TransAlta Corporation reported its financial results for the three and six months ended June 30, 2024, demonstrating strong financial performance and reaffirming its 2024 outlook.
Second Quarter 2024 Financial Highlights
TransAlta’s second quarter results exceeded expectations and delivered strong free cash flow and solid operating performance. The Company delivered Free Cash Flow (“FCF”)(1) per share of $0.57, which was firmly supported by its hedging and asset optimization strategies given the expected decline in Alberta spot power prices year over year, milder weather, lower natural gas prices and incremental generation from the addition of new natural gas, wind and solar supply in the market. Highlights for the quarter include:
Adjusted EBITDA(1) of $312 million, compared to $387 million for the same period in 2023
Strong operational adjusted availability of 90.8 per cent, up from 84.6 per cent during the same period in 2023
FCF of $172 million or $0.57 per share, compared to $278 million or $1.05 per share for the same period in 2023
Earnings before income taxes of $94 million, compared to $79 million for the same period in 2023
Net earnings attributable to common shareholders of $56 million or $0.18 per share, compared to $62 million or $0.23 per share for the same period in 2023
Cash flow from operating activities of $108 million, an increase of $97 million for the same period in 2023
The return of $89 million of capital to shareholders during the six months ended June 30, 2024, through the buyback of 9.5 million common shares constituting 59 per cent of the Company’s 2024 enhanced share repurchase program of up to $150 million
Other Business Highlights and Updates
Achieved commercial operation of the 200 MW White Rock East wind facility on April 22, 2024 and the 200 MW Horizon Hill wind facility on May 21, 2024, increasing the Company’s renewables fleet in the US to over 1 GW
Entered into an additional 10-year transfer agreement on June 21, 2024, with an A+ rated customer for the sale of the remaining 20 per cent of the expected production tax credits (“PTCs”) to be generated from the White Rock and Horizon Hill wind facilities
Welcomed Joel Hunter as Executive Vice President, Finance and Chief Financial Officer (“CFO”) effective July 1, 2024, following the retirement of Todd Stack effective June 30, 2024
“Our strong second quarter results demonstrate the value of our portfolio management and market forecasting capabilities. In response to the evolving market conditions in Alberta, we proactively deployed hedging strategies to enhance portfolio margins and moderate the impact of the known supply additions and weakening price environment in Alberta. Given our portfolio position, we are confident that we will reach our 2024 guidance given our exceptional performance in the first half of the year,” said John Kousinioris, President and Chief Executive Officer of TransAlta.
“We continue to believe that our strong free cash flow results during the first half of the year, and our expectations for the balance of 2024, are not reflected in the current trading price of our common shares. As a result, we will continue to use share repurchases as part of our capital allocation strategy. We have completed $89 million of share repurchases so far this year, which is approximately 59 per cent of our $150 million share repurchase target or $0.29 per share in shareholder value.”
“Our capital allocation decisions will continue to be balanced and focused on enhancing shareholder value. We are seeing considerable opportunities to support the energy transition in our core jurisdictions, particularly at our legacy thermal sites, where we are actively pursuing redevelopment and recontracting opportunities for the benefit of our shareholders,” added Mr. Kousinioris.
Key Business Developments
Appointment of New CFO
On June 30, 2024, Todd Stack, the former Executive Vice President, Finance and CFO retired from the Company. The Board of Directors expresses its deep appreciation to Todd for his contributions to TransAlta and its success during his 34-year career with the Company.
Joel Hunter was appointed Executive Vice President, Finance and Chief Financial Officer of the Company effective July 1, 2024.
Normal Course Issuer Bid (“NCIB”) and Automatic Share Purchase Plan (“ASPP”)
TransAlta is committed to enhancing shareholder returns through appropriate capital allocation such as share buybacks and its quarterly dividend. The Company previously announced an enhanced common share repurchase program for 2024 of up to $150 million, targeting up to 42 per cent of 2024 FCF guidance to be returned to shareholders in the form of share repurchases and dividends.
On May 27, 2024, the Company announced that it had received approval from the Toronto Stock Exchange to purchase up to a maximum of 14 million common shares during the 12-month period that commenced May 31, 2024 and terminates May 31, 2025. Any common shares purchased under the NCIB will be cancelled.
On June 21, 2024, the Company entered into an ASPP to facilitate repurchases of TransAlta’s common shares under its NCIB. Under the ASPP, the Company’s broker may purchase common shares from the effective date of the ASPP until the termination of the ASPP. All purchases of common shares made under the ASPP will be included in determining the number of common shares purchased under the NCIB. The ASPP will terminate on the earliest of: (a) Aug. 6, 2024; (b) the date on which the maximum purchase limits under the ASPP are reached; or (c) the date on which the Company terminates the ASPP in accordance with its terms.
