TransAlta Renewables Reports Third Quarter 2021 Results
CALGARY, AB, Nov. 9, 2021 /CNW/ -
Third Quarter 2021 Highlights
- Comparable EBITDA(1) of $102 million, a $6 million increase to the same period in 2020
- Adjusted funds from operations ("AFFO")(1) of $57 million, a $19 million decrease to the same period in 2020
- Cash available for distribution ("CAFD")(1) of $54 million or $0.20 per share in the third quarter, a $19 million or $0.07 per share decrease to the same period in 2020
Significant & Subsequent Events
- Announced full notice to proceed on the 48 MW Northern Goldfields Solar project with target of providing BHP Billiton Nickel West Pty Ltd. with renewable electricity to its Goldfields-based operations by second half of 2022
- Closed the previously announced acquisition of the economic interest of a 122 MW portfolio of operating solar facilities located in North Carolina for the amount of US$102 million
- Completion of all construction activities at Windrise and on-track to reach commercial operations in November of 2021
TransAlta Renewables Inc. ("TransAlta Renewables" or the "Company") (TSX: RNW) announced today financial results for the three and nine months ended Sept. 30, 2021.
"We are pleased to have made progress this quarter on our strategy of fleet diversification and growth in our contracted cash flow profile with the closing of the North Carolina Solar acquisition. This project expands our solar footprint in the United States and adds a new high-quality customer in a region where we see significant growth opportunities. The project is expected to add US$9 million in comparable EBITDA annually," said Todd Stack, President. "We are also pleased to announce the completion of construction activities at our Windrise facility, with a 20-year contract with the AESO, which also enhances the overall contractedness of our asset portfolio."
Comparable EBITDA for the three months ended Sept. 30, 2021 increased by $6 million compared to the same period in 2020, mainly due to the impact of the acquisitions of Ada and Skookumchuck facilities, favourable market conditions in Canadian Gas, and higher contract revenues at Australia Gas, partly offset by lower production across Canadian Wind, US Wind and Hydro. Comparable EBITDA for the nine months ended Sept. 30, 2021 decreased by $7 million compared to the same period in 2020 mainly due to lower wind resource across the wind fleet; unplanned outages in the Canadian Gas segment including provisions for liquidating damages for steam supply disruptions, partially offset by the acquisition of the economic interests of Skookumchuck and Ada.
AFFO and CAFD for the three months ended Sept. 30, 2021, each decreased by $19 million, compared to the same period in 2020. The decrease in AFFO was primarily due to higher interest expense attributable to the financing at South Hedland and sustaining capital within Australia driven by planned maintenance and a spare engine purchase for the South Hedland facility. AFFO and CAFD for the nine months ended Sept. 30, 2021, decreased by $47 million and $48 million respectively, compared to the same period in 2020 due to lower comparable EBITDA and higher interest expense and sustaining capital within Australia.
Net earnings attributable to common shareholders for the three months ended Sept. 30, 2021 increased by $14 million, compared to the same period in 2020, primarily due to higher finance income from investments in subsidiaries of TransAlta and no fair value losses recognized in the current period partially offset by lower production from the Canadian wind fleet and greater asset impairments.
Net earnings attributable to common shareholders for the nine months ended Sept. 30, 2021, increased by $58 million compared to the same period in 2020, primarily due to higher finance income from investments in subsidiaries of TransAlta, no fair value losses recognized in the period, partially offset by the liquidated damages recognized relating to unplanned outages, unfavourable steam reconciliation adjustment in Canadian Gas, lower wind production from the Canadian wind fleet, lower foreign exchange gains and greater asset impairments. Finance income from investments in subsidiaries was higher in the current period compared to the same period in 2020, due to higher distributions received from the Australian economic interest. No fair value losses were recognized in the period as the Preferred Shares Tracking the Amortizing Term Loan were redeemed on Oct. 23, 2020.
