Earnings Call
Transalta Corp (TAC)
Earnings Call Transcript - TAC Q1 2022
Operator, Operator
Good morning, my name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation’s First Quarter 2022 Results Conference Call. Note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Ms. Valentini, you may now begin your conference.
Chiara Valentini, VP of Investor Relations
Thank you, Sylvie. Good morning everyone and welcome to TransAlta's first quarter 2022 conference call. With me today are John Kousinioris, President and Chief Executive Officer; Todd Stack, EVP Finance and Chief Financial Officer; and Kerry O'Reilly Wilks, EVP, Legal, Commercial, and External Affairs. Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be available later today and the transcript will be posted to our site shortly thereafter. All of the information provided during this conference call is subject to the forward-looking statement qualification set out here on our slide two, detailed further in our MD&A and incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency, unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA, funds from operations, and free cash flow are also reconciled in the MD&A for your reference. On today's call, John and Todd will provide an overview of the quarter's results and after these remarks, we will open the call for questions. With that, let me turn the call over to John.
John Kousinioris, CEO
Thank you, Chiara. Good morning everyone and thank you for joining our first quarter results call for 2022. As part of our commitment towards reconciliation, I want to begin by acknowledging that TransAlta's Head Office where we are today is located in the traditional territories of the Niitsitapi, the People of the Treaty 7 region in Southern Alberta, which includes the Siksika, the Piikani, the Kainai, the Tsuut'ina, and the Stoney-Nakoda First Nations as well as the home of the Metis Nation, Region 3. TransAlta had a solid first quarter and I'm proud of the progress we have made in advancing our priorities and in the performance of our company and our employees. We delivered CAD266 million of adjusted EBITDA and free cash flow of CAD115 million or CAD0.42 per share, both broadly in line with our expectations for the quarter. We focused on optimizing and economically dispatching our fleet and delivered operational performance which enabled us to run during periods of peak pricing in Alberta. The prices realized by both our Alberta hydro and Alberta gas fleets were in excess of average spot prices in the quarter and are reflective of the value and peaking nature of our diversified fleet. During the quarter, we also delivered on a number of key priorities. On the growth side, our development team secured 200 megawatts of renewables growth with the announcement of the Horizon Hill wind project with Meta, formerly known as Facebook, as well as the Mount Keith transmission expansion project in Western Australia with BHP. We executed a PPA for the remaining 30 megawatts of capacity at our 130 megawatt Garden Plain Wind facility. With an investment-grade counterparty, Garden Plain is now 100% contracted with two grade counterparties. And we are now able to share with you that Amazon is our corporate customer at the White Rock Wind projects. I remain confident in our ability to deliver on the remainder of our two gigawatt Clean Electricity Growth Plan. We're targeting to reach investment decisions on another 200 megawatts of renewables growth later this year and are on track to deliver on our annual target of 400 megawatts for 2022. Switching to our recontracting activities at Sarnia, I can now confirm that we have entered into additional contract extensions with all three remaining industrial customers at the facility. This is a significant achievement with PPA renewals now in place with all of our industrial customers at the site, setting the facility up well for contractive life extension into the 2030s. On the coal transition side, we have fully retired both Keypills Unit 1 and Sundance Unit 4 and now no longer have operating coal units in Canada. Our coal transition is among the most meaningful carbon emission reduction achievements in the country, representing 9% to 10% of Canada's 2030 emissions reductions target. Overall, we have reduced our annual CO2 emissions by 29 million tonnes as compared to 2005, including 3.9 million tonnes of annual reductions in 2021, a 24% reduction year-over-year. The recently announced policy directions from the federal government support our decisions and validate our strategic shift. Government policy announcements, particularly the federal discussion paper on the clean electricity standard and the 2030 emissions reductions plan confirmed that new natural gas generation faces growing policy and economic risks. Our principal focus is now on developing renewable projects that meet the growing demand for electricity in a manner that is aligned with global carbon goals, as we outlined at our Investor Day last year. Identifying alternative pathways to deliver