TransAlta : 2024 Q1 Management’s Discussion & Analysis

Published: 2025-02-20 07:17:15 ET TA.TO

TRANSALTA CORPORATION

Management's Discussion

and Analysis

This Management's Discussion and Analysis (MD&A) contains forward-looking statements. These statements are based on certain estimates and assumptions and involve risks and uncertainties. Actual results may differ materially. Refer to the Forward-Looking Statements section of this MD&A for additional information.

Table of Contents

Forward-Looking Statements

M76

Key Non-IFRS Financial Ratios

Description of the Business

M77

2025 Outlook

Highlights

M79

Material Accounting Policies and Critical Accounting

Estimates

M16

Capital Expenditures

M85

Accounting Changes

M17

Significant and Subsequent Events

M86

Sustainability

M19

Segmented Financial Performance and Operating Results

M87

Our 2024 Sustainability Performance

M29

Performance by Segment with Supplemental Geographical

M89

2025+Sustainability Targets

Information

M29

Optimization of the Alberta Portfolio

M92

Transitioning Our Energy Mix

M34

Fourth Quarter Highlights

M98

Key Climate Scenario Findings

M38

Segmented Financial Performance and Operating Results

M101

Managing Climate Change Risks and Opportunities

for the Fourth Quarter

M42

Selected Quarterly Information

M112

Enabling Innovation and Technology Adoption

M43

Strategic Priorities

M114

Managing Environmental Resources

M48

Financial Position

M123

Engaging with Our Stakeholders to Create

Positive Relationships

M50

Financial Capital

M129

Building a Diverse and Inclusive Workforce

M56

Cash Flows

M131

Delivering Reliable and Affordable Energy

M60

Other Consolidated Analysis

M133

Sustainability Governance

M62

Financial Instruments

M134

Governance and Risk Management

M64

Additional IFRS Measures and Non-IFRS Measures

M155

Disclosure Controls and Procedures

This MD&A should be read in conjunction with our 2024 audited annual consolidated financial statements (the consolidated financial statements) and our 2024 Annual Information Form (AIF), each for the fiscal year ended Dec. 31, 2024. In this MD&A, unless the context otherwise requires, "we", "our", "us", the "Company" and "TransAlta" refer to TransAlta Corporation and its subsidiaries. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) for Canadian publicly accountable enterprises as issued by the International Accounting Standards Board (IASB) and in effect at Dec. 31, 2024. All tabular amounts in the following discussion are in millions of Canadian dollars unless otherwise noted, except amounts per share, which are in whole dollars to the nearest two decimals. This MD&A is dated Feb. 19, 2025. Additional information respecting TransAlta, including our AIF for the year ended Dec. 31, 2024, is available on SEDAR+ at www.sedarplus.ca, on EDGAR at www.sec.gov and on our website at www.transalta.com. Information on or connected to our website is not incorporated by reference herein.

TransAlta Corporation 2024 Integrated Report

Forward-Looking Statements

This MD&A includes "forward-looking information" within the meaning of applicable Canadian securities laws and "forward-looking statements" within the meaning of applicable U.S. securities laws, including the Private Securities Litigation Reform Act of 1995 (collectively referred to herein as "forward-looking statements").

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", "could", "would", "shall", "believe", "expect", "estimate", "anticipate", "intend", "plan", "forecast", "foresee", "potential", "enable", "continue" or other comparable terminology. These statements are not guarantees of our future performance, events or results and are subject to risks, uncertainties and other important factors that could cause our actual performance, events or results to be materially different from those set out in or implied by the forward-looking statements.

In particular, this MD&A contains forward-looking statements about the following, among other things:

The forward-looking statements contained in this MD&A are based on many assumptions including, but not limited to, the following:

These assumptions are based on information currently available to TransAlta, including information obtained from third-party sources. Actual results may differ materially from those predicted by such assumptions.

Factors that may adversely impact what is expressed or implied by forward-looking statements contained in this MD&A include, but are not limited to:

TransAlta Corporation 2024 Integrated Report

The foregoing risk factors, among others, are described in further detail in the Governance and Risk Management section of this MD&A.

Readers are urged to consider these factors carefully when evaluating the forward-looking statements, which reflect the Company's expectations only as of the date hereof and are cautioned not to place undue reliance on them. 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. The purpose of the financial outlooks contained herein 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 statements 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.