Acquisition of North Carolina Solar
On Nov. 5, 2021, the Company acquired a 100 per cent economic interest in the 122 MW portfolio of 20 operating solar photovoltaic facilities located in North Carolina (collectively, "North Carolina Solar"). The facilities are secured by long-term power purchase agreements ("PPAs") with two subsidiaries of Duke Energy, which have an average remaining term of 12 years. Under the PPAs, Duke Energy receives the renewable electricity, capacity and environmental attributes from each facility. The Company acquired the economic interest in North Carolina Solar by acquiring a US$102 million investment in tracking preferred shares of a subsidiary of TransAlta Corporation ("TransAlta"). The investment was funded using existing liquidity. The acquisition expands the Company's portfolio in renewable energy and presence in the US market. The portfolio is expected to contribute US$9 million of annual EBITDA.
Kent Hills Wind Facility Outage
On Sept. 27, 2021, the Company's subsidiary, Kent Hills Wind LP, experienced a single tower failure at its 167 MW Kent Hills wind facility in Kent Hills, New Brunswick. The failure involved a collapsed tower located within the Kent Hills 2 site. There were no injuries as a result of the collapse. No one was in the area when the incident occurred and there are no homes in the immediate vicinity. The Company's emergency response team has secured the area to ensure safety. This incident has resulted in an impairment of $2 million being booked against the turbine.
The facility consists of 50 turbines at Kent Hills 1 and Kent Hills 2 and 5 turbines at Kent Hills 3. The turbines at the Kent Hills 1 and Kent Hills 2 sites have been taken offline pending a satisfactory independent engineering and safety assessment. The engineering assessment, which is ongoing, has identified sub-surface crack propagation at several of the foundations of the turbines located at the Kent Hills 1 and Kent Hills 2 sites. As a result, further inspection and testing will be required for all turbines at Kent Hills 1 and 2 to determine the required remediation plan, on a turbine-by-turbine basis. It is presently expected that the outage at Kent Hills 1 and Kent Hills 2 will require repairs or replacements for a significant portion of the existing foundations. Foundation replacements would require expenditures of approximately $1.5 million to $2.0 million per foundation. The remediation plan is expected to be implemented in 2022. The outage is expected to result in foregone revenue of approximately $3.4 million per month on an annualized basis for so long as all 50 turbines are offline, based on average historical wind production, with revenue expected to be earned as the wind turbines are each returned to service. The foundation issues at the Kent Hills 1 and Kent Hills 2 sites are unique to the design of those sites and there is no indication of any foundation issue at the Kent Hills 3 site nor any other wind sites in the fleet. The Company is maintaining communication with all key stakeholders and keeping them fully apprised of the situation.
Northern Goldfields Solar Project
The 48 MW Northern Goldfields Solar Project consists of the 27 MW Mount Keith Solar Farm, 11 MW Leinster Solar Farm, 10 MW/5 MWh Leinster battery energy storage system and interconnecting transmission infrastructure, all of which will be integrated into the 169 MW Southern Cross Energy North remote network in Western Australia. The Company owns an indirect economic interest in the project through the tracking preferred shares that are based in reference to the Australian cash flows. Full notice to proceed on the project has been issued, and construction activities are scheduled to start in the first quarter of 2022, with completion of the project expected in the second half of 2022. The project is expected to contribute between $8 and $9 million of annual EBITDA. This is the first major growth project agreed under the extended PPA that was executed in October 2020. The Company continues to actively explore other growth opportunities with BHP.
Windrise Wind Project
The Company acquired a 100 per cent direct interest in the 206 MW Windrise wind project on Feb. 26, 2021. The main transmission line was energized on June 10. All turbine erection activities have now been completed with final commissioning activities currently underway and commercial operation is tracking to be achieved in November of 2021. The project is expected to have an EBITDA contribution range of between $20 to $22 million.
Sarnia Cogeneration Facility Contract Extension
On May 12, 2021, the Company executed an Amended and Restated Energy Supply Agreement with one of its large industrial customers at the Sarnia cogeneration facility which provides for the supply of electricity and steam. This agreement will extend the term of the original agreement from Dec. 31, 2022 to Dec. 31, 2032. However, if the Company is unable to enter into a new contract with the Ontario Independent Electricity System Operator ("IESO") or enter into agreements with its other industrial customers at the Sarnia cogeneration facility that extend past Dec. 31, 2025, then this agreement will automatically terminate on Dec. 31, 2025. The current contract with the IESO in respect of the Sarnia cogeneration facility expires on Dec. 31, 2025. The Company is in active discussions with the three other existing industrial off-takers regarding agreement extensions to their supply of electricity and steam from the Sarnia cogeneration facility on comparable terms. On July 19, 2021, the IESO released an Annual Acquisition Report which included draft details for mid and long-term procurement mechanisms for capacity for 2026 and beyond for existing and new generation. The Company is participating in the consultation process, seeking to secure a contract extension for the Sarnia cogeneration facility following the end of the current contract.
