EDMONTON, Alberta – Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended December 31, 2021.
- Generated net cash flows from operating activities of $185 million and adjusted funds from operations (AFFO) of $149 million in the fourth quarter of 2021
- Generated adjusted EBITDA of $294 million and a net loss of $69 million in the fourth quarter of 2021
- Extended 5% annual dividend growth guidance to 2025 and reaffirmed 45% to 55% AFFO target payout ratio
- Collaboration with Enbridge for carbon capture and storage solutions to reduce CO2 emissions in Alberta
- Completed phases 2 and 3 of Whitla Wind ahead of schedule and under budget
- Acquired a 1,300-megawatt portfolio of 20 large-scale solar development sites with battery potential in the United States
- Committed $274 million of growth capital with phase 2 of Halkirk Wind
- Committed $195 million of growth capital with the addition of battery storage to the Genesee repowering project, the largest battery storage project in Canada
- Executed a six-year tolling agreement extension for Arlington Valley
“2021 was an excellent year in advancing our strategy and commitment to being off coal in 2023,” said Brian Vaasjo, President and CEO of Capital Power. “Strong progress was made to decarbonize the Genesee facility with the repowering project for units 1 and 2 and the integration of a 210-megawatt battery energy storage system, the largest in Canada. Once completed, Genesee 1 and 2 will be the most efficient natural gas units in Canada, strengthening their dominant baseload positions in the Alberta power market. We are also collaborating with Enbridge on carbon capture and storage solutions near the Genesee facility with Enbridge as the transportation and storage service provider and Capital Power as the CO2 provider.”
“We made excellent progress in growing our renewables portfolio with the completion of two additional phases for Whitla Wind making it the largest wind facility in Alberta and announced plans to proceed with the second phase of Halkirk Wind that will add another 151 megawatts of renewable generation when completed in 2024. In addition to the six current renewable projects totaling approximately 425 megawatts, we recently acquired 20 large-scale solar development sites in the United States, half of which include battery storage opportunities, that accelerate our renewables development in the U.S.”
“Consistent with our natural gas strategy of acquiring mid-life contracted natural gas assets that are strategically located in markets with strong fundamentals and have a high probability for recontracting, we executed a six-year tolling agreement extension for Arlington Valley, which is our second natural gas facility for which we have executed a long-term extension after the facility was acquired. The extension will provide materially higher AFFO per year from 2026 to 2031, compared to the current contract.”
“Evidenced by the strategic highlights noted above, we’re putting our purpose to action and increasing our velocity to reach net carbon neutrality by 2050. As we work to power a sustainable future for people and planet, we’re on track to meet our long-term sustainability targets and have set practical, short-term targets that accelerate our efforts to reduce emissions, achieve gender equity and diversify our talent pool,” stated Mr. Vaasjo.
Sandra Haskins, Senior Vice President, Finance and CFO added, “We delivered record financial performance in 2021 benefitting from high Alberta spot power prices that averaged $102 per megawatt hour in the year. We generated $1,124 million in adjusted EBITDA and $605 million in AFFO, both exceeding the midpoints of our higher revised annual financial guidance and setting new annual records. With our competitive fleet of Alberta assets, we are well-positioned to benefit from the strong power pricing environment in the province and our 2022 financial guidance remains the same as announced in December including expected contributions from the Strathmore and Enchant solar projects when they begin commercial operations later this year.”
|Operational and Financial Highlights 1
|Three months ended
|(millions of dollars except per share and operational amounts)||2021||2020||2021||2020|
|Electricity generation (Gigawatt hours)||6,103||6,445||22,811||23,806|
|Generation facility availability||89%||97%||90%||95%|
|Revenues and other income||$672||$516||$1,990||$1,937|
|Adjusted EBITDA 2, 3||$294||$220||$1,124||$955|
|Net (loss) income 3, 4||$(69)||$1||$87||$130|
|Net (loss) income attributable to shareholders of the
Company 3, 4
|Basic (loss) earnings per share 3, 4||$(0.67)||$(0.09)||$0.39||$0.78|
|Diluted (loss) earnings per share 3, 4||$(0.67)||$(0.09)||$0.39||$0.77|
|Normalized earnings attributable to common shareholders 2, 4||$55||$13||$221||$128|
|Normalized earnings per share 2, 4||$0.47||$0.12||$1.97||$1.22|
|Net cash flows from operating activities||$185||$159||$867||$611|
|Adjusted funds from operations 2||$149||$86||$605||$522|
|Adjusted funds from operations per share 2||$1.28||$0.81||$5.40||$4.96|
|Purchase of property, plant and equipment and other assets, net||$198||$65||$622||$318|
|Dividends per common share, declared||$0.5475||$0.5125||$2.1200||$1.9850|
- The operational and financial highlights in this press release should be read in conjunction with the Integrated Annual Report and the audited consolidated financial statements for the year ended December 31, 2021.
- Earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emissions credits (adjusted EBITDA), normalized earnings attributable to common shareholders and AFFO are used as non-GAAP financial performance measures by the Company. The Company also uses normalized earnings per share and AFFO per share which are non-GAAP ratios. These measures and ratios do not have standardized meanings under GAAP and are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures.
- For the three months and year ended December 31, 2021, includes expenses of nil and $1 million, respectively, related to the Line Loss Rule Proceeding (three months and year ended December 31, 2020 – expenses of $2 million and $5 million, respectively).
- Includes depreciation and amortization for the three months ended December 31, 2021 and 2020 of $137 million and $122 million, respectively, and for the year ended December 31, 2021 and 2020 of $539 million and $478 million, respectively. Budgeted depreciation and amortization for 2022 is $143 million, $147 million, $147 million, and $147 million for the first through fourth quarters, respectively.
Executed six-year tolling agreement extension for Arlington Valley
On December 31, 2021, the Company executed a six-year tolling agreement extension through October 2031 for its Arlington Valley facility with the current counterparty. When Capital Power announced the acquisition of Arlington Valley in 2018, the Company provided a forecasted average adjusted EBITDA of US$35 million per year (ranging from US$32 million to US$38 million) and US$16 million of AFFO during the six-year period from 2020 to 2025. Under the terms of the tolling agreement extension, adjusted EBITDA will move towards the low end of the original guidance range for 2024 and 2025 before increasing to an average of US$47 million (ranging from US$42 million to US$49 million) per year and US$34 million of AFFO per year for the six-year period from 2026 to 2031.
Preferred shares, Series 7, redemption notice
On December 31, 2021, the Company redeemed all of its 8 million issued and outstanding 6% Cumulative Minimum Rate Reset Preference Shares, Series 7 (Series 7 Shares) at a price of $25 per share for gross payments of $200 million. On December 31, 2021, the Company also paid the final declared quarterly dividend of $0.375 per Series 7 Share.
Acquisition of solar development sites in the United States
On December 20, 2021, Capital Power acquired a portfolio of 20 solar development sites (the portfolio) in the United States from BW Solar Holding Inc., a U.S. solar and energy storage developer.
The portfolio has a total generation capacity of 1,298 MW ranging in size from 15 MW to 340 MW, with the potential to co-locate over 1,200 MWh of energy storage. It is anticipated that sites will be construction-ready by 2024 with commercial operation dates in the 2025 to 2026 timeframe for those that are developed following completion of our assessment of the sites.
Phase 2 of Halkirk Wind proceeding
On December 2, 2021, the Company announced it is moving forward with phase 2 of Halkirk Wind located in the County of Paintearth, Alberta, subject to successful permitting and regulatory approvals. The capital cost for the 151 MW phase 2 is expected to be approximately $274 million. After completion of phase 2, Halkirk Wind will deliver approximately 300 MW of generation capacity.
Phase 2 of Halkirk Wind was fully permitted in 2018 based on available technology at that time. Since then, the project has been redesigned to incorporate the most advanced turbine technology, requiring a permit amendment. An amended permit is anticipated to be issued in the first quarter of 2023, allowing construction to commence in the third quarter of 2023 with commercial operations targeted in the fourth quarter of 2024.
Phase 2 of Halkirk Wind is expected to generate $32 million in adjusted EBITDA and $27 million in AFFO per year on average in the first 5 years of operation.
Addition of battery storage to the Genesee 1 and 2 repowering project
Capital Power has finalized its configuration for the Genesee 1 and 2 repowering project, adding 210 MW of battery storage. The addition of battery storage will address the Alberta Interconnected Electric System most severe single contingency limit, allowing the repowered Genesee 1 and 2 units to operate up to their baseload capacity. The revised repowering project cost is approximately $1.2 billion, including $195 million for battery storage. Once completed, Genesee 1 and 2 will be the most efficient natural gas units in Canada.
Completion of phases 2 and 3 of Whitla Wind and execution of 15-year contract for Whitla Wind 2
On December 1, 2021, an additional 151 MW from Whitla Wind, located in the County of Forty Mile, Alberta, began commercial operations following the completion of phases 2 and 3 of the project. The $257 million project was completed on schedule and under budget.
On September 15, 2021, the Company announced a 15-year renewable power purchase agreement with Dow Chemical Canada ULC, a subsidiary of Dow, for 25 MW of capacity and the associated environmental attributes from phase 2 of Whitla Wind.
Phases 2 and 3 of Whitla Wind are expected to provide combined adjusted EBITDA and AFFO of $35 million in their first full year of operation.