During the six months ended June 30, 2024, the Company purchased and cancelled a total of 9,537,200 common shares, at an average price of $9.54 per common share, for a total cost of $91 million, including tax on share buybacks.
Production Tax Credit (“PTC”) Sale Agreements
On Feb. 22, 2024, the Company entered into a 10-year transfer agreement with an AA- rated customer for the sale of approximately 80 per cent of the expected PTCs to be generated from the White Rock and the Horizon Hill wind facilities.
On June 21, 2024, the Company entered into an additional 10-year transfer agreement with an A+ rated customer for sale of the remaining 20 per cent of the expected PTCs.
The expected annual average EBITDA from the two agreements is approximately $78 million (US$57 million).
Horizon Hill Wind Facility Achieved Commercial Operation
On May 21, 2024, the 200 MW Horizon Hill wind facility achieved commercial operation. The facility is located in Logan County, Oklahoma and is fully contracted to Meta for the offtake of 100 per cent of the generation.
White Rock Wind Facilities Achieved Commercial Operation
On Jan. 1, 2024, the 100 MW White Rock West wind facility achieved commercial operation. On April 22, 2024, the 200 MW White Rock East wind facility was also commissioned. The facilities are located in Caddo County, Oklahoma and are contracted under two long-term PPAs with Amazon for the offtake of 100 per cent of the generation from the facilities.
Bow River Basin Memorandum of Understanding
On April 19, 2024, the Company announced it had signed a voluntary water-sharing memorandum of understanding with over thirty other water licence holders in the Bow River Basin. The Government of Alberta continues to anticipate and prepare for lower water conditions this summer with specific concerns in southern Alberta where agriculture could be impacted by water shortages. The Government of Alberta is leading efforts to coordinate water usage among water licence holders for Alberta river basins in an effort to ensure licensees get the water they need as opposed to the water to which they are entitled. In recognition of the unique role the Company plays in managing water flows while also serving as a key provider to Alberta’s electricity grid, we look forward to working with the Government and downstream stakeholders to maximize water storage in the early season to help mitigate any anticipated drought conditions. We anticipate the Company’s water management efforts will not have an adverse impact on our electricity generating and environmental objectives.
Annual Shareholder Meeting
The Honourable Rona Ambrose did not stand for re-election and retired from the Board following the annual shareholder meeting on April 25, 2024. At the annual shareholder meeting, the Company received strong support on all items of business, including the election of 12 directors, the reappointment of auditors and the Company’s approach to executive compensation.
Mount Keith 132kV Expansion Complete
The Mount Keith 132kV expansion project was completed during the first quarter of 2024. The expansion was developed under the existing PPA with BHP Nickel West (“BHP”), which has a term of 15 years. The expansion will facilitate the connection of additional generating capacity to the transmission network which supports BHP’s operations and increases its competitiveness as a supplier of low-carbon nickel.
Second Quarter 2024 Financial Results Summary
The Company has demonstrated strong financial and operational performance during the three and six months ended June 30, 2024 and is on track to meet its 2024 Outlook, due to active management of the Company’s merchant portfolio and hedging strategies, the commercial operation of the White Rock and Horizon Hill wind facilities and the Northern Goldfields solar facilities and higher production from the Gas segment. For the period, the Company settled a higher volume of hedges at prices that were significantly above the spot market.
Total production for the three and six months ended June 30, 2024, was 4,781 GWh and 10,959 GWh compared to 4,596 GWh and 10,568 GWh, respectively, for the same periods in 2023. The increase of 4 per cent, or 185 GWh and 391 MWh, respectively, was primarily due to:
Higher production of 640 GWh and 941 GWh, or 75 per cent and 46 per cent, respectively, from the Wind and Solar segment, driven primarily by production from new facilities, including the Horizon Hill facility commissioned in May 2024, the White Rock West and East wind facilities commissioned in January and April 2024, respectively, and the Garden Plain wind facility commissioned in August 2023;
The return to service of the Kent Hills wind facilities, completed in the first quarter of 2024;
A higher wind resource in Alberta; and
Higher production from the Gas segment, primarily driven by lower planned outages at the Alberta gas assets. In addition, market conditions in the Ontario wholesale power market were favourable which enabled higher dispatch at the Sarnia facility and resulted in higher merchant production to the Ontario grid; partially offset by
Lower production from the Energy Transition segment, which was negatively impacted by increased economic dispatch at the Centralia facility due to lower market prices compared to prior periods and higher planned and unplanned outage hours.
Production for the renewables fleet for the three and six months ended June 30, 2024, increased by 450 GWh and 796 GWh, or 31 per cent and 27 per cent, respectively, compared to the same periods in 2023, driven primarily by:
The reasons discussed above; partially offset by
Lower energy production at Hydro, which was due to the optimization of water supply to facilitate generation during the higher anticipated demand periods of summer and winter in 2024, compared to the higher pricing experienced in 2023, which promoted higher production during the same period in the prior year.