Global Pandemic
TransAlta, as the manager and operator of the Company's business and assets, continues to operate under its business continuity plan. As of Nov. 15, 2021, TransAlta will implement a two-phase mandatory rapid testing protocol for those employees that are not fully vaccinated. The first phase will commence on Nov. 15, 2021 to Jan. 31, 2022 and will be paid by TransAlta, requiring onsite testing every 72 hours at TransAlta's cost. On or about Feb. 1, 2022, those employees who are not fully vaccinated will be required to pay for testing and provide TransAlta with proof of a negative test every 72 hours. Employees can be exempt from rapid testing if they are able to provide proof of vaccination.
Liquidity and Financial Position
The Company remains highly diversified with facilities that are highly contracted and located in various geographies. Cash flows from the underlying asset portfolio are also supported by the financial strength of customers. The Company continues to maintain a strong financial position and currently has access to $0.8 billion in liquidity including $240 million of cash.
Third Quarter Ended Sept. 30, 2021 Highlights
C$ millions, unless otherwise stated |
3 Months Ended |
9 Months Ended |
||
Sept. 30, 2021 |
Sept. 30, 2020 |
Sept. 30, 2021 |
Sept. 30, 2020 |
|
Renewable energy production (GWh)(2) |
854 |
864 |
3,013 |
3,135 |
Revenues |
114 |
95 |
332 |
308 |
Net earnings attributable to common shareholders |
20 |
6 |
97 |
39 |
Comparable EBITDA(1) |
102 |
96 |
322 |
329 |
Adjusted funds from operations(1) |
57 |
76 |
214 |
261 |
Cash flow from operating activities |
83 |
65 |
265 |
218 |
Cash available for distribution(1) |
54 |
73 |
184 |
232 |
Net earnings per share attributable to common |
0.07 |
0.02 |
0.36 |
0.15 |
Adjusted funds from operations per share(1) |
0.21 |
0.29 |
0.80 |
0.98 |
Cash available for distribution per share(1) |
0.20 |
0.27 |
0.69 |
0.87 |
Dividends declared per common share |
0.23 |
0.23 |
0.70 |
0.70 |
Dividends paid per common share(3) |
0.23 |
0.23 |
0.70 |
0.70 |
The following tables provide further detail on the allocation of the Comparable EBITDA between owned assets and assets in which TransAlta Renewables holds an economic interest; as well as a reconciliation to AFFO.
Owned Assets |
Economic Interests |
|||||||||||||||
3 months ended Sept. 30, 2021 |
Canadian |
Canadian |
Canadian |
Corporate |
US Wind |
US Gas(4) |
Australian |
Total |
||||||||
Comparable EBITDA(1) |
28 |
6 |
21 |
(4) |
12 |
3 |
36 |
102 |
||||||||
Interest expense |
(4) |
(1) |
— |
(3) |
— |
— |
(6) |
(14) |
||||||||
Current income tax expense |
(4) |
— |
— |
— |
— |
— |
— |
(4) |
||||||||
Realized foreign exchange gain |
— |
— |
— |
1 |
— |
— |
— |
1 |
||||||||
Tax equity distributions |
— |
— |
— |
— |
(7) |
— |
— |
(7) |
||||||||
Sustaining capital expenditures |
(4) |
(1) |
(1) |
— |
— |
— |
(16) |
(22) |
||||||||
Distributions paid to subsidiaries' |
(1) |
— |
— |
— |
— |
— |
— |
(1) |
||||||||
