TransAlta does ‘drop-down’ deal related to three Canadian power plants

TransAlta Corp. (TSX: TA) (NYSE: TAC) announced Jan. 6 the closing of the investment by TransAlta Renewables Inc. (TSX: RNW) in TransAlta Corp.’s Sarnia Cogeneration Plant, Le Nordais wind farm and Ragged Chute hydro facility for a combined value of approximately C$540 million.

This portfolio of three facilities consists of approximately 611 MW of highly-contracted power generation assets located in Ontario and Quebec. TransAlta Renewables’ investment consists of the acquisition of securities which track the net distributable profits of the portfolio. The transaction was originally announced in November 2015.

“I am pleased to announce the closing of our second drop-down transaction with TransAlta Renewables this year. In 2015, we raised approximately [C]$600 million in cash proceeds through the use of our sponsored vehicle and going forward, we intend to continue to grow TransAlta Renewables with suitable assets from TransAlta and new accretive transactions as they arise,” said Dawn Farrell, President and Chief Executive Officer.

TransAlta Renewables will continue to be a key part of TransAlta’s strategy to strengthen its balance sheet, improve its liquidity and position the company for future growth opportunities. TransAlta said it remains committed to maintaining its position as the majority shareholder and sponsor of TransAlta Renewables and intends to continue to own approximately 60% to 80% of the outstanding voting shares of TransAlta Renewables.

Including this transaction, TransAlta executed a number of initiatives in 2015 that have enhanced the competitive positioning of the company for 2016 and beyond, including:

  • Raising over C$1.0 billion of net proceeds throughout the year consisting of approximately C$600 million through drop-down transactions and the sale of Common Shares of TransAlta Renewables and approximately C$442 million in non-recourse financing associated with two wind farms in Ontario at a rate of 3.8%.
  • Executing several productivity initiatives that are expected to reduce TransAlta’s operations, maintenance and administrative costs by approximately C$50 million. These cost reductions improve the company’s competitive position in the current low power price environment in Alberta and also in the Pacific Northwest, where it owns the Centralia coal plant in Washington state.
  • Hedging approximately 87% of its generation for 2016, and approximately 82% for 2017. The average prices of short-term physical and financial contracts for 2016 are approximately C$50 per MWh in Alberta and approximately US$45 per MWh in the Pacific Northwest. This provides a greater level of certainty on the company’s results for 2016 and 2017.
  • Advancing the construction of the South Hedland Power Project, a 150-MW long-term contracted gas-fired facility in Australia, on budget and on-time. This project is expected to be commissioned in mid 2017 and add approximately C$80 million of incremental annualized EBITDA.

TransAlta is a power generation and wholesale marketing company focused on creating long-term shareholder value. TransAlta maintains a low-to-moderate risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia. TransAlta’s focus is to efficiently operate wind, hydro, solar, natural gas and coal facilities in order to provide customers with a reliable, low-cost source of power.

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.