Coal to Gas

Scroll down or jump to second news release: “TransAlta and Tidewater Midstream announce today a Letter of Intent to construct a Natural Gas Pipeline to TransAlta’s Facilities” 


TransAlta Announces Accelerated Transition to Clean Energy

CALGARY, Alberta (December 6, 2017) – TransAlta Corporation (“TransAlta” or the “Company”) (TSX: TA; NYSE: TAC) announced today that its Board of Directors has approved additional elements in the Company’s strategy to accelerate its transition to gas and renewables generation.  These elements include:

  • Entering into a letter of intent with Tidewater Midstream and Infrastructure Ltd. (“Tidewater”) to construct a 120 kilometre natural gas pipeline from Tidewater’s Brazeau River Complex to TransAlta’s generating units at Sundance and Keephills to eventually supply the Company with up to 340 million cubic feet of gas per day;
  • Accelerating the conversion of Sundance Units 3 to 6 and Keephills Units 1 and 2 from coal-fired generation to gas-fired generation in the 2021 to 2022 timeframe, a year earlier than originally planned. The coal-fired plants operated by TransAlta, once converted to gas, are anticipated to be able to run through to 2031 to 2039 – a significant lengthening of their asset lives; and
  • Mothballing temporarily a combination of Sundance units in 2018 and 2019 to ensure that two Sundance coal units can operate at high capacity utilizations with lower costs through the period to 2020 when additional power will be needed in the Alberta market. Sundance Units 3 to 6 will re-enter the market starting in 2020 as the demand for electricity rises.

Details on the Company’s Brazeau Pumped Storage Project, which is a key cornerstone of its gas and renewables strategy, are also provided. The Company expects dispatchable renewable resources to be valuable in a future where carbon emitting plants will mostly provide back up to low cost intermittent renewable resources.

The Company also provided its 2018 annual guidance today, which is discussed below.

“We continue to position TransAlta as a leader in clean power generation and our strategy dramatically improves our competitive position and our ability to generate strong cash flow over the long term,” said Dawn Farrell, President and Chief Executive Officer. “Our asset base in Alberta is poised to ensure that we can provide low cost, clean, reliable and firm electricity to customers.”

Gas Supply for Conversions and Accelerated Coal-to-Gas Conversion Schedule

As announced earlier today, TransAlta has entered into a letter of intent with Tidewater for the construction of a 120 kilometre pipeline from their Brazeau River Complex to TransAlta’s Sundance and Keephills facilities.   The pipeline will provide initial capacity of 130 million cubic feet of gas per day by 2020, and have expansion capability to 340 million cubic feet of gas per day.  The initial capacity will support fuel blending, using a fuel combination of coal and gas for generation, which will reduce the marginal cost as well as emissions.  TransAlta will have the option to invest up to 50 percent in the pipeline, which, if exercised, would reduce the costs associated with the tolling agreement.

The decision to work with Tidewater advances the timeframe for the construction of a pipeline and permits the acceleration of plant conversions.  As a result, and given the clarity provided by the draft coal-to-gas conversion rules proposed by the Government of Canada, the Company has determined to accelerate the conversion of Sundance Units 3 to 6 and Keephills Units 1 and 2 from coal-fired generation to gas-fired in the 2021 to 2022 timeframe, a year earlier than originally planned.  TransAlta remains of the view that having at least two pipelines supplying natural gas would reduce operational risks and continues to advance discussions with other parties to construct additional pipelines to meet the remaining gas supply requirements for the facilities.

Although not yet finalized, the Government of Canada has proposed coal-to-gas conversion rules that would extend the life of TransAlta’s gas conversion units by five-to-ten years past their federal end of coal life, depending on their CO2 emissions profile.  The proposed rules would see the life of TransAlta’s entire coal-fired fleet extended by an aggregate of approximately 75 years.

In addition to the extending of their operating lives, the benefits of converting units to gas generation include: (i) significantly lowering carbon intensities, emissions, and costs; (ii) significantly lowering operating and sustaining capital costs; and (iii) increasing operating flexibility.