Interest income |
— |
— |
— |
1 |
— |
— |
1 |
2 |
||||||||
AFFO(1) |
15 |
4 |
20 |
(5) |
5 |
3 |
15 |
57 |
||||||||
Owned Assets |
Economic Interests |
|||||||||||||||
3 months ended Sept. 30, 2020 |
Canadian |
Canadian |
Canadian |
Corporate |
US Wind |
US Gas(4) |
Australian |
Total |
||||||||
Comparable EBITDA(1) |
32 |
5 |
20 |
(6) |
12 |
— |
33 |
96 |
||||||||
Provisions |
2 |
1 |
— |
— |
— |
— |
— |
3 |
||||||||
Interest expense |
(6) |
(1) |
(2) |
— |
— |
— |
— |
(9) |
||||||||
Current income tax expense |
— |
— |
— |
— |
(1) |
— |
— |
(1) |
||||||||
Tax equity distributions |
— |
— |
— |
— |
(4) |
— |
— |
(4) |
||||||||
Sustaining capital expenditures |
(5) |
— |
(1) |
— |
— |
— |
— |
(6) |
||||||||
Distributions paid to subsidiaries' |
(1) |
— |
— |
— |
— |
— |
— |
(1) |
||||||||
Currency adjustment and interest |
— |
— |
— |
— |
— |
— |
(2) |
(2) |
||||||||
AFFO(1) |
22 |
5 |
17 |
(6) |
7 |
— |
31 |
76 |
||||||||
Owned Assets |
Economic Interests |
|||||||||||||||
9 months ended Sept. 30, 2021 |
Canadian |
Canadian |
Canadian |
Corporate |
US Wind |
US Gas(4) |
Australian |
Total |
||||||||
Comparable EBITDA(1) |
120 |
14 |
45 |
(15) |
52 |
7 |
99 |
322 |
||||||||
Provisions and contract liabilities |
(6) |
— |
12 |
— |
— |
— |
— |
6 |
||||||||
Interest expense |
(14) |
(2) |
(1) |
(8) |
(1) |
— |
(18) |
(44) |
||||||||
Current income tax expense |
(12) |
— |
— |
— |
(1) |
— |
(9) |
(22) |
||||||||
Realized foreign exchange gain |
— |
— |
— |
2 |
— |
— |
— |
2 |
||||||||
Tax equity distributions |
— |
— |
— |
— |
(21) |
— |
— |
(21) |
||||||||
Sustaining capital expenditures |
(7) |
(2) |
(2) |
— |
(1) |
(1) |
(20) |
(33) |
||||||||
Distributions paid to subsidiaries' |
(3) |
— |
— |
— |
— |
— |
— |
(3) |
||||||||
Interest income |
2 |
— |
— |
3 |
— |
— |
2 |
7 |
||||||||
AFFO(1) |
80 |
10 |
54 |
(18) |
28 |
6 |
54 |
214 |
||||||||
Owned Assets |
Economic Interests |
|||||||||||||||
9 months ended Sept. 30, 2020 |
Canadian |
Canadian |
Canadian |
Corporate |
US Wind |
US Gas(4) |
Australian |
Total |
||||||||
Comparable EBITDA(1) |
126 |
14 |
58 |
(16) |
53 |
— |
94 |
329 |
||||||||
Provisions |
3 |
1 |
— |
— |
— |
— |
— |
4 |
||||||||
Interest expense |
(21) |
(2) |
(2) |
(4) |
— |
— |
— |
(29) |
||||||||
Current income tax expense |
(1) |
— |
— |
— |
(2) |
— |
(6) |
(9) |
||||||||
Realized foreign exchange loss |
— |
— |
— |
(3) |
— |
— |
— |
(3) |
||||||||
Tax equity distributions |
— |
— |
— |
— |
(16) |
— |
— |
(16) |
||||||||
Sustaining capital expenditures |
(9) |
(1) |
(2) |
— |
(1) |
— |
(2) |
(15) |
||||||||
Distributions paid to subsidiaries' |
(4) |
— |
— |
— |
— |
— |
— |
(4) |
||||||||
Currency adjustment and interest |
1 |
— |
— |
3 |
— |
— |
— |
4 |
||||||||
AFFO(1) |
95 |
12 |
54 |
(20) |
34 |
— |
86 |
261 |
||||||||
A complete copy of TransAlta Renewables' third quarter MD&A and unaudited financial statements are available through TransAlta Renewables' website at www.transaltarenewables.com or at SEDAR at www.sedar.com.
