Capital Power says it can handle coal phaseout in Alberta

At its Dec. 3 Investor Day event, Capital Power Corp. (TSX: CPX) highlighted key corporate developments and provided financial and operational targets for 2016 and dividend guidance to 2018, and also talked about its initial plans to comply with the province of Alberta’s recently-announced plan to combat climate change and shut down its coal plants by 2030.

Brian Vaasjo, President and CEO of Capital Power, said: “I’m pleased with the successful completion of our 2015 growth projects, which include the opening of Alberta’s largest natural gas-fired facility, the completion of K2 Wind, and the upcoming opening of our first solar facility. Based on Capital Power’s projected cash flows over the next 3 years, the Company is well positioned to deliver on its 7 per cent annual dividend growth guidance through 2018.”

Corporate priorities and financial targets for 2016 include:

  • A capacity-weighted average plant availability of 94%, reflecting planned outages at Genesee 2 & 3, Clover Bar Energy Centre, Joffre, and Shepard Energy Centre;
  • Plant maintenance capital and sustaining capital expenditures of up to C$65 million, and plant operating and maintenance expenses of C$200 million to C$220 million;
  • Progress on the Genesee 4&5 project and the execution of a power purchase agreement for new development; and
  • Funds from operations of C$380 million to C$430 million, based on the Alberta commercial portfolio position 100% hedged at an average contracted hedge price in the high-C$40 per megawatt hour,

The Alberta government announced its Climate Leadership Plan on Nov. 22, with details of the final strategy still to be developed. Three key areas impacting Capital Power include:

  • phasing out coal-generated electricity by 2030;
  • developing more renewable energy through competitive procurement processes; and
  • implementing a new Carbon Competitiveness Regulation (CCR) on greenhouse gas pollution that replaces the current emissions intensity-based carbon pricing program with one that is based on an emissions performance standard.

The Climate Leadership Plan incorporates numerous policy approaches that are consistent with Capital Power’s recommendations, including compensation for early retirement of coal facilities and the continuation of Alberta’s competitive electricity market. The provincial government has indicated an independent facilitator and the system operator will work with owners of coal-fired generation to develop a transition plan. Capital Power said it will participate in discussions to successfully implement the government’s policies for the electricity sector and for its shareholders.

“We have completed our analysis of the information provided to date in the Climate Leadership Plan and have determined that, in the near term, the impact on the Company’s financial performance is positive,” said Vaasjo. “We expect to satisfy the carbon tax obligation through a combination of low-cost carbon credits and cash. The higher carbon compliance costs for our coal facilities are expected to be partly recovered through higher power prices, which will benefit our natural gas and wind facilities.

“Longer term, all the impacts of the Climate Leadership Plan are yet to be determined. With respect to the decision to phase out all coal-fired generation by 2030, the Alberta government has committed to manage the transition in a manner that treats workers, communities and affected companies fairly, avoids unnecessarily stranding capital, and ensures reasonable price stability for consumers. We will work collaboratively with the government to consider and resolve these issues in a timely manner, and endeavor to achieve fair and appropriate outcomes for our shareholders.”

“Over the past decade, Capital Power has been the largest investor in Alberta power generation. We support government policies that treat investors fairly, and maintain an attractive climate for investment in new power generation. We are well positioned to compete to supply both new merchant natural gas generation and new renewables.”

Capital Power’s Alberta coal interests include:

  • 258 MW share of Genesee Unit 3;
  • 860 MW total at Genesee Units 1 and 2; and
  • 247.5-MW share of Keephills Unit 3.

Near term opportunities for Capital Power in Alberta include the Genesee 4&5 project (up to 1,060 MW in total size), a fully-permitted combined cycle natural gas-fired facility proposed to be developed through a joint venture with ENMAX. It would be located at the site of the existing Genesee coal units. Capital Power has also applied to connect a proposed 150-MW wind farm to the grid, near its existing Halkirk Wind facility.

Also, in December 2015, Capital Power expects to complete its first solar project on-time and on-budget. The 15-MW Beaufort Solar facility is located in Beaufort County, North Carolina, and has a 15-year power purchase agreement with Duke Energy (NYSE: DUK).

Capital Power is a growth-oriented North American power producer headquartered in Edmonton, Alberta. The company develops, acquires, operates and optimizes power generation from a variety of energy sources. Capital Power owns more than 3,200 MW of power generation capacity at 17 facilities across North America and owns 371 MW of capacity through a power purchase agreement. An additional 545 MW of owned generation capacity is under construction or in advanced development in Alberta and North Carolina.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.