TRANSALTA CORPORATION - NATIONAL BANK ANNUAL CANADIAN ENERGY INFRASTRUCTURE PRESENTATION JUNE 2018
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TransAlta Corporation
National Bank Annual Canadian Energy
Infrastructure Presentation
June 2018
1
Forward Looking Statements
This presentation includes forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable
securities legislation. All forward-looking statements are based on our beliefs as well as assumptions based on available information and on management’s experience and
perception of historical trends, current conditions, and expected future developments, as well as other factors deemed appropriate in the circumstances. Forward-looking
statements are not facts, but only predictions and generally can be identified by the use of statements that include phrases such as “may”, “will”, “can”, “believe”, “expect”,
“anticipate”, “intend”, “plan”, “project”, “forecast”, “foresee”, “potential”, “enable”, “continue”, or other comparable terminology. These statements are not guarantees of our
future performance and are subject to risks, uncertainties, and other important factors that could cause actual results or outcomes to be materially different from those set
forth in the forward-looking statements. In particular, this presentation contains, but is not limited to, forward-looking statements pertaining to: future sources of free cash
flow; the conversion of 2,600 MW from coal-to-gas and the timing and benefits thereof, including the optimization of the coal portfolio, the extension of fleet life by 75 years,
the extent of emission intensity reductions and the reduced fixed and sustaining costs; annual dividends from TransAlta Renewables; free cash flow in excess of $500
million post-2021; hydro upside, including energy revenue, capacity payment and ancillary revenue; construction of the Tidewater Pipeline; the benefit of co-firing, including
reduced carbon and fuel costs; the implementation of the capacity market; continued relationship with TransAlta Renewables; the capital costs associated with the two
U.S. wind development projects; the closing of the 29 MW New Hampshire wind project; growth opportunities and ability to realize growth, including the Bighorn expansion,
Brazeau energy storage project and Dunvegan; guidance for 2018 earnings before interest, tax, depreciation and amortization (EBITDA) and cash available for distribution
(CAFD); the repowering of existing wind sites between 2021 and 2030; adjusted funds from operations (FFO) targets relative to net debt; and the correct valuation for the
coal and coal-to-gas assets that would increase the share price by $5 to $8 per share.
Factors that may adversely impact our forward-looking statements include risks relating to: legislative or regulatory developments, including as it pertains to the Alberta
capacity market and Federal environmental legislation; 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; decreased
demand for energy or capacity; availability of financing; fluctuations in market prices; the availability of fuel supplies required to generate electricity, including the availability
and cost of natural gas within Alberta; changes to the relationship with, or ownership of, TransAlta Renewables; wind and hydro resources being less than long term
average; reductions to our capacity factors; our ability to contract our generation for prices that will provide expected returns; risks associated with development projects
and acquisitions, including permitting, labour and engineering risk associated with the coal to gas conversions; increased costs or delays in the construction or
commissioning of pipelines to the converted units. The foregoing risk factors, among others, are described in further detail in the Risk Management section of our
Management Discussion and Analysis and under the heading “Risk Factors” in our Annual Information Form. Readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in
this document are made only as of the date hereof and we do not undertake to publicly update these forward-looking statements to reflect new information, future events or
otherwise, except as required by applicable laws. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect the Corporation's
expectations only as of the date of this presentation. The purpose of the financial outlooks contained in this presentation is 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. In light of these risks,
uncertainties, and assumptions, the forward-looking events might occur to a different extent or at a different time than we have described, or might not occur at all. We
cannot assure that projected results or events will be achieved.
Certain financial information contained in this presentation, including Comparable EBITDA, FFO and CAFD, may not be standard measures defined under International
Financial Reporting Standards (“IFRS”) and may not be comparable to similar measures presented by other entities. These measures should not be considered in isolation
or as a substitute for measures prepared in accordance with IFRS. For further information on non-IFRS financial measures we use, see the section entitled “Reconciliation
of Non-IFRS Measures” contained in our most recently filed Management's Discussion and Analysis, filed with Canadian securities regulators on www.sedar.com and the
Securities and Exchange Commission on www.edgar.com.
Unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
2
TransAlta Today
2017 SEGMENTED CASH FLOW FROM Coal / Future CTG Solar AUSTRALIA
THE BUSINESS 1
Hydro Wind
Gas Corporate Offices
Wind / Solar
25% Hydro
7%
BC AB
Coal ON
QC
25% NB
Gas
WA
43%
NH
MN MA
WY PA
Significant generator with 8,266 MW of capacity
Diversified operations with over 65 facilities in three countries
Highly contracted (70%) with upside to Alberta market
1 Comparable EBITDA less sustaining capital productivity capital expenditures, reclamation costs, and provisions. It also excludes non-cash mark-to-market gains or losses as well as Energy Marketing and
Corporate Segments.
3
Sources of Free Cash Flow
Hydro Coal-to-Gas Investment in RNW
• Own and operate over 90% of 3,313 MW of owned capacity in Diversified long-term contracted
Alberta’s hydro Alberta assets
• Significant upside potential post Will optimize the value of the coal Strong balance sheet with
PPA expiry (2021+) portfolio between 2018 to 2020 access to competitive capital
• Critical back-up for renewables
build-out in Alberta Convert 2,600 MW of the Alberta 64% ownership
coal fleet to clean energy by
• Potential Brazeau pumped 2022 Receive ~$150 million annually in
storage hydro project dividends from RNW
Off-coal payment of ~$37 million
for the next 13 years. Opportunity
to monetize.
Targeting free cash flow of $500+ million with a
strong balance sheet post 2021
4
Hydro Upside
$225 - $275 Million
Renewable Credits
Post PPA, TransAlta gets full revenue from
energy, ancillary and renewables credits
Balancing Pool receives energy and a
majority of ancillary revenue today Energy Revenue
Capacity Payment
$75 - $100 million
Ancillary and Misc.
Ancillary and Misc.
PPA Payment
Today Post PPA (2021+)
Comparable hydro assets valued at 12x to 14x EBITDA
Assumptions: Post PPA power price of ~$55/MWh, capacity price of ~$6/kW-month and carbon price of $40/tonne 5
Coal-to-Gas Conversions
Cumulative fleet life extended by approximately 75 years
Reduced fixed and sustaining costs (~15%) with simplified operations
Conversions will take 60 days at a cost of approximately $50 million per unit.
LIFE EXTENSION FROM CONVERSIONS (MW) EMISSIONS INTENSITY REDUCTION (%)
4,000
3,500
3,000
Conversion Timeframe
2,500
48%
2,000
60%
1,500
1,000
500
95%
98%
0
2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 CO2 NOx SO2 Hg
No Conversion Scenario Convert to Gas
$100 to $200 million of free cash flow annually from
Canadian coal post conversions
6
Gas Pipeline and Fuel Blending
Sundance and Keephills can consume up to 175 MMcf/d by fuel blending through existing
pipeline which represents ~30% of fuel requirement
New Tidewater Pipeline on track with completion expected by early 2020
Provides further benefits from fuel blending and conversions
Initial volumes of 130 MMcf/d with the potential to expand to 440 MMcf/d
TransAlta has the option to invest in up to 50% of the pipeline
2018 to 2021 Blending Benefits 2021+ Conversion Benefits
• Reduces emissions • Carbon emissions halved and
• Reduces carbon and fuel costs particulate emissions are effectively
eliminated
• Abundant low cost gas supply
• Further reduction in operating and
• Ability to scale back mine operations maintenance costs
• Maximizes value of coal assets prior to • Extends asset life
capacity market
Fuel blending and conversions creates a competitive advantage
by reducing carbon and fuel costs
7
Alberta’s Capacity Market
The Province endorsed the transition from an energy market to a new framework that
includes an energy market and a capacity market.
Reason for transition:
• Ensures reliability as Alberta’s electricity system evolves
• Increases stability of prices
• Provides greater revenue certainty for generators
• Maintains competitive market forces and drives innovation and cost discipline
• Supports policy direction and is adaptable for the future
Market generators will be paid through a combination of:
• Competitively auctioned contracts which will pay generators for their fixed costs and
to keep their generating capacity available
• Energy and ancillary revenue from the spot market
The Alberta Electric System Operator (AESO) is responsible for designing and
implementing the capacity market which is anticipated to be in place by late 2021.