Forced outage at Genesee 2
In July 2021, Genesee 2 experienced a forced outage due to a generator failure which is covered by the Company’s insurance policy for both asset damage and business interruption. The unit was repaired and returned to service in early December 2021. Total Genesee 2 forced outage insurance recoveries of $46 million were recorded in 2021, including: (i) $ 35 million for asset damage, reflective of both the expensed and capitalized costs incurred to repair Genesee 2 (net of the deductible amount under the insurance contract) and (ii) $11 million in business interruption insurance recoveries. Total expenses recognized in relation to the outage were $12 million, including $6 million of damaged equipment written off, and total sustaining capital expenditures were $31 million. At December 31, 2021, $21 million of the insurance recoveries have been received.
Collaboration with Enbridge to reduce CO2 emissions in Alberta
On November 29, 2021, Capital Power and Enbridge Inc. announced a memorandum of understanding to collaborate on carbon capture and storage (CCS) solutions in the Wabamun area west of Edmonton, near Capital Power’s Genesee Generating Station.
Enbridge and Capital Power will evaluate and advance CCS initiatives, with Enbridge as the transportation and storage service provider and Capital Power as the CO2 provider, subject to the Government of Alberta’s competitive carbon hub selection process and a future final investment decision. Enbridge, with the support of Capital Power, is applying to develop an open access carbon hub in the Wabamun area through the Government of Alberta’s Request for Full Project Proposals process. Subject to the final award of carbon sequestration rights and regulatory approvals, the proposed project could be in service as early as 2027.
US$150 million private placement of senior notes
On October 28, 2021, the Company closed a US$150 million private placement of senior notes. The 12-year senior notes bear a coupon rate of 3.24% and mature on October 28, 2033. The net proceeds from the transaction were used to fund growth initiatives including approximately 425 MW in advanced stages of development and for general corporate purposes.
Suspension of Dividend Re-investment Plan
During the fourth quarter of 2021, Capital Power announced that effective with the December 31, 2021 dividend, its Dividend Re-investment Plan (DRIP) for its common shares was suspended. Shareholders participating in the DRIP began receiving cash dividends on the January 31, 2022 payment date.
On July 29, 2021, the Company’s Board of Directors approved an increase of 6.8% in the annual dividend for holders of its common shares, from $2.05 per common share to $2.19 per common share. This increased common share dividend commenced with the third quarter 2021 quarterly dividend payment on October 29, 2021 to shareholders of record at the close of business on September 30, 2021.
Sustainability-linked credit facilities
On July 14, 2021, the Company announced the extension, amendment and transition of its existing committed credit facilities to sustainability-linked credit facilities (SLCs). The five-year commitment to SLCs extends the Company’s existing $1 billion of unsecured credit facilities, which include a $700 million syndicated credit facility and an unsecured club credit facility of $300 million, to July 2026. The SLCs are structured with one key performance indicator with annual sustainability performance targets aligned to one of Capital Power’s publicly stated sustainability targets: to reduce Scope 1 CO2 emission intensity by 65% by 2030 from 2005 levels. The SLCs include terms that reduce or increase borrowing costs as the annual targets are met or missed.
Common share offering
In June of 2021 the Company completed a public offering of 7,480,750 common shares (inclusive of the full exercise of a 975,750 common shares over-allotment option), at an issue price of $38.45 per common share for total gross proceeds of approximately $288 million (the Offering) less issue costs of $12 million. The Company used the net proceeds from the Offering to fund growth initiatives (including projects in advanced stages of development) and for general corporate purposes.
On April 30, 2021, Capital Power and the Board of Directors announced the following executive position appointments effective June 1, 2021:
- Bryan DeNeve, Senior Vice President Operations,
- Chris Kopecky, Senior Vice President and Chief Legal, Development and Commercial Officer, and
- Steve Owens, Senior Vice President Construction and Engineering.
Kate Chisholm, Sandra Haskins and Jacquie Pylypiuk continue to serve in their current roles. Darcy Trufyn, Senior Vice President, Operations, Engineering and Construction retired from his role effective June 30, 2021. Darcy was an integral part of the Executive Team with outstanding service and valuable contributions over the past 12 years.
Executed 15-year contract for Enchant Solar project
On April 19, 2021, the Company announced that it executed a 15-year renewable energy agreement to sell 51% of the electricity generated from the 75 MW Enchant Solar project (Enchant Solar) in Alberta to Labatt Brewing Company Ltd. of Canada, along with bundled renewable energy certificates (RECs). Of the contracted capacity under this agreement, approximately one-quarter will be bundled with project-generated RECs directly from Enchant Solar and three-quarters will be packaged with RECs sourced from Eastern Canada. The terms of this agreement are consistent with the previously disclosed financial expectations for Enchant Solar.
