Capital Power Corporation · TSX:CPX
Capital Power — Investor Presentation (March 2023)
47 slides from Capital Power's investor presentation, March 2023
Slide 1: Investor Presentation March 2023
Investor Presentation March 2023 Brian Vaasjo Sandra Haskins President & CEO SVP Finance & CFO 1
Slide 2: Table of Contents
Table of Contents • Company Overview / Strategy Page 3 • Powering a Sustainable Future 6 • Robust Growth Opportunities 9 • Decarbonization – Advancing Genesee CCS Project 15 • Genesee 1&2 Repowering Project 19 • Strong Positioning in the Alberta Power Market 23 • Executing on Financial Strategy 27 •
Slide 3: Growth-oriented North American energy transition company
Growth-oriented North American energy transition company • Targeting net carbon neutral before 2045 x3 • Off coal in 2023 • Pursuing natural gas CCS project • 29 operating facilities (~7,500 MW); highly- contracted, young and diversified portfolio • Well-positioned assets and trading expertise in th
Slide 4: 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 Ontario, MISO(1), Alberta Renewables growth • Pipeline of 3.4 GW of nea
Slide 5: Pathway to Net Zero 2045
Today–2024 Pathway to • • Complete repowering and off-coal Explore and deploy battery technology Net Zero 2045 • • Complete CCS FEED study at Genesee and commence construction Invest in renewables, strategic natural gas • Pair renewables with storage • Explore commercial / physical DAC solutions • C
Slide 6: Powering a Sustainable Future
Powering a Sustainable Future • Advancing decarbonization across our portfolio and targeting net zero by 2045 • On track to meet our sustainability targets • Policy developments support our strategy • Demonstrating ESG excellence across our business 6
Slide 7: Enhancing our ESG performance
Enhancing our ESG performance Executive and leadership incentives linked to ESG 20% of 2023 executive short-term incentive pay • 5% of our Alberta natural gas purchases will be from responsibly sourced natural gas in 2023 • Health, safety and environment index • 30% of new hires to be women across o
Slide 8: 2023 Sustainability Targets
2023 Sustainability Targets 2045 Achieve net zero by 2045 Sustainable Sourcing Policy Strong performance relating to existing targets Green Financing Framework and sustainability-linked financing Enhanced ESG targets 8
Slide 9: 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 two projects planned for 2023 • Ontario represents significant o
Slide 10: 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 11: 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 and MISO 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 11
Slide 12: Our midlife natural gas strategy in action
Our midlife natural gas strategy in action Acquire midlife gas Enhance value Re-contract Leverage brownfield advantages • Accretive & contracted • CT upgrades • Island Generation • Uprates extended through 2026 • Advantaged location • Carbon mitigation • Expansions • Decatur renewed through • Compet
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: Ontario IESO capacity procurement
Ontario IESO(1) capacity procurement Assets very well-positioned for success Significant near-term need for supply York Energy • 1,500 MW of natural gas (15-year contracts) Centre 228 MW • 2,500 MWh of storage (22-year contracts) Expedited RFP • IESO aiming to procure 600 MW of gas and 900 MW of sto
Slide 15: 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 16: 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 17: 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 18: 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 19: Genesee 1&2 Repowering Project
Genesee 1&2 Repowering Project • Conversion to highly efficient combined cycle units increasing its competitiveness • On schedule to meet our off-coal commitment by the end of 2023 • Significant reduction in carbon emissions • Strong project economics 19
Slide 20: Genesee repowering delivers long term value
Genesee repowering delivers long term value Lower operating costs, useful asset life extension, long-term cash flow growth • Forecast $1.1B project cost – modest overrun on $997M budget (excludes $195M for 210 MW battery storage) due to additional costs associated with switchyard • Strong economics
Slide 21: Repositioning Genesee 1&2
Repositioning Genesee 1&2 Retired Capacity Asset (MW) Battle River 3 149 Keephills 1 395 Sundance 1 280 Sundance 2 280 Sundance 3 368 Variable costs Sundance 4 406 Sundance 5* 406 Sundance 6** 401 Battle River 4** 155 Battle River 5** 385 Sheerness 1** 400 Sheerness 2** 400 Keephills 2** 395 *Suspen
Slide 22: Genesee repowering
Genesee repowering Significantly reducing carbon emissions and increasing competitiveness Illustrative variable cost comparison ($/MWh) 70 Marginal Price Marginal Price 60 50 40 30 20 10 0 Marginal Genesee 1/2 Marginal Genesee Repower Thermal Unit Thermal Unit 2023 2025 Fuel VOM GHG 22
Slide 23: Strong Positioning in the Alberta Power Market
Strong Positioning in the Alberta Power • 2022 was a record year for average spot price of $162/MWh from increased demand and Market unseasonable weather conditions at various times throughout the year • New supply (thermal and renewables) under construction adds ~6,800 MW over the next few years •
