As Alberta moves away from coal power, TransAlta Corp. (TSX:TA; NYSE:TAC) said March 8 it had received formal notice from TransCanada Energy Ltd. of its intention to terminate the power purchase arrangements (PPAs) for Sundance A Units 1 and 2 and Sheerness Units 1 and 2.
TransAlta also said that it had gotten a formal notice from ASTC Power Partnership, a partnership between TransCanada and AltaGas Pipeline Partnership, of its intention to terminate the PPA for Sundance B Units 3 and 4.
Notwithstanding the termination, the terms of the Sundance A and B and Sheerness PPAs remain intact and will be administered by the Alberta Balancing Pool. The terminations are not anticipated to have a material impact on TransAlta’s business.
TransCanada had made its own announcement on March 7.
“The agreements contain a provision that permits the PPA buyers to terminate the PPAs if there is a change in the law that makes the agreements unprofitable,” said Bill Taylor, TransCanada’s executive vice-president and president, Energy. “We have made the decision to exercise this right.”
Unprofitable market conditions are expected to continue as costs related to CO2 emissions have increased and they are forecast to continue to increase over the remaining term of the PPA agreements. The company expects the termination will improve cash flow and comparable earnings in the near term, TransCanada went on to say in its statement.
The Balancing Pool is now required to verify TransCanada’s and ASTC’s determinations and confirm their right to terminate the PPAs.
Should the termination be accepted, the Balancing Pool will act as the buyer of the Sundance A, Sundance B and Sheerness PPAs and will be responsible for offering the capacity into the market and making the PPA payments previously made by TransCanada and ASTC to TransAlta.
TransAlta will continue to focus on cost-effective and efficient operation of its Canadian coal facilities and will work with the Government of Alberta to reach an agreement on the path forward for coal.
The government is expected to appoint a negotiator to work with coal generators to ensure system reliability, price stability and no unnecessarily stranded capital. TransAlta will negotiate with the government to ensure that the Alberta electricity market structure supports the development of renewable assets as the Province transitions away from coal.
TransAlta said in January that it will support its transition from coal- to gas-fired and renewable generation in the Canadian province of Alberta. This follows the province’s recent announcement of a plan to eliminate coal-fired generation there by 2030.