Capital Power announces slate of strategic investments
Includes building first-ever commercial-scale carbon nanotube facility, reaching 100% dual-fuel capability by 2021 at our Genesee facility and advancing Whitla Wind 2 project to add more renewable energy to southern Alberta
EDMONTON, Alberta – Capital Power Corporation (TSX: CPX) (“Capital Power” or “the Company”) is pleased to deliver on its commitment to create dependable, cost-effective and innovative electricity solutions to power a sustainable future. In support of our sustainability targets, we are taking the next steps to transform power generation through the utilization of world-leading carbon conversion technology and the strategic integration of natural gas and renewables. At our 11th annual Investor Day held in Toronto today, we will provide an update on these topics, as well as our growth outlook, value creation in operations and construction, sustainability strategy and our operational and financial targets for 2020.
“Capital Power continues to execute on its renewables growth strategy with the 202 megawatt (MW) first phase of the Whitla Wind facility (Whitla Wind 1) beginning commercial operations earlier this week and the expected completion of the 150 MW Cardinal Point Wind project in the first quarter of 2020,” said Brian Vaasjo, President and CEO of Capital Power. “Today, we are announcing that we are proceeding with the second phase of the Whitla Wind facility (Whitla Wind 2) that will add an additional 97 MW to our growing renewables portfolio. Construction of Whitla Wind 2 is expected to be executed in 2021.”
“The growth from the recent acquisition of Goreway Power, addition of Whitla Wind 1 and the expected completion of the Cardinal Point Wind project early in 2020 will contribute to a 12% increase in our adjusted funds from operations (AFFO) in 2020 based on the midpoint of our $500 million to $550 million target range, compared to the midpoint of our revised 2019 target of $470 million after normalizing for the $40 million in additional AFFO from the final year of Arlington Valley’s previous tolling agreement. The growth from these new assets has allowed us to extend our dividend growth guidance out to 2022,” added Mr. Vaasjo.
Whitla Wind 1 commences commercial operations
On December 1, 2019, Whitla Wind 1, located in southeast Alberta, began commercial operations. The construction of the 202 megawatt project was completed on schedule and on budget within its $315 million to $325 million target. Whitla Wind 1 is expected to provide adjusted EBITDA of $27 million and AFFO of $17 million in its first full year of operation.
In December 2017, Whitla Wind 1 was one of four successful wind projects that was awarded a 20-year contract by the AESO in the first round of the Renewable Electricity Program.
Whitla Wind 2 project proceeding
Capital Power is moving forward with the second phase of the Whitla Wind facility that will add 97 megawatts in 2021. Capital Power will leverage its construction experience from Whitla Wind 1 to deliver Whitla Wind 2 with an expected capital cost of $165 million.
Whitla Wind 2 will generate carbon credits that can be used to hedge against Capital Power’s carbon compliance costs from its Alberta thermal generation facilities. Capital Power is in active discussions with commercial and industrial customers for renewable offtake contracts from Whitla Wind 2 and will continue to pursue contracts.
100% Dual-fuel capability at Genesee facility by 2021
Capital Power continues to advance its dual-fuel capability project with plans to increase natural gas capability at Genesee 3 to 100% by 2021, following the June 2019 announcement to transform Genesee 1 and 2 to 100% dual-fuel capability by 2021. The total capital cost for converting all three units to dual-fuel is $70 million. After the units have been transformed to 100% dual-fuel capability, the units will have maximum real-time fuel mix flexibility to utilize up to 100% natural gas or coal, or a mix of the two. The amount of coal used at any given time, versus natural gas, will be driven by several factors including natural gas and coal prices and carbon costs.
The Genesee facility will continue to be able to burn coal until December 2029 and will exclusively burn natural gas after that time. The Genesee units are already the most efficient coal generating units in Alberta and best performing from an emissions intensity perspective. Under the Genesee Performance Standard (GPS) program, which commenced in 2016, a 12% improvement in efficiency and performance of the units is targeted by 2021, which improvements will benefit both natural gas and coal operations.
Investment in C2CNT – world’s first commercial-scale production facility of carbon nanotubes at Genesee Carbon Conversion Centre
Capital Power plans to build the Genesee Carbon Conversion Centre (GC3), the first-ever commercial scale production facility of carbon nanotubes (CNTs) at its Genesee facility, and to exercise options to increase its interest to 40% in C2CNT by the end of 2020.
Dr. Stuart Licht, founder of C2CNT, will be a guest speaker at the Investor Day event and will present on the technology of transforming carbon emissions into leading-edge carbon nanotube products. C2CNT has developed an innovative technology that captures and transforms carbon dioxide into a useful and high-value product called CNTs which can be used as an additive to substantially increase the strength of materials such as concrete, steel and aluminum. Carbon dioxide emissions are avoided by reducing the amount of material required in addition to the carbon dioxide utilized in the production of CNTs.