reliability, while pursuing a path to net zero is critical for a company and we have established an internal energy innovation team with a mandate to do just that. In addition to the recent investment we made in Ekona to help advance our hydrogen technology platform, we have made a CAD25 million commitment to energy impact partners Frontier Fund. This fund is focused on making investments in companies with transformative technologies critical to deep decarbonization, including long term storage, novel generation, and industrial decarbonization. All of this is directed to taking a targeted approach to deep diversification and defining the next generation of power solutions for our company. We continue to make considerable progress on advancing our EBITDA contribution from renewables assets. With the addition of the wind drives and North Carolina solar facilities last year, our EBITDA contribution from renewables and storage assets reached 53% in the quarter, another step toward our target contribution level of 70% by the end of 2025. As a result of the progress we've made in advancing our Clean Electricity Growth Plan, our ESG rating with Morgan Stanley Capital International was upgraded from BBB to A. And finally, in March, we were active with our normal course issuer bid and returned CAD18 million to our shareholders through the buyback of 1.4 million common shares. In April, we entered into a long-term PPA with Meta for the full output from the 200 megawatt Horizon Hill wind project in Oklahoma. The delivery of low cost reliable and clean electricity from Horizon Hill supports Meta's sustainability goals and will bring our wind fleet in the United States to almost 875 megawatts. Commercial operation of the wind farm is expected to be achieved in the second half of 2023 and annual EBITDA from the project is expected to be between CAD27 million and CAD30 million. Similar to our White Rock project, over 90% of the project capital costs have been fixed under a turbine supply agreement with Vestas and an EPC agreement for the construction of the project with Infrastructure and Energy Alternatives. Horizon Hill will be our eighth wind facility in the U.S. We're also excited to announce the expansion of the Mount Keith transmission system in Western Australia to support the Northern Goldfields based operations of BHP. The project will facilitate the connection of additional generating capacity to our network to support BHP's operation and increase their competitiveness as a supplier of low carbon nickel. The project has been developed under the existing PPA with BHP which has a 15-year term. Construction capital is estimated to be between AUD50 million to AUD53 million and the project is expected to be completed in the second half of 2023 and generate annual EBITDA in the range of AUD6 million to AUD7 million. We see considerable opportunities for TransAlta as the race to decarbonize unfolds over the next decade. We plan to deliver two gigawatts of new renewables capacity by 2025 by deploying CAD3 billion of capital with a target of achieving cumulative annual EBITDA from the projects of CAD250 million by 2025. We're just over a year into the execution of the plan and we're proud of the progress that we've made. We've secured 800 megawatts of growth projects across Canada, the U.S. and Australia, representing 40% of our two gigawatt target by 2025 and combined, these projects will contribute approximately CAD137 million in EBITDA once fully operational, providing 55% of our five-year incremental annual EBITDA target of CAD250 million. As I turn now to our U.S. development pipeline, we've highlighted that the Horizon Hill project has moved from the advanced development category into the under construction category. And we still have over 750 megawatts of potential development sites in the U.S. across a number of projects in several key markets. The demand for renewables remains strong in the U.S. and we see plenty of opportunity for growth in that market and we're actively looking at a number of opportunities to grow our development pipeline there. We recently added a new wind development site to the pipeline and expect to continue to add projects to our pipeline over the course of 2022. We remain disciplined on growth in Canada, primarily here in Alberta. Our Tempest Wind project has moved up to an advanced stage of development and we continue to see demand for renewable PPAs in the market from corporate customers. Our team is actively seeking opportunities to contract our sites and advance our projects into the construction phase. And in Australia, we've moved the Mount Keith transmission expansion projects to the under construction phase. We're definitely seeing growing opportunities in Western Australia in support of our remote mining customers and we're advancing several opportunities there and expect to reach final investment decision on additional projects with BHP and others in coming months. I'll now turn it over to Todd to take us through our financial results for the quarter.