Sundance Operations in the 2018 to 2020 Timeframe

The Board of Directors have approved the following;

  • Sundance Unit 3, will be temporarily mothballed on April 1, 2018 for a period of up to two years;
  • Sundance Unit 5, will be temporarily mothballed on April 1, 2018 for a period of up to one year; and
  • Sundance Unit 4, will be temporarily mothballed on April 1, 2019 for a period of up to two years.

The decision to mothball selected units ensures that the remaining units operate at strong capacity utilization factors which ensure competitive cost structures.  Sundance Unit 3, Sundance Unit 4 and Sundance Unit 5 comprise 368 MW, 406 MW and 406 MW, respectively, of the 2,141 MW Sundance power plant.  TransAlta maintains the flexibility to return mothballed units to service when market fundamentals support the addition of their generation.  The mothballing of the units will also assist TransAlta in its preparations for converting the units to gas.

On April 19, 2017, the Company announced that it would retire Sundance Unit 1 and mothball Sundance Unit 2, effective January 1, 2018.  Sundance Unit 2 will also be available to return to service in 2020.

Brazeau Pumped Storage

Brazeau Hydro is an existing power station on the North Saskatchewan River location north-west of Edmonton.  The facility currently produces 355 MW of power under a power purchase arrangement (“PPA”) with the Balancing Pool. The PPA expires at the end of 2020.  Brazeau Pumped Storage is a development project, at Brazeau Hydro, that would create up to 900 MW of additional generation and storage capability. The facility would utilize the existing footprint to generate power under conditions of strong demand and store power when supply resources outpace demand. It is particularly competitive for ensuring that low cost, intermittent wind and solar generation resources can be stored for use in high demand periods.  The Company is developing the project in anticipation of a requirement over time to replace baseload thermal resources with dispatchable renewable resources in the Alberta market.  The project, if it were to win a long-term contract in a future competitive call, could be ready for service as early as 2025.

2018 Outlook

For 2018, we expect our annual free cash flow (“FCF”) to be in-line with our 2017 expected annual FCF, despite the expiry of the Sundance A PPA, the early termination of the Sundance B PPA and Sundance C PPA, and the termination of our Solomon contract in Australia. We have already received approximately $400 million for the early termination of the Solomon contract and we are expecting to receive in excess of $200 million from the Balancing Pool for the early termination of the Sundance B PPA and Sundance C PPA.  As a result, we have accelerated our debt reduction plan and will have additional financial flexibility over the next three years.  The PPA terminations have provided increased operational flexibility and enables optimization of the Sundance power plant.  This optimization results in significant reductions in operating costs as well as sustaining and productivity capital, which we expect will be in the range of $215 to $235 million.

The outlook assumes an average price of $50-60/MWh in Alberta and that the Sundance merchant units will run between 65 to 75% in 2018.  The following table outlines TransAlta’s financial targets for 2018:

Measure Target
Comparable EBITDA(1) $950 million to $1,050 million
FFO(1) $725 million to $800 million
FCF (1) $275 million to $350 million
Dividend $0.16 per share, 13 to 17 per cent payout of Comparable FCF

 

Range of key power price assumptions:

Market Power Prices ($/MWh)
Alberta Spot $50 to $60
Alberta Contracted $35 to $40
Mid-C Spot (US$) $20 to $25
Mid-C Contracted (US$) $47 to $53

 

Other assumptions relevant to the 2018 outlook:

Sustaining Capital $215 million to $235 million
Canadian Coal Capacity Factor 65% to 75%
Hydro/Wind Resource Long term average

 

(1)  These items are not defined under IFRS. Presenting these items provides management and investors with the ability to evaluate earnings trends more readily in comparison with prior periods’ results. Refer to the Funds from Operations and Free Cash Flow, Discussion of Segmented Comparable Results, and Earnings and Other Measures on a Comparable Basis sections of TransAlta’s 2017 third quarter management discussion and analysis for additional information.

Investor Day

TransAlta will be hosting an Investor Day at 9:30am ET on Wednesday, December 6th, 2017 during which our executive team will discuss the announcements above.  A link to the presentation and live webcast will be available on the Investors section of TransAlta’s website at http://www.transalta.com/investors/events-and-presentations.