Adjusted availability for the three and six months ended June 30, 2024, was 90.8 per cent and 91.5 per cent, respectively, an increase of 7 per cent and 4 per cent, respectively, compared to the same periods in 2023. The increase in the three months ended 2024 was primarily due to:
Lower planned and unplanned outages at Sheerness Unit 1 and Keephills Unit 3 and lower derates at Sundance Unit 6 in the Gas segment; and
The return to service of the Kent Hills wind facilities; partially offset by
Planned major maintenance outages in the Hydro segment.
The higher adjusted availability for the six months ended June 30, 2024, further benefited from:
Lower unplanned outages in the Wind and Solar segment; partially offset by
Higher planned and unplanned outages at Centralia Unit 2 in the Energy Transition segment.
Adjusted EBITDA for the three and six months ended June 30, 2024, was $312 million and $643 million, respectively, as compared to $387 million and $890 million, respectively, in 2023, a decrease of $75 million and $247 million, or 19 per cent and 28 per cent, respectively. The major factors impacting adjusted EBITDA are summarized below:
Hydro adjusted EBITDA for the three and six months ended June 30, 2024, decreased by $64 million and $83 million, or 44 per cent and 33 per cent, respectively, compared to the same periods in 2023, primarily due to:
Lower power and ancillary services prices in the Alberta market resulting from the anticipated increased supply of new renewable and lower-cost dispatchable gas facilities in the province; and
Lower energy production due to the optimization of water supply to facilitate generation during the higher demand periods in 2024; partially offset by
Higher volume of favourable hedging positions settled;
Higher environmental and tax attribute revenue due to the increased sales of emission credits to third parties and intercompany sales to the Gas segment; and
Higher ancillary services volumes due to increased demand by the AESO.
Wind and Solar adjusted EBITDA for the three and six months ended June 30, 2024, increased by $38 million and $39 million, or 76 per cent and 28 per cent, respectively, compared to the same periods in 2023, primarily due to:
Commercial operation of the White Rock and Horizon Hill wind facilities and the Northern Goldfields solar facilities;
Higher environmental and tax attribute revenue due to the commencement of the recently announced sales agreements to transfer production tax credits from the Oklahoma facilities to taxable US counterparties;
Higher production from the return to service of the Kent Hills wind facilities; and
Stronger wind resource in Alberta in the second quarter; partially offset by
Lower realized power prices in the Alberta market resulting from the anticipated increased supply of new renewable and lower-cost dispatchable gas facilities in the province; and
Higher OM&A related to the addition of the Garden Plain, White Rock and Horizon Hill wind facilities and the Northern Goldfields solar facilities, salary escalations, higher insurance costs and long-term service agreement escalations.
Gas adjusted EBITDA for the three and six months ended June 30, 2024, decreased by $20 million and $126 million, or 12 per cent and 31 per cent, respectively, compared to the same periods in 2023, although results were broadly in line with expectations. The decrease was primarily due to:
Lower power and ancillary services prices from the Alberta merchant fleet;
An increase in the carbon price from $65 per tonne to $80 per tonne, impacting gross margin from our Canadian gas assets;
Higher fuel and purchased power from higher production; and
Lower capacity payments in 2024 for Southern Cross Energy in Australia due to the scheduled conclusion on Dec. 31, 2023 of the demand capacity charge under the customer contract, partially offset by the commencement in March 2024 of capacity payments for the Mount Keith 132kV expansion; partially offset by
Higher volume of favourable hedging positions settled, which generated positive contributions over settled spot prices;
Lower planned outages in Alberta;
Lower natural gas prices;
The utilization of emission credits to settle a portion of our 2023 GHG obligation; and
Lower OM&A expenses mainly due to the timing of when maintenance has been performed.
Energy Transition adjusted EBITDA for the three and six months ended June 30, 2024, decreased by $10 million and $38 million, or 77 per cent and 57 per cent, respectively, compared to the same periods in 2023, primarily due to:
Increased economic dispatch due to lower market prices which negatively impacted production; partially offset by
Lower fuel costs due to lower production volumes.
Energy Marketing adjusted EBITDA for the three and six months ended June 30, 2024, decreased by $13 million and $32 million, or 30 per cent and 39 per cent, respectively, compared to the same periods in 2023, primarily due to:
Lower realized settled trades in the first and second quarters of 2024 in comparison to the prior periods.
Corporate adjusted EBITDA for the three and six months ended June 30, 2024, decreased by $6 million and $7 million, or 19 percent and 13 per cent, respectively, compared to the same periods in 2023, primarily due to:
Increased spending to support strategic and growth initiatives.