Todd Stack, CFO
Thank you, John, and good morning everyone. In Alberta, our hydro, gas, energy transition, and wind facilities are dispatched as a portfolio in order to benefit from baseload and peaking energy sales. And in the first quarter, the fleet generated just over 2,500 gigawatt-hours of electricity. We position our fleet to affirm renewables and provide capacity and energy when needed by the grid. Strong pricing throughout the quarter resulted in the average full price for Q1 settling at CAD90 per megawatt-hour. This was slightly softer than the average price in Q1 of 2021 of CAD95 and capacity factors were lower than our expectations, as price volatility was more muted this year than in 2021. The lower price and lower volatility was mainly due to warm weather and fewer planned and unplanned outages across the province compared to last year. In the quarter, the company was well hedged on both power and natural gas. However, given the significant increase in the spot price of natural gas, combined with the current carbon price levels, coal-fired generation had the marginal cost advantage in the quarter. Given these market conditions, we optimized the fleet through daily assessments and made choices on whether to dispatch down our units and supply our customers through the market. This also allows us the opportunity to resell any unused gas that was hedged and also avoids higher emissions and corresponding carbon costs. As carbon costs continue to rise and other coal-fired units in the market become less competitive and retired or converted, we expect to see stronger correlations between natural gas and power prices in the near future, as offers from generators will fully reflect the price of gas. During the quarter, the gas and energy transition units realized a premium of 14% over spot price, with a realized merchant price of CAD103 per megawatt-hour. With our Alberta fleet now fully converted to natural gas, our carbon compliance costs have decreased by over 50% from CAD19 a megawatt-hour in Q1 of 2021 to CAD9 per megawatt-hour in the first quarter of 2022. The ability of our hydro fleet to capture peak pricing was demonstrated again in the quarter with realized merchant prices of CAD108 per megawatt-hour, which represented a 20% premium over the average spot price. Ancillary services revenue in the quarter was lower due to lower average pool price and lower volatility. A lower contribution from ancillary services resulted in a reduced EBITDA from the hydro segment. Our merchant wind fleet in Alberta performed extremely well. Not only did we benefit from a strong wind resource, the fleet also benefited from strong on and off peak pricing and realized an average merchant price of CAD58 per megawatt-hour. Looking at the balance of 2022, we have approximately 4,900 gigawatt-hours of our Alberta gas generation hedged at an average price of CAD73 per megawatt-hour and 40 million of DJ's of natural gas hedged at approximately CAD3. In addition to our contracted production, we continue to retain a significant open position in order to realize higher pricing during times of peak market demand and we see forward prices for the balance of the year in the CAD112 per megawatt-hour range. Our performance in Q1 was led by the wind and solar fleet, which delivered a 17% increase in adjusted EBITDA from CAD76 million in the first quarter of 2021 to CAD89 million this quarter. The increase was driven by incremental contributions from the winterized facility, as well as the North Carolina solar facility and higher wind resource. This increase was partially offset by the extended outage at Kent Hills. Operations and adjusted EBITDA from the gas segment, which includes our contracted assets as well as our Alberta merchant fleet, was largely in line with 2021. Adjusted EBITDA from the energy transition segment decreased 69% year-over-year due to retirement of Keypills Unit 1 at the end of 2021 and lower production and higher coal costs at Centralia. Our energy marketing team delivered results consistent with our normalized expectations for the segment with CAD27 million in adjusted EBITDA. Overall, TransAlta's results were in line with our expectations. I want to thank all of our employees for their performance in delivering the quarter. I'm going to turn now to highlight our longer term trends for free cash flow and EBITDA performance and the continuing financial strength of the company. In the first quarter, we delivered EBITDA of CAD266 million, broadly in line with our expectations and consistent with our 2022 EBITDA guidance range. Free cash flow of CAD115 million, or CAD0.42 per share was also in line with our expectations and also consistent with our 2022 free cash flow guidance range of CAD455 million to CAD555 million. In the quarter, DBRS reaffirmed our BBB low stable rating, and we still expect to refinance our November 2022 debt maturity before it matures. Our Treasury team has been proactive and has secured interest rate locks to protect us against rising interest rates. Our balance sheet and liquidity remain very strong. We closed the quarter with over CAD2 billion of liquidity, including approximately CAD1 billion in available cash. This positions us extremely well to fund our future growth pipeline, including our 680 megawatts of projects under or soon to be under construction. Before I turn things back to John.
