Capital Power Corporation (Capital Power or the Company) (TSX: CPX) announced today (Oct 19) the execution of 20-year power purchase agreements with Duke Energy Carolinas for three solar development projects located in North Carolina totaling 160 megawatts (MW). The solar projects consist of Hornet Solar (75 MW), Hunter's Cove Solar (50 MW), and Bear Branch Solar (35 MW) (collectively, the "solar projects"). Construction of the solar projects is expected to begin in late 2021 or early 2022 with commercial operations expected in the fourth quarter of 2022.
"We are delighted to provide additional renewable energy to the people of North Carolina," said Brian Vaasjo, President and CEO of Capital Power. "With the Whitla Wind 2&3 and Strathmore Solar projects in advanced development in Alberta, we will be adding an additional 350 megawatts in renewable capacity to our fleet by the end of 2022 representing another step toward our goal of being net carbon neutral on or before 2050. We continue to enhance our expertise in solar development and construction while building our competitiveness for future solar growth opportunities."
Palladium Energy LLC and Renewable Energy Services LLC assisted Capital Power on the project while the Company continues to optimize project design, build cost, and tax equity financing. The initial build assumption includes $260 million (US$198 million) to construct the solar projects. Capital Power expects to finance the solar projects using debt and tax equity.
With their 20-year contract terms, the North Carolina solar projects will strengthen our contracted cash flows while increasing the average remaining contract life of our contracted assets. The investment is expected to meet Capital Power's after-tax hurdle rate with the average accretion expected to be neutral to adjusted funds from operations (AFFO) in the first five years. The solar projects are expected to generate approximately $23 million (US$17 million) of adjusted EBITDA and $5 million (US$4 million) of AFFO annually on average in the first five years.
Non-GAAP measures
Capital Power uses earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA) to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure. Commencing with the Company's March 31, 2019 quarter-end, adjusted EBITDA excludes unrealized changes in fair value of commodity derivatives and emission credits which were previously included in adjusted EBITDA. This change was made to better align the Company's measure of adjusted EBITDA with its other non-GAAP measures, as both the adjusted funds from operations and the normalized earnings per share measures exclude the impacts of unrealized changes in fair value of commodity derivatives and emission credits. This change also results in improved period over period comparability of adjusted EBITDA.
AFFO is a measure of the Company's ability to generate cash from its current operating activities to fund growth capital expenditures, the repayment of debt and the payment of common share dividends. AFFO represents net cash flows from operating activities adjusted to:
- remove timing impacts of cash receipts and payments that may impact period-to-period comparability which include deductions for net finance expense and current income tax expense, the removal of deductions for interest paid and income taxes paid and removing changes in operating working capital,
- include the Company's share of the AFFO of its joint venture interests and exclude distributions received from the Company's joint venture interests which are calculated after the effect of non-operating activity joint venture debt payments,
- include cash from coal compensation that will be received annually,
- remove the tax equity financing project investors' shares of adjusted funds from operations associated with assets under tax equity financing structures so only the Company's share is reflected in the overall metric,
- deduct sustaining capital expenditures and preferred share dividends, and
- exclude the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company's bank margin account held with a specific exchange counterparty.
Adjusted EBITDA and AFFO are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. Adjusted EBITDA and AFFO should not be considered alternatives to net income and net cash flows from operating activities, calculated in accordance with GAAP. Rather, these measures are provided to complement the nearest GAAP measures in the analysis of the Company's results of operations from management's perspective.
See Non-GAAP measures in the Company's Management's Discussion and Analysis for the six months ended June 30, 2020 for further discussion of these metrics and reconciliations of adjusted EBITDA to net income and AFFO to net cash flows from operating activities.
Forward-looking information
Certain information in this news release is forward-looking information within the meaning of Canadian securities laws as it relates to anticipated financial or operating performance, events or strategies. When used in this context, words such as "anticipate", "believe", "continue", "estimate", "plan", "intend", "expect", "target" and "will" or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause the Company's actual results and experience to be materially different than the anticipated results. Forward-looking information or statements included in this news release are provided to inform the Company's shareholders and potential investors about management's assessment of the Company's future plans and operations. This information may not be appropriate for other purposes.
Material forward-looking information in this press release includes expectations pertaining to the North Carolina solar projects regarding: (i) timing of construction and commencement of commercial operations, (ii) project costs, (iii) financing of the projects through project-level debt and tax equity, and (iv) financial impacts of the projects including adjusted EBITDA and AFFO impacts.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) performance; and (ii) the status of and impact of policy, legislation and regulations.
Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company's expectations. Such material risks and uncertainties are: (i) facility availability and performance including maintenance expenditures; (ii) regulatory and political environments including changes to environmental legislation; and (iii) changes in general economic and competitive conditions. See Risk Factors in the Company's 2019 Management's Discussion and Analysis, as well as the Management's Discussion and Analysis for the six months ended June 30, 2020, for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
About Capital Power
Capital Power (TSX: CPX) is a growth-oriented North American power producer headquartered in Edmonton, Alberta. The company develops, acquires, owns, and operates power generation facilities using a variety of energy sources. Capital Power owns approximately 6,500 megawatts (MW) of power generation capacity at 28 facilities across North America. Approximately 350 MW of owned generation capacity is in advanced development in Alberta and North Carolina.
Contact:
Media Relations:
Katherine Perron
(780) 392-5335
kperron@capitalpower.com
Investor Relations:
Randy Mah
(780) 392-5305 or (866) 896-4636 (toll-free)
investor@capitalpower.com
