TransAlta Renewables Inc.

TransAlta reported Q1 2023 adjusted EBITDA of $503 million, up 94% from Q1 2022, and free cash flow of $263 million, or $0.98 per share, up 145% per share year over year. Key segment figures included gas adjusted EBITDA of $240 million (+129% YoY), hydro adjusted EBITDA of $106 million (+74% YoY), energy marketing gross margin of $53 million and adjusted EBITDA of $39 million (+129% YoY), Centralia adjusted EBITDA up $49 million YoY, and TransAlta Renewables adjusted EBITDA of $128 million, down $11 million YoY. Management raised 2023 guidance: adjusted EBITDA to $1.45 billion-$1.55 billion, free cash flow to $650 million-$750 million, energy marketing gross margin to $130 million-$150 million, and Alberta power prices to $125-$145/MWh for the year. Management also said the hydro fleet should deliver roughly $400 million of adjusted EBITDA in 2023, and that 678 MW of projects are in construction with expected online dates by end-2023.

John Kousinioris struck an upbeat tone, calling Q1 “exceptional” and emphasizing that TransAlta is benefiting from strong Alberta and Mid-C power prices, disciplined optimization, and a diversified fleet. He highlighted the company’s clean electricity strategy, saying TransAlta is focused on contracted renewables, hydro, and efficient gas, while also advancing a larger development pipeline and ESG goals. He also underscored capital discipline, saying the firm will keep prioritizing projects with appropriate risk-adjusted returns and will continue share buybacks when it sees value.

Todd Stack focused on the mechanics of the quarter: Alberta spot power averaged $142/MWh versus $90 a year ago, hydro realized $168/MWh with an incremental $24 million gross margin from hedges, gas realized $156/MWh merchant and $136/MWh including hedges, and merchant wind realized $89/MWh. He noted gas adjusted EBITDA of $240 million, hydro $106 million, energy marketing gross margin of $53 million, and Centralia adjusted EBITDA up $49 million year over year. He also pointed to about 4,800 GWh of Alberta gas generation hedged at $86/MWh and roughly 90% of required natural gas volumes hedged, while saying the company has about $400 million-$500 million of construction still to fund and remains comfortable with liquidity and cash on hand.

Analysts pressed on why the EBITDA uplift from higher Alberta prices was so much larger than prior sensitivity ranges, and management said there is “asymmetry to the upside” because the fleet can flex and optimization can capture strong market conditions. Questions also focused on capital allocation, with management saying 40%-50% of deconsolidated FFO is directed to growth, debt reduction, and buybacks, and that current priorities are buybacks and funding growth. Other topics included hydro hedging, where management said it hedged opportunistically in Q1 due to a large forward-curve dislocation; growth execution and challenges, where they cited permitting, supply-chain costs, and labor availability; and M&A, where they said they will be disciplined and look mainly at operating assets and developer platforms if the economics make sense.