John Kousinioris, CEO
Thanks, Todd. As I look at our strategic priorities for 2022, our primary goal is to continue delivering clean power solutions to, and be the supplier of choice for, customers that are focused on sustainable growth and decarbonization. In 2022, we're focused on progressing the following key goals; reaching final investment decisions on the equivalent of 400 megawatts of additional clean energy projects across Canada, the United States, and Australia, and we're on track having secured 200 megawatts so far this year; achieving COD on the Garden Plain Wind and Northern Goldfields solar projects; progressing construction on our U.S. wind projects at White Rock and Horizon Hill; and advancing our Mount Keith Transmission Expansion project in Western Australia; expanding our development pipeline with a focus on renewables and storage; recontracting with the ISO at Sarnia in Q3; progressing the rehabilitation of Kent Hills Wind, which we expect to be able to provide more details on later this quarter; achieving EBITDA and free cash flow within our guidance ranges; and advancing our ESG objectives, which includes reclamation work at High Vale and Centralia, providing indigenous cultural awareness training to all of our employees, and achieving at least 40% female employees by 2030. I'd like to close by highlighting what I think makes TransAlta a highly attractive investment and a great value opportunity. First, our cash flows are resilient and are supported by a high-quality and highly diversified portfolio. Our business is driven by our contracted wind and solar portfolio, our unique reliable and perpetual hydro portfolio, and our efficient gas portfolio, all of which are complemented by our world-class asset optimization and energy marketing capabilities. Second, we're a clean electricity leader with a focus on tangible greenhouse gas emissions reductions. We have adopted a more ambitious CO2 emissions reductions target of 75% by 2026 from 2015 levels, and are committed to setting a science-based emissions reductions targets this year. In addition, our focus on removing systemic barriers through our commitment to equity, diversity, and inclusion, and good governance shows our commitment to leadership across all dimensions of ESG performance. Third, we have an extensive and diversified set of growth opportunities and a talented development team focused on realizing its value. Our execution is on track and we delivered on that growth pipeline in 2021 and early in 2022. Fourth, our company has a sound financial foundation, our balance sheet is strong, and we have ample liquidity to pursue our growth. Finally, our people, our people are our greatest asset and I want to thank all our employees and contractors for the work that they have done to deliver our results this quarter. TransAlta had an exciting time in its evolution and we're well-positioned for the future as a leader in low-cost, reliable, and clean electricity generation, focused on serving and meeting the needs of our customers. Thank you. I'll turn the call back over to Chiara.
Chiara Valentini, VP of Investor Relations
Thank you, John. Sylvie, can you please open the call for questions from the analysts and media community?
Operator, Operator
Thank you. Your first question will be from Dariusz Lozny at Bank of America. Please go ahead.
Dariusz Lozny, Analyst
Hey, guys, good morning and thank you for the time. My first one maybe just kind of on capital allocation. Seems like you guys have quite a bit of cash on hand and liquidity available relative to the projects in the pipeline and that's before your fairly robust free cash flow guidance for the year. Maybe in the context of the buybacks that you guys did a little bit on in Q1 or other options, how are you guys thinking about deploying the balance sheet a little bit here?
Todd Stack, CFO
Hey, morning, Darius. Look, I would say that we continue to be opportunistic on share buybacks. We were blacked out during our Q4 release and our annual results last year and did purchase shares out of that buyback period. And really opportunistic, I mean, when we saw the share price, it fell off after during Q1 and we saw it as a great opportunity to pick up shares.
John Kousinioris, CEO
Yes, I would say that our total spending on projects currently under construction is around mid CAD1.5 billion when considering the capital commitments expected from both TransAlta and TransAlta Renewables. We are comfortable with our capital outlook, as it aligns with our targeted ranges.
Dariusz Lozny, Analyst
Okay, great. Thank you for that. And maybe switching gears. So congrats on locking up the industrial Sarnia customers for a few more years. Can I take away from the update in the MD&A on the ISO's process, that you guys will have visibility into whether or not that contract is extended by the second half of 2022? It sounds like that's sort of where their process might give you guys some clarity, but will you be able to update the market at that point?
John Kousinioris, CEO
That's actually what our expectation is, Darius. The ISO has issued an RFP for a medium-term capacity award for the province, covering the period from 2026 to 2031. We have applied for a contract under that capacity procurement and are confident in our chances of success. The current schedule for the ISO indicates that they will return to the proponents for the capacity contract in Q3. So, I believe you have it exactly right.
Dariusz Lozny, Analyst
Thank you. I have one more quick question regarding your higher expected forecasts for Alberta pricing for the full year. Is this due to Q1 performing better than anticipated, or are you making adjustments to your forecasts for the remainder of 2022?
John Kousinioris, CEO
Yes, what we've observed is a significant increase in market expectations regarding pricing in the jurisdiction over the past month. The current balance of pricing in Alberta is around CAD113. As for May, we're already in the month, and it is expected to be in the upper CAD90s. For June, pricing is slightly above CAD100. In Q3, prices are projected to exceed CAD120, and in Q4, around CAD114. Overall, the market appears to be responding to the rise in gas prices, reflecting the increase in variable costs for many generators.
Dariusz Lozny, Analyst
Okay, great. Thank you very much. I'll turn it back here.
Operator, Operator
Thank you. Next question will be from Rob Hope at Scotiabank. Please go ahead.
Rob Hope, Analyst
Good morning. Yes, I want to follow-up on the outlook for guidance relative to power pricing. Can you maybe walk us through some of the puts and takes that you're seeing just in terms of your guidance? You highlight potential upside on the energy pricing, and you do have gas locked in there as well, or a good portion of it? So, I would imagine that should be a tailwind as we go through the rest of the year. So, are there any other headwinds that you're seeing? Or directionally, are you looking better than you expected when you put out guidance?