Slide 24: Alberta power market
Alberta power market Large volume of new capacity under construction MWs Under Construction 4000 • Currently ~34,000 MW of projects in the AESO 3500 queue and AUC e-filing Other • ~1,800 MW belonging to Capital Power 3000 Suncor Cogen • Close to 6,800 MW are under construction 2500 Wind • Over 20% o
Slide 25: Alberta power pricing
Alberta power pricing Market progresses through supply-demand balance cycle 7x24 APP ($/MWh) Alberta Energy Market Prices - Third-Party Range 180 160 140 120 100 80 60 40 20 - (1) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Range Historical APP Forwards as of Mar 13, 2023 1
Slide 26: Alberta power pricing
Alberta power pricing Forward prices for balance of 2023 remain strong $/MWh 2023 Alberta Power Market $250 • January & February prices settled below forwards due to very warm weather $200 • Balance of year forwards have strengthened relative to Nov 18/22 forward prices $150 • Expect ongoing market
Slide 27: 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 • Average annual TSR of 26% in past 5 years exceeded 10-
Slide 28: 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 $1B of credit facilities cash flo
Slide 29: Alberta commercial portfolio
Alberta commercial portfolio Reducing volatility and risk with multi-year hedges GWh Power Hedged Volume 2023 2024 2025 10,000 9,000 Power 8,000 Hedged volume (GWh) (3) 10,000 7,000 6,000 7,000 6,000 Weighted average hedged prices(1) ($/MWh) (3) High-$70s Low-$70s High-$60s 5,000 4,000 Forward Alber
Slide 30: Delivering 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 31: Cash flow and financing outlook
Cash flow and financing outlook AFFO funds dividend and committed growth capex in 2023 Surplus cash Debt repayments $40M $90M(2) $835M (1) $835M AFFO Common $275M dividends $430M (3) $835M(1) Committed growth/ (3) enhancement capex Expected Sources Expected Uses 1) Midpoint of guidance range of $805
Slide 32: Executing on ~$0.9B of growth capex
Executing on ~$0.9B(1) of growth capex Committed capital funded primarily by internally generated cashflow ~$490M ~$430M 91 248 347 37 150 45 2023E 2024E (2) Genesee battery storage Halkirk 2 Genesee Repower 1) Remaining spending on committed capital projects, excludes US renewable assets 2) Genesee
Slide 33: 2023 operational and financial targets
2023 operational and financial targets Adjusted EBITDA up ~10%(1) driven by asset additions Facility availability Sustaining capex ($M) Adjusted EBITDA ($M) AFFO ($M) 93% 94% $141 $135 to $145 $1,455 to $1,515 $848 $805 to $865 $1,353 2022 2023 Target 2022 2023 Target 2022 2023 Target 2022 2023 Targ
Slide 34: 2023 growth targets
2023 growth targets Continue progress on Genesee 1 and 2 Repowering project based on revised schedule (2024) and $1.1B(1) budget Advance Genesee CCS project with final investment decision by late 2023 Continue progress on Halkirk 2 Wind project on time (Q4/24) and on budget ($274M) Announce investme
Slide 35: Attractive Investment Opportunity
Attractive Investment • Leading transition story Opportunity • Outlook for Genesee CCS project and carbon Resilient strategy drives growth emissions reduction is promising and accelerates net zero by 2045 • Positioned for significant renewable growth from large pipeline • Continue to be a leader in
Slide 36: 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 36
Slide 37: Alberta power market
Alberta power market A market in transition Unit Additions and Retirements (MW) 4000 3000 Storage 2000 Coal Dual Fuel 1000 Coal-to-Gas Cogen 0 Gas CCS Gas -1000 Other Solar Wind -2000 -3000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Source: AESO 37
Slide 38: Alberta power market
Alberta power market Gas provides the majority of electricity output 2022 Generation 2025 Generation 2030 Generation Hydro 2% Other 3% Hydro 2% Other 3% Other 3% Solar 4% Hydro 2% Solar 1% Converted Solar 5% Coal 12% Gas 3% Gas CCS 10% Converted Wind 21% Gas 12% Converted Gas 1% Gas 55% Wind 9% Gas
Slide 39: Natural gas critical to North American reliability
Natural gas critical to North American reliability 39
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 Committed to establish Canada Growth Fund as entity with responsibility to enter into carbon contracts for differences (CCFDs) and/or other approaches to ensure carbon pricing certainty (2022 Fall Economic Statement) Announced details
Slide 44: Political and environmental regulations
Political and environmental regulations Alberta Government Announced projects selected to proceed to evaluation phase in CCUS Hub process, including Enbridge Open Access Wabamun Hub Confirmed details for TIER framework through 2030, including carbon price and electricity stringency trajectory, a
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 shareholders and These statements are based on certain assumptions and analyses made by Capital Power considering its potential investors about management’s assessment of Ca
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: ~$4.8 billion 10423 101 Street NW 11th Floor • 2022 avera