TransAlta is well positioned to compete in a capacity market
8Investment in TransAlta Renewables
Significant Scale Highly Diversified
Enterprise Value1 $4.1 Billion Percent of
# of Owned Generation
Market Cap.1 $3.1 Billion Assets MW Cash Flow
Wind 20 1,318 46%
2018 EBITDA (guidance) $400 - $420 Million
Natural Gas 7 956 47%
2018 CAFD (guidance) $260 - $290 Million
Hydro 13 112 5%
Dividend Yield 7.6%
Solar 1 21 2%
TransAlta’s Ownership 64% Total 41 2,407 100%
1 Based on closing price on the Toronto Stock Exchange as of May 31, 2018. Balance sheet data as at March 31, 2018. 9TransAlta Renewables Investment Highlights
41 facilities across multiple regions and spanning
Highly Diversified
various technologies
Highly Contracted
12 year weighted average contract life
Portfolio
2.3x Net Debt/EBITDA
Strong Balance Sheet
Raised over $0.9 billion of low cost project debt, with
and Access to
additional capacity
Competitive Capital
$500 million syndicated credit facility
Proven Track Record of
$3.1 billion of acquisitions since IPO
Growth and Value
72% Total Shareholder return since IPO in 2013
Creation
Approximately $150 million annually in dividends
Cash Flows to
Opportunity to monetize cash flows from contracted
TransAlta
assets through drop-downs
10US Wind Development Projects
90 MW Pennsylvania project
One 15-year PPA
Early stage construction underway
Capital cost of ~US$160 million
29 MW New Hampshire project
Two 20-year PPAs
Pending outcome of environmental
permit appeal, construction could start
in August
Capital cost of ~US$80 million
• All three counterparties have S&P credit ratings of A+ or better
• Commercial operation date in H2/19 for both projects.
11Growth Opportunity Set
Alberta natural gas pipeline
2018 - 2020 Potential for 500+ MW of renewables in Alberta and Sask.
Behind the fence gas generation in Alberta, BC and Ontario
Solar development in Australia and U.S.
Significant acquisition opportunities in U.S., Canada, Australia
Conversion of 2,500 - 3,000 MW of coal to gas
2021 - 2030 Potential for 4,000 MW of renewables in Alberta
Brazeau energy storage project, Bighorn expansion, Dunvegan
Repowering of existing wind sites in U.S. and Canada
Acquisitions
2031+ Replacement of ~3,000 MW of converted CTG in Alberta with
greenfield natural gas fired generation and storage
Greenfield solar and wind in U.S.
Acquisitions
TransAlta/TransAlta Renewables well positioned to continue to grow
12Significant Improvement in Balance Sheet Strength
DEBT COMPONENTS ($ BILLIONS)
$4
$3
$2 RNW Non-Recourse
TA Recourse
$3.4 B
TA Non-Recourse
TA Recourse
$1 $2.1 B Supported by:
TA Recourse • Hydro
$1.2 B • Coal-to-gas
• RNW Investment
$0
YE 2015 Q1 2018 2020 Target¹
Targeting TransAlta recourse debt of $1.2 billion in 2020
1 2020 Target assumes no capital allocated to new growth
13TransAlta Actively Managing External Risks
Key Risks Mitigation Techniques
Strong relationships with political parties; both those in-
Political and
power and the opposition
Regulatory Uncertainty
In-depth understanding of industry regulations
High Penetration of Mothballed units to be returned to service
Renewables and Build Converted units improve competitiveness
Out of New Gas Participate in the development of renewables projects
Ongoing involvement in the development of market
structure
Details Regarding
Improved operational efficiencies and strong balance
Capacity Market
sheet provide flexibility for when we enter a capacity
market
Risk exposures minimized through strategic
plans and financial strength
14Value of Coal Not Being Recognized
TA RNW TA-Excluding TA Upside
RNW
Implies
$1.3 Coal at
6x to 8x
EBITDA
$2.9
$0.9 Market is currently
assigning no value
to coal assets
$1.0
$3.1
PPA Termination payment $0.2
Renewables and gas not held at RNW $0.6
Coal Monetization $0.4
Hydro2 $2.2
$1.9
TA Equity TA Debt, Preferred NCI¹ RNW Equity RNW Debt Remaining Coal Plant
net of cash Shares Value
Correct valuation for the coal and CTG would
increase the share price by $5 to $8 per share
1Includes the market value of TransAlta Renewables and BV of TA Cogen. 2 Hydro valued at $2.6 million per MW. Priced as of May 31, 2018. Balance sheet as at March 31, 2018. 15Visit us at the Investor Centre on TransAlta.com
Investor_relations@transalta.com
1-800-387-3598
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