John Kousinioris, CEO
Yes, good morning. In reviewing the first quarter, we encountered several one-time events that had an impact on the results. We had a provision in our Q1 numbers that we don't foresee affecting us for the rest of the year. Additionally, Q1 included some expenses associated with the leadership change from 2021, which we do not expect to be an ongoing concern. Overall, we are quite comfortable with our gas position. The market pricing has shown some improvement after a period of heat rate compression in Q1, and we're optimistic about the trends in Q2, Q3, and Q4. Our trading operations performed strongly in April, and we are satisfied with their current status. Regarding our guidance, we feel positive about our outlook. We anticipate improved performance from Centralia in Q2 and Q3, especially following a weak Q1. While pricing in the Pacific Northwest was not favorable, our locked-in coal delivery costs rose slightly, yet we are seeing strong pricing that should continue throughout the year. Overall, we have more tailwinds than headwinds. Todd, would you like to add anything?
Todd Stack, CFO
I was going to highlight the Centralia, the energy transition segment, we do expect it to decline year-over-year the retirements of some of the units there. Centralia was, I would say, off the mark in Q1.
John Kousinioris, CEO
The other thing I would say, Rob, is where we are expecting to turn on the revenue tap, I would say from Kent Hills, as we begin the rehabilitation. It is our expectation that that we'll actually see that rehabilitation work pretty quickly, would be our plan and begin getting that in a place where we want it to be.
Rob Hope, Analyst
All right. As a follow-up, TransAlta has focused more on wind development compared to solar, which is advantageous given the current supply chain situation. Moving forward, will this lead you to emphasize wind development and possibly delay some solar projects due to the growing challenges in the solar sector compared to wind?
John Kousinioris, CEO
Yes, I think we take a long-term perspective on the technology mix. Right now, you’re correct about the balance between wind and solar. We have significantly more experience in wind development compared to solar, which is relatively new for us. Our Northern Goldfields project was our first solar project. We continue to see many opportunities in wind. Our development pipeline definitely leans more towards wind, but we are paying attention to solar as it has the potential to be a disruptive technology in the future.
Rob Hope, Analyst
Appreciate the color. Thank you.
Operator, Operator
Thank you. And the next question will be from Mark Jarvi at CIBC. Please go ahead.
Mark Jarvi, Analyst
Thanks. Good morning, everyone. Just coming back to the balance of the year and talked about the gas hedges and the rising power prices. If you look at your coal and gas conversion assets, do you think spark spreads will expand to the balance of this year or trying to hold those flat given the current dynamics?
John Kousinioris, CEO
Yes, it's a great question. Good morning, Mark. Our expectation is that they'll improve a bit, certainly better than what we saw in the first quarter. Our team monitors this regularly. Gas prices are definitely higher than we had anticipated at the end of the year as we evaluated the hedge position for the portfolio, but we are expecting to see a slight expansion.
Mark Jarvi, Analyst
Okay. And then are there any material hedges beyond 2023? You provided good information for this year and some for next year, but is there anything more long-term on the gas side?
John Kousinioris, CEO
Yes, Todd, I'm recalling from memory. I believe the longest duration for our hedges is typically about three years, and on average, I'd say the age of the hedges is around a year and a half.
Todd Stack, CFO
On the power side.
John Kousinioris, CEO
That's right. Sorry, on the gas side, just in terms of gas supply. Yes, it's very much 2022 in terms of the position that we're in, and we like where we are in terms of the first third of the year for 2023.
Mark Jarvi, Analyst
Okay, and then just a couple comments regarding the hydro segment. I mean, it's a little lower with a bit more competition, along with some increases in MP. Can you provide some insights on whether this trend might continue in terms of your operating maintenance and administration costs and the competition? Also, can you elaborate on what occurred in the ancillary side of things?
John Kousinioris, CEO
Sure, Todd, would you like to go ahead?
Todd Stack, CFO
I'll just take the OM&A discussion. Mark really, I think it's noted in there that insurance costs, were really probably one of the main drivers probably accounting for a third of the increase if not more of the class. And that is a trend that you will see for the balance of the year. Really, it is our most valuable asset. It is one of the highest coverages in our insurance policies and so it is bears the brunt of a what I'll say is rising costs associated with insurance that we're seeing across the industry. And, John, I don't know if you want to talk about ancillary services.