TransAlta Corporation 2024 Integrated Report

Description of the Business

TransAlta Corporation is one of Canada's largest publicly traded power generators, owning and operating a diverse fleet across Canada, the United States and Western Australia. Our portfolio includes hydro, wind, solar, battery storage, natural gas and coal, complemented by our exceptional asset optimization and energy marketing capabilities. As one of Canada's largest producers of wind and thermal generation and Alberta's largest producer of hydro power, TransAlta remains committed to a balanced, technology-agnostic generation mix. With strong cash flows underpinned by a high-quality portfolio, TransAlta strives to deliver sustainable long-term shareholder value in an evolving energy landscape.

The Company's goal is to deliver solutions to meet our customers' needs for reliable, sustainable power. With over a century of experience, TransAlta is a trusted partner delivering tailored solutions. Our strategic priorities include optimizing our Alberta Portfolio, executing our growth plan, realizing the value of our legacy generating facilities, maintaining financial strength and capital discipline, defining the next generation of power solutions and leading in ESG and market policy development. We are primarily focused on opportunities within our core markets of Canada, the United States and Western Australia.

Our sustainability goals include our commitment to cease coal-fired generation at the end of 2025. We remain on track to achieve our 2026 target of 75 per cent scope 1 and 2 GHG emissions reductions since 2015 and our carbon net-zero goal by 2045. Since 2005, we have reduced our scope 1 and 2 GHG emissions by 32 million tonnes (MT) of CO2e or an 77 per cent reduction, representing approximately 11 per cent of Canada's Paris Agreement 2030 decarbonization target(1).

Portfolio of Assets

Our asset portfolio is geographically diversified with operations across our core markets.

Our Hydro, Wind and Solar, Gas and Energy Transition segments are responsible for operating and maintaining our generation facilities. Our Energy Marketing segment is responsible for marketing and scheduling our merchant asset fleet in North America (excluding Alberta) along with the procurement, transport and storage of natural gas, providing knowledge to support our growth team, and generating a stand-alone gross margin separate from our asset business through a leading North American energy marketing and trading platform.

Our highly diversified portfolio consists of both merchant assets and high-quality contracted assets. Our merchant assets include our unique hydro merchant portfolio and our merchant legacy thermal portfolio and wind assets. Our merchant exposure is primarily in Alberta, where 58 per cent of our capacity is located and 77 per cent of our Alberta capacity is available to participate in the merchant market. Our high-quality contracted assets provide stable long-term cash flow and earnings, balancing our merchant fleet.

In Alberta, the Company manages merchant exposure by executing hedging strategies that include a significant base of commercial and industrial (C&I) customers, supplemented with financial hedges. A significant portion of our thermal generation capacity in Alberta is hedged to provide greater cash flow certainty while also capturing higher returns for our shareholders through the optimization of our merchant generation portfolio. Refer to the 2025 Outlook section and the Optimization of the Alberta Portfolio of this MD&A for further details.

TransAlta Corporation 2024 Integrated Report

The following table provides our consolidated ownership by segment of our facilities across the regions in which we operate as of Dec. 31, 2024:

Hydro

Wind & Solar

Gas

Energy Transition

Total

Gross

Installed

Year ended

Capacity

Number of

Capacity

Number of

Capacity

Number of

Capacity

Number of

Capacity

Number of

Dec. 31, 2024

(MW)

facilities

(MW)(1)

facilities

(MW)(1)(2)

facilities(2)

(MW)

facilities(3)

(MW)

facilities

Alberta

834

764

3,650

5,248

Canada, excluding

751

705

1,544

Alberta

U.S.

1,024

671

1,724

Western Australia

450

498

Total

922

2,587

4,834

671

9,014

Contracted Capacity

The following table provides our contracted capacity by segment in MW and as a percentage of total gross installed capacity of our facilities across the regions in which we operate as of Dec. 31, 2024:

Wind &

Gas(1)

Energy

As at Dec. 31, 2024

Hydro

Solar

Transition

Total

Alberta

336

887

1,223

Canada, excluding Alberta

751

705

1,544

U.S.

1,024

381

1,434

Western Australia

450

498

Total contracted capacity (MW)

2,159

2,071

381

4,699

Contracted capacity as a % of total capacity (%)

Approximately 52 per cent of our total installed capacity is contracted. Contracts are primarily with strong creditworthy counterparties.

The following table provides the weighted average contract life by segment of our contracted and merchant facilities across the regions in which we operate as of Dec. 31, 2024:

Wind &

Gas(1)

Energy

As at Dec. 31, 2024

Hydro

Solar

Transition

Total

Alberta

Canada, excluding Alberta

U.S.

