 ($13) $61 $76 Corporate Segment ($84) ($83) ($67) $
Slide 39: Sustaining Capex by Business Segment
Sustaining Capex by Business Segment Sustaining Capital $M Business Segment 2011 2012 2013 2014 Generation Segment Canadian Coal $121 $316 $237 $211 U.S. Coal $63 $32 $16 $12 Gas $69 $49 $58 $63 Wind $7 $4 $9 $12 Hydro $32 $14 $14 $21 Corporate $27 $24 $22 $23 Sustaining Capital $319 $439 $341 $342