John Kousinioris, CEO
Yes, I think we should discuss ancillary services. We experienced a bit more competition on the AES side, but I don't believe that was the main issue. According to our team, our AES prices in Q1 of 2021 were around CAD67, while for this quarter, they were in the mid-CAD40 range, which is quite a significant decline year-over-year. The assessment from our optimization team indicates that there was a lot more volatility last year. While we often focus on average prices, the way we arrived at those averages is often more significant than the averages themselves. The volatility we encountered, especially in February last year, contributed to the year-over-year differences in our portfolio's performance and the pricing outcomes. In fact, if I recall correctly, we actually saw an increase in volume year-over-year, both in energy and AES for the hydro portfolio. I'm not concerned about our market share at this time; it's more reflective of the pricing dynamics we experienced in the province during the first quarter.
Mark Jarvi, Analyst
Understood. Okay, thanks for the time everyone.
John Kousinioris, CEO
Thanks, Mark.
Operator, Operator
Next question will be from Ben Sam at BMO. Please go ahead.
Unidentified Analyst, Analyst
Hi, thanks. Good morning everybody. You announced that the Garden Plain's additional contract and Amazon as a customer, I'm wondering for you to succeed, there are more than any other renewable power company what are the corporate PPAs looking for? What gives you or anyone else a competitive advantage to the more counterparties on the contracting side?
John Kousinioris, CEO
Good morning, Ben. That's a great question. When I address this, I can only share what we are doing based on our experiences in the market. I believe there are three key differentiators for us. First, our customers appreciate our high-touch customer service approach, which we've been intentionally developing. We have training programs aimed at fostering a highly responsive ethos in our customer interactions. Second, many of our customers value our extensive expertise in energy generation, optimization, and trading. We often engage with them to help strategize their decarbonization journeys, and our own journey has been quite notable, which others are keen to discuss. Third, many clients are uncertain about receiving the projects they've contracted for, as there have been numerous instances across all markets where promised outcomes were not met by developers. Clients know that when they work with us, we will deliver their project on time and as expected. I hope this provides some insight. We have substantial experience in operating wind projects, a strong supply chain team, and solid relationships with OEMs, which we leverage as well. I wanted to highlight these qualitative factors that we focus on to set ourselves apart.
Unidentified Analyst, Analyst
That's very helpful. Thank you. And then I want to ask also, what are your thoughts around offshore wind in the U.S? Ever source looking to monetize and then there's some additional leases, I think they're going to be opened up? I mean, is there any interest that even considered looking at that technology?
John Kousinioris, CEO
Yes, Ben, over the years, we've had opportunities, and when they arise, they are brought to the company's attention, and our M&A team evaluates them. We're not actively pursuing anything at the moment. If an opportunity presents itself, we might consider it. However, developing and servicing that type of facility is quite different from our main focus on onshore wind. It would take a unique situation for us to partner with someone to make it happen. But this is not a primary area of focus for our development efforts.
Unidentified Analyst, Analyst
Okay, great. Thought I'd check. Thank you.
Operator, Operator
Thank you. Next question will be from John Mould at TD. Please go ahead.
John Mould, Analyst
Thanks. Good morning, everybody. Like to start with a question on co-gen. I guess maybe, firstly, are you seeing any appetite for onsite for co-gen right now and have you got appetite to allocate capital to new co-gen development in Canada or the U.S. given your focus on renewables? And then maybe how are you thinking about co-gen over the long-term in Canada just given our decarbonization targets and maybe uncertainty about how it's going to be treated under the Clean Energy Standard more broadly?
John Kousinioris, CEO
Good morning, John. I think you've hinted at a response through your closing comment. Looking back two or three years, we expected more progress in cogeneration given the regulatory context at that time. Our team was actively pursuing opportunities in that area. However, we've seen a decline in interest, and it’s not a primary focus for our Clean Electricity Growth plan. Nonetheless, we are engaged in discussions and exploring opportunities related to cogeneration developments, primarily for our existing customers. There is also a noticeable shift towards non-gas options, such as hydrogen fuel instead of natural gas. You rightly pointed out the regulatory environment; it seems to be increasingly difficult from a gas perspective, though quite unclear overall. Making significant investments feels risky unless they serve established customers with whom we have long-term relationships.
John Mould, Analyst
Okay, great. Thanks for that. And then maybe I'll just ask one more on development. In Quebec, specifically, you have a couple of operating sites there with 2.3 gigawatts of tenders coming and, presumably more appetite there in the long term. Are there any opportunities for you in terms of expanding those sites, or local part with or without local partners? And, maybe some longer term Greenfield opportunities? How are you thinking about that market?