Notes
(1) Comparable EBITDA refers to earnings before interest, taxes, depreciation and amortization including finance lease income and adjusted for certain other items. AFFO includes the deduction of sustaining capital expenditures and distributions to non-controlling interests and excludes the effects of timing and working capital on distributions from subsidiaries of TransAlta in which the Company holds an economic interest. CAFD refers to adjusted funds from operations less principal repayments of amortizing debt. These items are not defined under International Financial Reporting Standards ("IFRS"). Presenting these items from period to period provides management and investors with the ability to evaluate earnings and cash flow trends more readily in comparison with prior periods' results and may not be comparable to similar measures presented by other issuers and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Refer to the Non-IFRS Measures and Reconciliation of Non-IFRS Measures sections of the MD&A for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.
(2) Includes production from Canadian Wind, Canadian Hydro and US Wind and Solar and excludes Canadian, US and Australian gas-fired generation. Production is not a key revenue driver for gas-fired facilities as most of their revenues are capacity-based.
(3) Includes DRIP payments in 2020. The DRIP was suspended in the fourth quarter of 2020.
(4) US Wind and Solar includes the Skookumchuck wind facility and US Gas comprises the Ada cogeneration facility which were acquired through investment in tracking preferred shares on Apr. 1, 2021.
About TransAlta Renewables Inc.
TransAlta Renewables is among the largest of any publicly traded renewable independent power producers ("IPP") in Canada. Our asset platform and economic interests are diversified in terms of geography, generation and counterparties and consist of interests in 27 wind facilities, 13 hydroelectric facilities, eight natural gas generation facilities, twenty-one solar facilities, one natural gas pipeline, and one battery storage project, representing an ownership interest of 2,866 megawatts of owned generating capacity, located in the provinces of British Columbia, Alberta, Ontario, Québec, New Brunswick, the States of Pennsylvania, New Hampshire, Wyoming, Massachusetts, Michigan, Minnesota, Washington, North Carolina, and the State of Western Australia. Our objectives are to (i) provide stable, consistent returns for investors through the ownership of, and investment in, highly contracted renewable and natural gas power generation and other infrastructure assets that provide stable cash flow primarily through long-term contracts with strong counterparties; (ii) pursue and capitalize on strategic growth opportunities in the renewable and natural gas power generation and other infrastructure sectors; (iii) maintain diversity in terms of geography, generation and counterparties; and (iv) pay out 80 to 85 per cent of cash available for distribution to the shareholders of the Company on an annual basis.
Cautionary Statement Regarding Forward-looking Information
This news release contains forward-looking statements, including statements regarding the business and anticipated financial performance of the Company that are based on the Company's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "plans", "expects", "proposed", "will", "anticipates", "develop", "continue", and similar expressions suggesting future events or future performance. In particular, this news release contains forward-looking statements, pertaining to, without limitation, the following: the potential impact of COVID-19 on the Company, and the actions to be undertaken by the Company or TransAlta in response to the COVID-19 pandemic; the contract extensions in respect of the Sarnia cogeneration facility; the outage at the Kent Hills wind facility and cost and time required in connection with any remediation; and the Company's growth projects, including the Northern Goldfields Solar Project and Windrise wind project and the timing and cost thereof; and the expected contributions to EBITDA from the North Carolina Solar portfolio and other growth projects. Forward-looking statements are subject to a number of significant risks, uncertainties and assumptions that could cause actual plans, performance, results or outcomes to differ materially from current expectations. Factors that may adversely impact what is expressed or implied by forward-looking statements contained in this news release include risks relating to: the impact of COVID-19, such as more restrictive directives of government and public health authorities; reduced labour availability; inability to staff the Company's construction and operating activities; disruptions to the Company's supply chain; impairments and/or write-downs of assets; adverse impacts on the Company's information technology systems and the Company's internal control systems; operational risks involving the Company's facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather and other climate-related risks; the remediation at the Kent Hills wind facility being more extensive and costly than currently expected; disruptions in the source of water, wind, solar or gas resources required to operate our facilities; natural disasters; equipment failure and our ability to carry out repairs in a cost-effective or timely manner; and industry risks and competition. The foregoing risk factors, among others, are described in further detail in the Company's Management's Discussion and Analysis and Annual Information Form for the year ended December 31, 2020, which are available on SEDAR at www.sedar.com. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this news release. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Note: All financial figures are in Canadian dollars unless noted otherwise.
SOURCE TransAlta Renewables Inc
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