Lehigh Hanson (Lehigh), a subsidiary of HeidelbergCement A.G., a worldwide construction materials company, will be conducting testing for the utilization of CNTs in concrete. Capital Power plans to start commercial scale production of CNTs at its Genesee facility, assuming the CNTs in concrete testing and preliminary marketing of the product is successful. This would include expected approvals of required permits and construction to commence in the summer of 2020 and expected operations in the first half of 2021. The estimated capital cost is $20 million to $25 million for the Genesee Carbon Conversion Centre, that could generate 2,500 tonnes of CNTs per year.
Capital Power’s investment in C2CNT supports the Company’s pursuit of innovative and leading-edge technology that has the potential to reduce greenhouse gases. In May 2019, Capital Power committed to increase its equity interest in C2CNT from 5% to 9% by March of 2020. Capital Power intends to exercise options to increase its interest to 40% by the end of 2020, assuming the C2CNT and concrete project is successful.
Updated 2019 financial guidance
Based on its most recent forecast, Capital Power expects its AFFO for 2019 to be in the range of $535 million to $555 million that exceeds its current guidance of $485 million to $535 million.
Extension of dividend growth guidance to 2022
Based on Capital Power’s outlook, the Company reiterates its 7% annual dividend growth guidance for 2020 and 2021 and announces a 5% dividend growth guidance for 2022. The revised dividend growth guidance for 2022 reflects the downward pressure on targeted levered returns as a result of the low interest rate environment. The Company will continue to allocate approximately half of its AFFO to dividends and to growth with a long-term AFFO payout ratio target of 45% to 55%.
- Capacity-weighted average facility availability of 93%, reflecting major planned outages at Genesee 2, Arlington Valley, Decatur, and Southport, and
- sustaining capital expenditures of $90 million to $100 million.
Growth from development and construction projects
- Completion of the Cardinal Point Wind project on budget and on time for commercial operations in March 2020,
- $500 million committed capital for growth,
- target one renewable development project, and
- advance Whitla Wind 2 development project.
- AFFO of $500 million to $550 million, based on 63% of the Alberta commercial baseload generation portfolio sold forward at an average contracted price in the mid-$50 per megawatt hour range,
- adjusted EBITDA of $935 million to $985 million, and
- a dividend increase of 7% in line with annual dividend growth guidance, which will result in an expected AFFO payout of approximately 40%.
Investor Day event and webcast information
Today’s Investor Day event is being held at Vantage Venues located at 150 King Street West, 16th floor in Toronto. Registration begins at 8:30 am (ET) with presentations starting at 9:00 am. A live audio webcast of the event is available on the Company’s website at www.capitalpower.com. The webcast will be archived and accessible for replay.
Non-GAAP Financial Measures
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 and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA), (ii) AFFO, (iii) AFFO per share (iv) normalized earnings attributable to common shareholders, and (v) normalized earnings per share as financial performance measures.
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. These measures should not be considered alternatives to net income, net income attributable to shareholders of the Company, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective.
Additional disclosure around the Company’s non-GAAP financial measures, including reconciliations of these non-GAAP financial measures to their nearest GAAP financial measures are disclosed in the Company’s Management’s Discussion and Analysis prepared each quarter, most recently prepared as of October 25, 2019 for the third quarter of 2019, which is available under the Company’s profile on SEDAR at SEDAR.com and on the Company’s website at capitalpower.com.
Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes disclosures regarding: (i) timing of commercial operations commencement for Cardinal Point Wind, (ii) timing of the Whitla Wind 2 project and expected capital costs, (iii) expected AFFO and adjusted EBITDA impacts of Whitla Wind 1, (iv) timing and cost of the transition to dual-fuel capability at Genesee, (v) expected efficiency and performance improvements at Genesee resulting from the GPS program, (vi) timing of commencing commercial production of CNT and expected capital costs of the production facility, (vii) expectation of exercising the Company’s option to increase its interest in C2CNT, (viii) full year AFFO guidance for 2019, (ix) future dividend growth through 2022, and (x) targets for 2020 including operational, growth and financial targets.
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. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity, other energy and carbon prices, (ii) performance, (iii) business prospects (including potential re-contracting of facilities) and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, (v) results of CNT concrete testing and preliminary marketing and (vi) 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) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in market prices and availability of fuel, and (viii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis for the year ended December 31, 2018, prepared as of February 15, 2019, 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 nearly 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.