John Kousinioris, CEO
Yeah. It's a great, it's a great question. So, we have done a little bit of work to see if we can, maybe increase the size of some of the footprint that we have there, because in some of the other jurisdictions, that is, one of the things that we're looking at, to grow our pipeline, I think it'll be challenging. And as you've seen, from sort of our disclosure on where our pipeline is, we don't have a lot of sites. We don't have any sites, frankly, other than our existing sites, in Quebec, so for sure, there's an opportunity there for other folks to be able to bid into it. You know, if an opportunity comes our way to joint venture with somebody, we wouldn't say no to considering something like that. But I don't really see us as being a proponent in the RFPs that we're seeing coming into that jurisdiction right now.
John Mould, Analyst
Okay, got it. Thanks. I'll hop back in the queue. Thanks for taking my questions.
John Kousinioris, CEO
Thanks, John.
Operator, Operator
Thank you. Next question is from Andrew Kuske at Credit Suisse. Please go ahead.
Andrew Kuske, Analyst
Thanks. Good morning. Maybe an easy one to start, and it's really just how do you think about the water levels and hydrology situation in BC in the Pack Northwest right now? And the outlook over the summer months, and then into the fall?
John Kousinioris, CEO
Good morning, Andrew. I’m not sure if those are really easy questions. However, I think we are currently seeing conditions that are somewhat below what I would consider a normal year in the Pacific Northwest. I expect Alberta to perform fairly well. When looking at California and the southern West Coast, we view it as an integrated market due to the flows and the influence of our trading capabilities along with the transmission rights. California is experiencing very dry conditions, particularly from the Oregon border to the south, which is quite surprising. Overall, conditions in the Pacific Northwest are a bit below the average, while in Alberta, they're about normal to okay. We will have to wait and see how the spring rains will impact things in the coming months.
Andrew Kuske, Analyst
Okay. Appreciate that. I won't preface this one as easy or hard. But if we look back over the last, we call it five or 10 years with the balance sheet improvement, the coal natural gas program that you had, and really just the market transition Alberta. You went through a lot as an organization. And now as you think about TransAlta in position and more to growth mode. Where do you think you're on that process just sort of internally on refocusing on growing versus all the stuff that you've accomplished in the last pick a timeframe? Two years, five years, 10 years?
John Kousinioris, CEO
Yep. So, it's interesting, we're doing really I would say, three things around that. The first one is, and I think the work that's involved in doing this can't be underestimated. We're actually in the process of really working on cultural shift within the organization. And, recognizing that we are moving into a growth orientation, a real strong customer service orientation, getting to a place where there's technological disruption, that's occurring within the organization, very much focused on a results orientation within the company, a real strong learning orientation, and a strong orientation towards purpose, as we as we shift our culture from what it may have traditionally been given the nature of the company, you know, a decade ago or even half a decade ago, to where it is today. And that's something that we're very deliberate about, I would say, Andrew, in terms of the shift that's taking place, the second would be just a very strong, making sure that the capabilities within our growth team are up to snuff in terms of what we need to move it forward and that not just on the sourcing and contracting side of the equation. But also just on execution. I mean, we're building a lot. And having the right skill set there, the right project managers, the right sort of contracting strategies to make sure that we lock down our costs are also critical to us going forward. And as part of that our new energy innovation team is a critical part of kind of looking forward five and 10 years in terms of what is coming forward. The second thing that we're really focusing on is using data and innovation and just what we call our one TransAlta platform internally, within the organization, which has evolved. And you'll remember this from Greenlight, Andrew, to really make sure that we have a singular approach to maintenance, we're using data as well as we can to make appropriate maintenance decisions for the fleet trying to figure out, do we need an LTSA? Can we do it internally? What kind of benefits can we bring to bear on the whole fleet? So hopefully, that gives you some of the flavors but we are very much focused on bringing kind of the capabilities and the culture of the internal organization along to where it needs to be to compete effectively for the aspirations of the company.
Andrew Kuske, Analyst
That's very helpful. Thank you. Appreciate the color.
Operator, Operator
Thank you. And your next question is from Maurice Choy at RBC. Please go ahead.
Maurice Choy, Analyst
Thank you and good morning. My first question is about dropdowns. At the Investor Day, you mentioned that about two-thirds of the plan might be appropriate for dropdown candidates to R&W. However, you've progressed with US projects and noted that these will not be dropped down. Could you provide a refresher on how you determine what is suitable for dropdowns, using Horizon Hill and White Rock as examples? Are they better from a tax or geographical perspective? Also, is the two-thirds still a suitable number?