Western Australia

Total weighted average contract life (years)(2)

TransAlta Corporation 2024 Integrated Report

Highlights

For the year ended Dec. 31, 2024, the Company demonstrated strong financial and operational performance. The results were within the upper range of management's expectations due to active management of the Company's merchant portfolio and hedging strategies. During 2024, the Company settled a higher volume of hedges at prices that were significantly above the spot market in Alberta and achieved commercial operation at the White Rock and Horizon Hill wind facilities. On Dec. 4, 2024, the Company also completed the acquisition of Heartland Generation, which added 1,747 MW to gross

installed capacity. IFRS financial results include the Poplar Hill and Rainbow Lake facilities, (collectively, the Planned Divestitures), which the Company agreed to divest pursuant to a consent agreement entered into with the Commissioner of Competition for Canada. Our non-IFRS measures and operational KPIs exclude the results of the Planned Divestitures. Refer to the Significant and Subsequent Events section of this MD&A for details on the Heartland acquisition and the Planned Divestitures.

Year ended Dec. 31

2024

2023

2022(4)

Operational information

91.2

88.8

89.8

Availability (%)

Production (GWh)

22,811

22,029

21,258

Select financial information

2,845

3,355

2,976

Revenues

Adjusted EBITDA(1)

1,253

1,632

1,656

Earnings before income taxes

319

880

353

Net earnings attributable to common shareholders

177

644

Cash flows

796

1,464

877

Cash flow from operating activities

Funds from operations(1)(2)

810

1,351

1,346

Free cash flow(1)(2)

569

890

961

Per share

302

276

271

Weighted average number of common shares outstanding

Net earnings per share attributable to common shareholders, basic and diluted

0.59

2.33

0.01

Dividends declared per common share

0.24

0.22

0.21

Dividends declared per preferred share

1.36

1.33

0.25

Funds from operations per share(1)(2)

2.68

4.89

4.97

Free cash flow per share(1)(2)

1.88

3.22

3.55

As at Dec. 31

2024

2023

2022

Liquidity and capital resources

1,616

1,738

2,118

Available liquidity(5)

Adjusted net debt to adjusted EBITDA (times)

3.6

2.5

2.1

Total consolidated net debt(1)(3)

3,798

3,453

2,854

Assets and liabilities

9,499

8,659

10,741

Total assets

Total long-term liabilities(6)

5,087

5,253

5,864

Total liabilities(7)

7,656

6,995

8,752

TransAlta Corporation 2024 Integrated Report

Operating Performance

Availability

The following table provides availability (%) by segment:

Year ended Dec. 31

2024

2023

2022

Hydro

90.7

90.8

96.7

Wind and Solar

93.4

86.9

83.8

Gas

92.2

91.6

94.6

Energy Transition(1)

80.0

79.8

77.2

Availability (%)

91.2

88.8

89.8

(1) Availability adjusted for dispatch optimization for the year ended 2022 was 79 per cent.

Availability is an important measure for the Company as it represents the percentage of time a facility is available to produce electricity and is an indicator of the overall performance of the fleet.

The Company schedules dedicated time (planned outages) to maintain, repair or make improvements to the facilities at a time that will minimize the impact to operations. In high price environments, actual outage schedules may change to accelerate the return to service of the unit.

2024 versus 2023

Availability for the year ended Dec. 31, 2024, was 91.2 per cent, compared to 88.8 per cent in 2023, consistent with management's expectations. Higher availability compared to the prior year was primarily due to:

Production and Long-Term Average Generation

2023 versus 2022

Availability for the year ended Dec. 31, 2023, was 88.8 per cent, compared to 89.8 per cent in 2022. Lower availability compared to the prior year was primarily due to:

• The partial return to service of the Kent Hills wind facilities.

The following table provides the long-term average generation (LTA generation) on a consolidated basis for each of our segments:

2024

2023

2022

Actual

LTA

Production

Actual

LTA

Production

Actual

LTA

Production

production

generation

as a % of

production

generation

as a % of

production

generation

as a % of

Year ended Dec. 31

(GWh)

LTA

(GWh)

LTA

(GWh)

LTA

Hydro

1,723

2,015

86%

1,769

2,015

88%

1,988

2,015

99%

Wind and Solar

5,949

6,876

87%

4,243

5,127

83%

4,248

4,950

86%

Gas

12,317

11,873

11,448

Energy Transition

2,822

4,144

3,574

Total

22,811

22,029

21,258

TransAlta Corporation 2024 Integrated Report

In addition to availability, the Company uses LTA generation as another indicator of performance for the renewable facilities whereby actual production levels are compared against the expected long-term average. In the short term, for each of the Hydro and Wind and Solar segments, the conditions will vary from one period to the next. Over longer durations, facilities are expected to produce in line with their long-term averages, which is broadly considered a reliable indicator of performance.