About TransAlta Corporation:

TransAlta owns, operates and develops a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. We provide municipalities, medium and large industries, businesses and utility customers clean, affordable, energy efficient, and reliable power. Today, we are one of Canada’s largest producers of wind power and Alberta’s largest producer of hydro-electric power. For over 100 years, TransAlta has been a responsible operator and a proud community-member where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and we have been recognized by CDP (formerly Climate Disclosure Project) as an industry leader on Climate Change Management. We are also proud to have achieved the Silver level PAR (Progressive Aboriginal Relations) designation by the Canadian Council for Aboriginal Business.

For more information about TransAlta, visit our web site at transalta.com.

Forward-Looking Statements 

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “propose”, “plans”, “intends” and similar expressions are intended to identify forward-looking information or statements. More particularly, and without limitation, this news release contains forward-looking statements and information relating to: the mothballing of Sundance Units 3, 4 and 5; the expected value of dispatchable renewable resources, such as the Brazeau Pumped Storage project; that carbon emitting plants are expected to primarily provide back up to low cost intermittent renewable resources in the future; the expectation that mothballing a combination of Sundance units in 2018 and 2019 will allow the two operating Sundance coal units to operate at high capacity utilizations to 2020, when additional power is expected to be needed in the Alberta market; the conversion to gas-fired generation of Sundance Units 3 to 6 and Keephills Units 1 to 2, including the timing thereof; the lengthening of the coal-fired plants lives, once converted to gas, to 2031 to 2039; the expected gas supply required for converted units and the construction by Tidewater of a 120 kilometre pipeline to TransAlta’s Sundance and Keephills facilities with a capacity of 130 million cubic feet of gas per day by 2020 and expansion capability to 340 million cubic feet of gas per day; the terms of any definitive agreement with Tidewater, including the option to invest up to 50 percent in the pipeline; the anticipated benefits of converting units to gas; the Government of Canada’s proposed coal-to-gas conversion rules expected to extend the life of TransAlta’s coal units by five-to-ten years past their federal end of coal life, depending on their emissions profile; the life of TransAlta’s coal-fired fleet to be extended by an aggregate of approximately 75-years; the benefits of converting coal-fired generating units to gas-fired generating units; the construction and development of the Brazeau Pumped Storage project, including that such project  would create up to 900 MW of additional hydro and storage capability, the timing for when such project could come on-line, the competitiveness of such project, and the anticipated Alberta provincial requirement to replace baseload thermal generation with dispatchable renewable resources; the 2018 outlook, including 2017 expected annual FCF and 2018 financial targets; amounts to be received from the Balancing Pool in connection with the termination of the Sundance B and Sundance C PPAs; increased asset optimization; reductions in operating costs and sustaining and productivity capital in the range of $215 to $235 million; and the 2018 dividend amounts and payout ratio. These statements are based on TransAlta’s belief and assumptions based on information available at the time the assumptions were made. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include: legislative or regulatory developments, including as it pertains to the Alberta capacity market; the Federal and/or Provincial governments not implementing legislation or regulations facilitating the conversion from coal generation to gas generation; the Federal and/or Provincial governments adopting different carbon prices rules; changes in economic and competitive conditions; inability to secure natural gas supply and the construction of a natural gas pipeline on terms satisfactory to the Company; the introduction of disruptive sources of energy or capacity; changes in the price for natural gas and electricity, including expected pricing in Alberta and Mid-C; decreased demand for energy or capacity; Canadian coal capacity factors and hydro and wind resources being lower than expected; availability of financing; and other risk factors contained in the Company’s annual information form and management’s discussion and analysis. Readers are cautioned not to place undue reliance on these forward-looking statements or forward-looking information, which reflect TransAlta’s expectations only as of the date of this news release. The purpose of the financial outlooks contained in this news release are to give the reader information about management’s current expectations and plans and readers are cautioned that such information may not be appropriate for other purposes. TransAlta 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 otherwise indicated.