Construction of Enchant Solar commenced in the third quarter of 2021 with commercial operations expected in the fourth quarter of 2022.
United States power operations relating to extreme weather event
During the February 9 to 20, 2021 period, extreme winter weather caused some disruptions to our wind facilities, most notably in Texas (Buckthorn Wind) with no significant impact on the balance of Capital Power’s U.S. operations. Buckthorn Wind experienced no significant physical damage, but some turbines were forced offline. As of February 22, 2021, the operations were back to normal. The net impact of the U.S. storm on Buckthorn Wind resulted in increases of $8 million (US$6 million) to adjusted EBITDA and AFFO.
The favourable impacts of the weather event were largely driven by the settlement of the offtake and commodity swaps for Buckthorn Wind for the noted period of extreme weather. However, Buckthorn Wind’s counterparty is contesting the settlement, arguing that settlement should have been based upon a different reference price. Historically these two prices have been similar, but as a result of the extreme February weather, the Company became aware of a divergence in these prices during scarcity events. Both parties invoked dispute-resolution procedures during the first quarter of 2021 and the Company subsequently initiated litigation. Based on the contract terms of the offtake and commodity swaps, the Company considers the probability of ultimate settlement using the reference price advocated by the counterparty as being unlikely. In the event that the dispute is resolved unfavourably to the Company, the net exposure to the Company’s revenues would be a reduction of up to approximately $19 million (US$15 million).
Approval of normal course issuer bid
During the first quarter of 2021, the Toronto Stock Exchange approved Capital Power’s normal course issuer bid to purchase and cancel up to 10.7 million of its outstanding common shares during the one-year period from February 26, 2021 to February 25, 2022.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on February 24, 2022 at 11:00 am (MT) to discuss the fourth quarter and 2021 year-end financial results. The conference call dial-in number is:
(800) 319-4610 (toll-free from Canada and USA)
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conclusion of the analyst conference call.
Non-GAAP Financial Measures and Ratios
The Company uses (i) adjusted EBITDA, (ii) AFFO, and (iii) normalized earnings attributable to common shareholders as financial performance measures.
The Company also uses AFFO per share and normalized earnings per share as performance measures. These measures are non-GAAP ratios determined by applying AFFO and normalized earnings attributable to common shareholders, respectively, to the weighted average number of common shares used in the calculation of basic and diluted earnings per share.
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.
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) budgeted 2022 depreciation, (ii) expectations pertaining to the financial guidance, timing, funding, and costs related to existing, planned and potential development projects and acquisitions (including the acquisition of the portfolio of solar development sites, phase 2 of Halkirk Wind, the repowering of Genesee 1 and 2 (including battery storage), phases 2 and 3 of Whitla Wind, Strathmore Solar, Enchant Solar and the CCS collaboration with Enbridge (see Significant Events)), (iii) impacts of the Arlington Valley tolling agreement extension on adjusted EBITDA and AFFO (see Significant Events) in the years the executed agreement becomes effective, and (iv) expectations around the resolution of the pricing dispute on the Buckthorn Wind offtake and commodity swaps (see Significant Events).
These statements are based on certain assumptions and analyses made by the Company considering its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate including its review of purchased businesses and assets. 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 the need for and potential re-contracting of facilities) and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations and (v) 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, natural gas and carbon prices in markets in which the Company operates and the use of derivatives, (ii) regulatory and political environments including changes to environmental, climate, financial reporting, market structure and tax legislation, (iii) disruptions, or price volatility within the Company’s supply chains, (iv) generation facility availability, wind capacity factor and performance including maintenance expenditures, (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 the availability of fuel, (viii) ability to realize the anticipated benefits of acquisitions, (ix) limitations inherent in the Company’s review of acquired assets, (x) changes in general economic and competitive conditions and (xi) changes in the performance and cost of technologies and the development of new technologies, new energy efficient products, services and programs. See Risks and Risk Management in the Company’s Integrated Annual Report for the year ended December 31, 2021, prepared as of February 23, 2021, 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 wholesale power producer with a strategic focus on sustainable energy headquartered in Edmonton, Alberta. We build, own, and operate high-quality, utility-scale generation facilities that include renewables and thermal. We have also made investments in carbon capture and utilization to reduce carbon impacts and are committed to be off coal in 2023. Capital Power owns approximately 6,600 MW of power generation capacity at 26 facilities across North America. Projects in advanced development include approximately 425 MW of owned renewable generation capacity in North Carolina and Alberta and 512 MW of incremental natural gas combined cycle capacity, from the repowering of Genesee 1 and 2 in Alberta.