LTA generation is calculated on an annualized basis from the average annual energy yield predicted from our simulation model based on historical resource data performed over a period of typically greater than 25 years.

The LTA generation for Gas and Energy Transition is not applicable as these facilities are dispatchable and their production is largely dependent on market conditions and merchant demand.

2024 versus 2023

Total production for 2024 increased by 782 GWh, or four per cent, compared to 2023, primarily due to:

2023 versus 2022

Total production for 2023, increased by 771 GWh, or four per cent, compared to 2022, primarily due to:

TransAlta Corporation 2024 Integrated Report

Market Pricing

Year ended Dec. 31, 2024

2024

2023

2022

Alberta spot power price ($/MWh)

134

162

Mid-Columbia spot power price (US$/MWh)

Ontario spot power price ($/MWh)

Natural gas price (AECO) per GJ ($)

1.29

2.54

5.08

For the year ended Dec. 31, 2024, spot electricity prices in Alberta were 53 per cent lower compared to 2023, driven by lower natural gas prices and the anticipated increased supply from new renewable and combined-cycle gas facilities.

Spot electricity prices in the Pacific Northwest were 26 per cent lower compared to 2023 due to lower natural gas prices.

AECO natural gas prices for the year ended Dec. 31, 2024, were 49 per cent lower compared to 2023, mainly due to higher gas production and higher storage levels in Alberta and throughout North America.

For the year ended Dec. 31, 2023, spot electricity prices in Alberta and the Pacific Northwest were lower compared to

2022. Lower prices in both regions resulted from lower natural gas prices and overall weaker weather-driven demand in the second half of 2023, with notably lower prices due to above normal weather patterns in the fourth quarter of 2023.

For Alberta specifically, warm weather in the fourth quarter of 2023 resulted in a strong wind resource pattern, which, combined with new installed capacity, added supply in the market compared to the prior year.

AECO natural gas prices for the year ended Dec. 31, 2023, were lower compared to 2022, mainly due to increased production and storage levels in Alberta and North America.

Financial Performance Review of Consolidated Information

Year ended Dec. 31

2024

2023

2022

Revenues

2,845

3,355

2,976

Fuel and purchased power

939

1,060

1,263

Carbon compliance

112

Operations, maintenance and administration

655

539

521

Depreciation and amortization

531

621

599

Asset impairment charges (reversals)

(48)

Interest income

Interest expense

324

281

286

Earnings before income taxes

319

880

353

Income tax expense

192

Net earnings attributable to common shareholders

177

644

Net earnings attributable to non-controlling interests

101

111

2024 versus 2023

Revenues totalling $2,845 million, decreased by $510 million, or 15 per cent, compared to 2023, primarily due to:

due to strengthening forecasted wind capture prices reflected in the year; and

TransAlta Corporation 2024 Integrated Report

Fuel and purchased power costs totalling $939 million, decreased by $121 million, or 11 per cent, compared to 2023, primarily due to:

Carbon compliance costs totalling $112 million, were consistent with 2023, primarily due to:

OM&A expenses totalling $655 million, increased by $116 million, or 22 per cent, compared to 2023, primarily due to:

Depreciation and amortization totalling $531 million, decreased by $90 million, or 14 per cent, compared to 2023, primarily due to:

Asset impairment charges totalling $46 million, increased by $94 million, compared to asset impairment recoveries in 2023, primarily due to:

Interest income totalling $30 million, decreased by $29 million, or 49 per cent, compared to 2023, primarily due to lower cash balances and lower interest rates.

Interest expense totalling $324 million, increased by 43 million, or 15 per cent, compared to 2023, primary due to lower capitalized interest resulting from lower construction activity in 2024 compared to 2023.

Earnings before income taxes totalling $319 million, decreased by $561 million, or 64 per cent, compared to 2023, due to the above noted items. Refer to the Segment Financial Performance and Operating Results section for additional information.

Income tax expense totalling $80 million, decreased by $4 million, or five per cent, compared to 2023, due to:

Net earnings attributable to non-controlling interests totalling $10 million, decreased by $91 million, or 90 per cent, compared to 2023, primarily due to lower net earnings for TransAlta Cogeneration, LP (TA Cogen) resulting from lower merchant pricing in the Alberta market and the acquisition of TransAlta Renewables Inc. (TransAlta Renewables) on Oct. 5, 2023.

M10

TransAlta Corporation 2024 Integrated Report

Disclaimer

TransAlta Corporation published this content on February 20, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on February 20, 2025 at 12:16:15.527.