 

For more information:

Investor Inquiries: Media Inquiries:
Sally Taylor Amber Goulard
Manager, Investor Relations Senior Advisor, Communications
Phone: 1-800-387-3598 in Canada and U.S. Toll-free media number: 1-855-255-9184
Email: investor_relations@transalta.com Email: ta_media_relations@transalta.com

 


 

TransAlta and Tidewater Midstream announce today a Letter of Intent to construct a Natural Gas Pipeline to TransAlta’s Facilities

CALGARY, Alberta (December 6, 2017) – TransAlta Corporation (“TransAlta” or the “Company”) (TSX: TA; NYSE: TAC) and Tidewater Midstream and Infrastructure Ltd. (“Tidewater”) (TSX: TWM) announced today that the two companies have entered into a Letter of Intent (“LOI”) for Tidewater to construct a 120 Kilometre natural gas pipeline from its Brazeau River Complex to TransAlta’s generating units at Sundance and Keephills.

The Tidewater Pipeline will facilitate TransAlta’s strategy to convert its coal units at Sundance and Keephills to natural gas. Converting the coal units extends the operating life of the assets and significantly reduces operating costs and emissions.

The pipeline will provide initial capacity of 130 MMcf/d by 2020, and have expansion capability to 340 MMcf/d, which represents approximately 50% of TransAlta’s gas requirements at full capacity.  Under the LOI, TransAlta has the option to invest up to 50% in the pipeline.

“Construction of the natural gas pipeline supports our strategy of being a low-cost provider of firm, clean and reliable energy,” said Dawn Farrell, President and Chief Executive Officer of TransAlta. “In addition, having greater access to natural gas allows TransAlta to blend natural gas with the coal, prior to fully converting the units, allowing us to take advantage of low natural gas prices and reduce our carbon costs.”

“Tidewater is excited to enter into a long-term arrangement with TransAlta which is supported by a 15-year take or pay agreement that provides oil and gas producers throughout Western Canada with direct connectivity to a new, large demand source,” said Joel MacLeod, President and Chief Executive Officer of Tidewater. “This agreement with TransAlta enables Tidewater to transport production direct from the wellhead, through Tidewater’s extensive natural gas processing and storage infrastructure network, direct to an end market.”

 About TransAlta Corporation:

TransAlta develops new, and owns and operates a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. We provide municipalities, medium and large industries, businesses and utility customers clean, affordable, energy efficient, and reliable power. Today, we are Canada’s largest producer of wind power and Alberta’s largest producer of hydro-electric power. For over 100 years, TransAlta has been a responsible operator and a proud community-member where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and we have been recognized by CDP (formerly Climate Disclosure Project) as an industry leader on Climate Change Management. We are also proud to have achieved the Silver level PAR (Progressive Aboriginal Relations) designation by the Canadian Council for Aboriginal Business.

For more information about TransAlta, visit our web site at transalta.com.

About Tidewater Midstream and Infrastructure Ltd.

Tidewater is traded on the TSX under the symbol “TWM”. Tidewater’s business objective is to build a diversified midstream and infrastructure company in the North American natural gas and natural gas liquids (“NGL”) space. Its strategy is to profitably grow and create shareholder value through the acquisition and development of oil and gas infrastructure. Tidewater plans to achieve its business objective by providing customers with a full service, vertically integrated value chain through the acquisition and development of oil and gas infrastructure including: gas plants, pipelines, railcars, trucks, export terminals and storage facilities.

Forward-Looking Statements 

This news release contains forward looking statements within the meaning of applicable securities laws, including statements regarding: the construction of a 120 kilometre natural gas pipeline from Tidewater’s Brazeau River Complex to TransAlta’s generating units at Sundance and Keephills; TransAlta’s strategy of converting certain of its coal units to natural gas; and the terms of any definitive agreement with Tidewater, including that the pipeline will provide initial capacity of 130 MMcf/d by 2020, have expansion capability to 340 MMcf/d, and provide TransAlta with an option to invest up to 50% in the pipeline.  These statements are based on TransAlta’s belief and assumptions based on information available at the time the assumptions were made. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include: legislative or regulatory developments, including as it pertains to the emission standards; the Federal and/or Provincial legislation impacting the conversion from coal generation to gas generation; changes in economic and competitive conditions; ability to secure natural gas supply; any inability to reach a definitive agreement with Tidewater regarding the construction of a natural gas pipeline on terms satisfactory to the Company; changes in the price for natural gas; decreased demand for energy or capacity; higher costs, expenses and interest rates; strikes or other labour disruptions; and other risk factors contained in the Company’s annual information form and management’s discussion and analysis. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect TransAlta’s expectations only as of the date of this news release. TransAlta 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 otherwise indicated.