John Kousinioris, CEO
Good morning, Maurice. Thank you for that. When we consider dropdowns and how to allocate growth between the two companies, it definitely requires more active discussions within the organization today, especially given the increasing convergence in growth between the two companies going forward. From our perspective, Todd can elaborate too. Last year, TransAlta Renewables had solid growth and a good amount of available cash for expansion. However, THC appears to be more liquid at this moment and likely has more capacity for growth than R&W, mainly due to its cash flow and available resources. Additionally, we consider geography, which is crucial for determining impactful growth jurisdictions for TransAlta Renewables. Given its tax advantages and depreciation benefits, investments in Canada and Australia would significantly enhance cash flows for R&W. In contrast, the US doesn’t contribute much to them. As we see it now, our US assets, including White Rock and Horizon Hill, will likely be primarily associated with THC in the future. I hope this provides some clarity on our considerations. Currently, we haven’t fixed any specific percentages for allocations between the two companies; instead, we are taking a more fluid approach on a project-by-project basis. Todd, do you want to add anything?
Todd Stack, CFO
I believe you touched on the important aspects regarding Jon's earlier question about capital allocation. This is truly one of the main drivers for the White Rock and Horizon Hill projects at TransAlta. When we paused the Sundance 5 project last September, we had already allocated all the capital needed for that project, which is now being redirected towards those projects and possibly other opportunities. Additionally, as John pointed out, last year was a strong growth year for R&W, which currently has two projects underway in Australia. We just announced one this morning, and there's also ongoing rehabilitation at Kent Hills. Overall, the company is quite active and engaged in various projects.
John Kousinioris, CEO
I think what I would say, Todd, is a project like Garden Plain, which would be in Alberta project solid kind of the middle of the road or 100% contracted now that would be kind of projects that we would conventionally expect to see, belonging probably more in the R&W sphere than necessarily in the THC sphere.
Maurice Choy, Analyst
Maybe just a quick follow-up. No other US development within your pipeline will be dropped down based on that reasoning?
John Kousinioris, CEO
No, I wouldn't say that it's as black line as that. But when you look at sort of the capital spending that RNW has, and the projects that it has in full flight, at least in for the foreseeable future, in the near-term, we would expect the focus RNW to be in digesting what it has. And I'm also thinking of Kent Hills, and also being helped in terms of attacks arising from more of a Canadian and Australian kind of focus with TAC being more U.S., but I wouldn't be as prescriptive as that in terms of saying, no, there's a pipeline there.
Maurice Choy, Analyst
Understood. My second and final question is about your position in the Alberta market. In the past, you've maintained a strong market share in power production, and you still operate your hydro facilities. You mentioned earlier that you're comfortable with your market share there. However, you shifted to a peak strategy with your thermal facility. Overall, I would like your thoughts on balancing profit, the direction of your market share, and the capital you invest in the market.
John Kousinioris, CEO
Yes. We are very focused on our fleet’s characteristics and its current operation. We are also aware of the expected changes in demand and supply within the province. At this time, our priority is not market share but rather maximizing the value we derive from our fleet. Our goal is to enhance our EBITDA and free cash flow, ensuring we achieve premium pricing from our assets in the area. Our fleet is leaning more towards peak demand characteristics. For example, our large wind fleet generates what it can when operational, but from our hydro and gas resources, we are more focused on peak usage. Looking ahead, we envision the market evolving in a similar direction. In relation to our WaterCharger project, we are working on storage solutions and assessing the products needed as the market transforms, anticipating a significant expansion of gas and renewables in the future. Our key metrics focus on availability and pricing compared to spot prices, rather than on overall market share within the province. Todd, would you like to add to that?
Todd Stack, CFO
I was just going to add that really, I see the market share increase going to the renewables. We saw generation source like, so we're going to see more renewables built out. And our focus is, is getting a piece of that market share in that build out.
Maurice Choy, Analyst
Got it. Thank you very much.
John Kousinioris, CEO
Thanks, Maurice.
Operator, Operator
Thank you. At this time, we have no further questions. Please proceed with closing comments.
Kerry O'Reilly Wilks, EVP, Legal, Commercial, and External Affairs
Thank you, everyone. That concludes our call for today. If you have any further questions, please don't hesitate to reach out to the TransAlta Investor Relations team. Thank you very much and have a great day.
Operator, Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.