FCF for the three and six months ended June 30, 2024 decreased by $106 million and $160 million, respectively, or 38 per cent and 30 per cent, compared with the same periods in 2023. The major factors impacting free cash flow were:
Lower adjusted EBITDA items as noted above;
Higher current income tax expense due to the non-capital loss carryforwards being fully utilized in 2023;
Higher net interest expense due to lower capitalized interest and lower interest income; and
Lower distributions paid to subsidiaries’ non-controlling interests relating to lower TA Cogen net earnings resulting from lower merchant pricing in the Alberta market and the cessation of distributions by TransAlta Renewables Inc.
Cash from operating activities for the three months ended June 30, 2024 of $108 million increased by $97 million compared to the same period in 2023, primarily due to:
A favourable change in non-cash operating working capital balances on lower accounts receivable from lower revenues and higher collateral received related to derivative instruments; partially offset by
Lower gross margin on lower revenues net of unrealized gains from risk management activities; and
Lower accounts payable and accrued liabilities and higher collateral provided as a result of market price volatility.
Cash from operating activities for the six months ended June 30, 2024 of $352 million decreased by 26 per cent compared to the same period in 2023, primary due to:
Lower gross margin on lower revenues net of unrealized gains from risk management activities; partially offset by
Lower fuel and purchased power and carbon compliance costs; and
A favourable change in non-cash operating working capital balances on lower accounts receivable from lower revenues and higher collateral received related to derivative instruments.
Net earnings attributable to common shareholders for the three and six months ended June 30, 2024 totalled $56 million and $278 million, respectively, compared to $62 and $356 million in the same periods in 2023, primarily due to:
Lower adjusted EBITDA due to items discussed above;
Higher income tax expense due to a recovery related to the reversal of previously derecognized Canadian deferred tax assets in the second quarter of 2023; partially offset by
Lower depreciation and amortization primarily due to revisions to useful lives on certain facilities in prior periods.
Alberta Electricity Portfolio
The average spot power price per MWh for the three and six months ended June 30, 2024, decreased to $45 per MWh and $72 per MWh, respectively, from $160 per MWh and $151 per MWh, respectively, in the same periods in 2023, primarily due to:
Higher generation from the addition of new wind and solar and gas supply in the market compared to the prior periods;
Lower natural gas prices; and
Milder weather compared with the same periods in 2023.
Realized merchant power price per MWh of production for the three and six months ended June 30, 2024, decreased by $20 per MWh and $6 per MWh, respectively, compared to the same periods in 2023, primarily due to:
Lower average spot power prices as explained above; and
Lower hedge prices compared to the same periods in 2023; partially offset by
Higher volume of favourable hedging positions settled, which generated positive contributions over settled spot prices.
Carbon compliance cost per MWh of production for the three and six months ended June 30, 2024, was consistent compared to the same periods in 2023, primarily due to:
An increase in carbon pricing from $65 per tonne to $80 per tonne, which was offset by the utilization of emission credits to settle a portion of the 2023 Green House Gas obligation.
Hedged volumes for the three and six months ended June 30, 2024 were 2,132 GWh and 4,077 GWh at an average price of $84 per MWh and $86 per MWh, respectively. Volumes increased over the same periods in 2023 by 1,714 GWh and 3,828 GWh, respectively. In anticipation of lower prices in 2024, the Company deployed a defensive strategy to increase financial hedges for the merchant portfolio at attractive margins. Realized gains and losses on financial hedges are included in Revenues.
Liquidity and Financial Position
We expect to maintain adequate available liquidity under our committed credit facilities. As at June 30, 2024, we had access to $1.7 billion in liquidity, including $350 million in cash.
Conference call
TransAlta will hold a conference call and webcast at 9:00 a.m. MST (11:00 a.m. EST) today, August 1, 2024, to discuss our second quarter 2024 results. The call will begin with an address by John Kousinioris, President and Chief Executive Officer, and Joel Hunter, Executive Vice President, Finance and Chief Financial Officer, followed by a question and answer period for investment analysts and investors. A question and answer period for the media will immediately follow.
Second Quarter 2024 Conference Call
Webcast link: https://edge.media-server.com/mmc/p/wyxuetfp
A link to the live webcast will be available on the Investor Centre section of TransAlta’s website at https://transalta.com/investors/presentations-and-events/. To access the conference call via telephone, please register ahead of time using the call link here: https://register.vevent.com/register/BI822fcd13487248f6aeaefa8578cef5cc. Once registered, participants will have the option of 1) dialing into the call from their phone (via a personalized PIN); or 2) clicking the “Call Me” option to receive an automated call directly to their phone.
Related materials will be available on the Investor Centre section of TransAlta’s website at https://transalta.com/investors/presentations-and-events/. If you are unable to participate in the call, the replay will be accessible at https://edge.media-server.com/mmc/p/wyxuetfp. A transcript of the broadcast will be posted on TransAlta’s website once it becomes available.