For more information:

Investor Inquiries: Media Inquiries:
Sally Taylor Amber Goulard
Manager, Investor Relations Senior Advisor, Communications
Phone: 1-800-387-3598 in Canada and U.S. Toll-free media number: 1-855-255-9184
Email: investor_relations@transalta.com Email: ta_media_relations@transalta.com

 


Read the April 19, 2017 news release on TransAlta’s plan for accelerating the transition to clean power in Alberta


TransAlta has reached agreement with the province of Alberta on two major gas and renewables initiatives:

  • We’ve agreed to collaboratively pursue existing and new renewable electricity development, which for TransAlta includes a potential 600 to 900 MW expansion of our Brazeau hydro facility, using an innovative pumped storage model. Learn more.
  • And we’ve agreed with the province to collaborate on development of a policy framework to convert coal-fired generation to gas-fired generation. Learn more about Coal to Gas below.

You can find more information on the agreements in our news release.

TransAlta is Accelerating its Transition to Cleaner Power

Moving to a low carbon future will involve natural gas. Natural gas will be required as a transition fuel to provide reliable baseload power and to help keep electricity costs competitive as additional renewable power generation is brought online.

Converting a coal plant, or a few coal plants to gas (referred to as coal to gas conversion), will help Alberta achieve a significant reduction in emissions. Conversion offers a realistic and accelerated path forward toward a cleaner energy future.

Accelerating TransAlta’s transition from coal to gas, while ramping up our renewables, including hydro, wind and solar, will become a key competitive advantage. TransAlta has already completed a substantial amount of work on the logistics and timing of plant conversions. We have the option to convert our coal plants to gas earlier, potentially in the early 2020’s. This timeframe will depend on the development (with the provincial and federal governments) of a regulatory framework that will protect new investments and maintain the economic viability of our current plants.

Coal to gas conversion would mean:

  • Lower emissions. Right away. Converting coal plants to gas plants will significantly reduce emissions, including Greenhouse Gas (GHG) emissions. Conversion presents an opportunity for Alberta to achieve a meaningful and measurable emissions reduction and is a big step toward achieving environmental objectives. These emissions reductions can be achieved before 2030.
  • An accelerated transition, as conversion can be done quickly. The process of converting a coal plant to a gas plant takes about 18 months, significantly faster than building a new gas plant. Conversions could be completed within the next few years.
  • Value for Albertans. Protection for consumers. Conversion uses existing infrastructure, which means fewer costs than building a new gas plant. These savings create better value for Albertans and mean a lower cost electric system. Conversion to gas also helps maintain reliable electricity supply and helps protect consumers against price spikes and volatility.
  • The stage would be set for further and earlier transition to cleaner power. Converting coal units to gas avoids the need to build large new natural gas plants, which require long operating lives and fixed emissions profiles to be economically viable. As a transition step toward increased renewables, converted coal units require less investment, can serve the needs of the Alberta system for a limited lifespan, and then be retired as we bring more hydro, wind and solar power generation into the system.
  • Helping to protect job and communities. The coal industry employs numerous people in Alberta and these people’s livelihoods are very important to TransAlta. Coal to gas conversion provides the opportunity to maintain some jobs during conversions, to support sector jobs, and allows us to redeploy some of our workforce in the plants or toward renewables growth. Electricity and energy have always been at the heart of the economy in Alberta, therefore any changes in the industry must support our communities. Conversion will also help keep municipal, provincial and federal tax revenues supporting these communities.

For more, read President and CEO Dawn Farrell’s Oct. 19, 2016 and Nov. 29, 2016 statements on coal to gas conversion and TransAlta’s Q3 2016 Results Conference Call transcript from Nov. 4.

“Alberta is going to a 30% renewables standard by 2030. To that end, Alberta will need several plants like ours to back renewables up… and provide low-cost baseload and backup power to ensure system reliability and the kind of pricing we need for a resilient economy.” – Dawn Farrell, TransAlta President and CEO