EDMONTON, Alberta – Capital Power Corporation (“Capital Power” or the “Company”) (TSX: CPX) announced today that it has entered into an agreement to acquire a 100% ownership interest in Buckthorn Wind, a 100.5 megawatt wind facility, from private investors. The equity purchase price is between US$60 million and US$69 million pending the realization of future market performance and entering into the tax equity partnership with a tax equity balance of US$68 million. The transaction will be 100% debt financed and is expected to close in the second quarter of 2020 subject to regulatory approvals and other customary closing conditions.
In addition, the construction of Capital Power’s Cardinal Point Wind project has been completed on-schedule and will begin commercial operations this week. The construction cost of the 150 megawatt wind project located in Illinois is expected to be within its projected total cost of US$236 million to US$246 million. Capital Power will operate Cardinal Point Wind under a 12-year fixed price contract with an investment grade U.S. financial institution covering 85% of the facility’s output. The expected adjusted EBITDA and adjusted funds from operations (AFFO) in the first full year of operations is US$40 million and US$4 million, respectively. A tax equity investor is committed to the project.
“The acquisition of Buckthorn Wind provided an opportunity to acquire a young renewables asset with a 15-year weighted average contract life remaining,” said Brian Vaasjo, President and CEO of Capital Power. “With the addition of Cardinal Point Wind, the long-term contracts from these two new assets enhance our contracted cash flow profile and expand our renewables portfolio to approximately 1,200 megawatts with an additional 100 megawatts in advanced development from Whitla Wind 2.”
Buckthorn Wind is located in Erath County, approximately 60 miles south of Dallas, Texas and began commercial operations in January 2018. It operates in the liquid Electric Reliability Council of Texas (ERCOT) North region between most of the wind generation in ERCOT-West and the Dallas load center. The ERCOT North region has strong fundamentals with a high likelihood of baseload generation retirements and is one of the fastest growing regions in the United States. Buckthorn Wind is strategically located near the Dallas load center allowing for a premium in pricing to ERCOT-West projects. ERCOT North is an attractive market with significant renewable growth and a high degree of long term contracting on renewable assets.
Buckthorn Wind has two offtake arrangements with an investment grade U.S. financial institution involving a 20-year contract for differences (CfD) for 55% of the generation output, and a 13-year financial hedge for the remaining 45% of the output.
Buckthorn Wind has a tax equity investor that receives the tax benefits and a portion of adjusted EBITDA and cash flow until the flip-date that is projected to occur in the late 2020’s. Prior to the flip-date and based on an equity purchase price of US$60 million, the Company expects average annual adjusted EBITDA and AFFO to be approximately $18 million and $1 million, respectively. After the flip-date during the CfD, the average annual adjusted EBITDA and AFFO is expected to be approximately $9 million and $6 million, respectively.
Buckthorn Wind utilizes 29 Vestas turbine generators and has a Service and Maintenance Agreement with Vestas. Capital Power expects to assume the Operations Manager role in early 2021 to replace the current third party Operations & Maintenance Services Agreement.
The Company uses AFFO as a financial performance measure of the ability of the Company and its subsidiaries to generate cash from current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company’s shareholders. The AFFO performance measure represents net cash flows from operating activities adjusted to include net finance expense and current income tax expense and exclude changes in operating working capital and distributions received from the Company’s joint venture interests. Net finance expense and current income tax expense are included as the timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. Changes in operating working capital are excluded from AFFO as the timing of cash receipts and payments also affects the period-to-period comparability. Distributions received from the Company’s joint venture interests are excluded as the distributions are calculated after the effect of joint venture debt payments, which are not considered operating activities. AFFO is reduced by the tax equity financing project investors’ shares of AFFO associated with assets under tax equity financing structures to ensure that only the Company’s share is reflected in the overall metric. AFFO also excludes the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company’s bank margin account held with a specific exchange counterparty. AFFO is reduced by sustaining capital expenditures and preferred share dividends and adjusted to include the Company’s share of the AFFO of its joint venture interests and cash from coal compensation that will be received annually.
Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure. Commencing with the Company’s March 31, 2019 quarter-end, adjusted EBITDA excludes unrealized changes in fair value of commodity derivatives and emission credits which were previously included in adjusted EBITDA. This change was made to better align the Company’s measure of adjusted EBITDA with its other non-GAAP measures, as both the adjusted funds from operations and the normalized earnings per share measures exclude the impacts of unrealized changes in fair value of commodity derivatives and emission credits. This change also results in improved period over period comparability of adjusted EBITDA.
These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. AFFO and adjusted EBITDA should not be considered alternatives to net cash flows from operating activities and net income, respectively, calculated in accordance with GAAP. Rather, these measures are provided to complement the nearest GAAP measures in the analysis of the Company’s results of operations from management’s perspective.
See Non-GAAP measures in the Company’s 2019 Management’s Discussion and Analysis for further discussion of these metrics and reconciliations of adjusted EBITDA and AFFO to net income and net cash flows from operating activities, respectively.
Certain information in this news release is forward-looking information within the meaning of Canadian securities laws as it relates to anticipated financial or operating performance, events or strategies. When used in this context, words such as “anticipate”, “believe”, “continue”, “estimate”, “plan”, “intend”, “expect”, “target” and “will” or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause the Company’s actual results and experience to be materially different than the anticipated results. Forward-looking information or statements included in this news release are provided to inform the Company’s shareholders and potential investors about management’s assessment of the Company’s future plans and operations. This information may not be appropriate for other purposes.
Material forward-looking information in this press release around the acquisition of Buckthorn Wind includes expectations regarding: (i) the anticipated closing date of the transaction, (ii) the expected flip date for the TEI, (iii) financial impacts including expected adjusted EBITDA and AFFO, (iv) financing plans and (v) timing of the Company assuming the role as Operations Manager of Buckthorn Wind. Forward-looking information also includes expectations around the final cost, and financial impacts, including expected adjusted EBITDA and AFFO, of Cardinal Point Wind.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate, including its review of Buckthorn Wind. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity prices; (ii) performance; (iii) the status of and impact of policy, legislation and regulations; and (iv) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) facility availability, wind capacity factor and performance including maintenance expenditures; (ii) changes in electricity prices in markets in which the Company operates; (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation; (iv) changes in electricity market prices and use of derivatives; (v) changes in general economic and competitive conditions; (vi) limitations inherent in the Company’s review of Buckthorn Wind; and (vii) ability to realize the anticipated benefits of Buckthorn Wind. See Risk Factors in the Company’s 2019 Management’s Discussion and Analysis for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
About Capital Power
Capital Power (TSX: CPX) is a growth-oriented North American power producer headquartered in Edmonton, Alberta. The company develops, acquires, owns, and operates power generation facilities using a variety of energy sources. Capital Power owns approximately 6,200 megawatts (MW) of power generation capacity at 26 facilities across North America. Approximately 800 MW of owned generation capacity is in advanced development in Alberta and Illinois.