Capital Power earns upgrade
The Alberta government’s plan to compensate Capital Power for stranded capital as Canada phases out coal power by 2030 has prompted an upgrade.
Raymond James raised its rating from market perform to outperform based in part on the Edmonton-based power producer’s announcement on Thursday that it would receive $ 734 million over 14 years.
“We regard the compensation for the stranded coal assets as fair and are upgrading Capital Power to Outperform while hiking our target to $24.00 to reflect the removal of this uncertainty,” analyst David Quezada said in a research note Friday.
Alberta’s NDP government has mandated that all coal- fired plants will either cease operations or elimin- ate all emissions by 2030 as part of climate change legislation announced last year.
On Thursday, the province said it will pay Capital Power, Trans-Alta Corp., and ATCO Ltd. a total of $ 1.36 billion — at $ 97 million per year, starting next year — for the province’s decision to close their plants early.
Raymond James’ upgrade also f actored in Capital Power’s announcement that it would pay $ 20 million ( or $ 15 million after tax) to settle its dispute with the Alberta Government over its termination of a plan to purchase electricity from the Sundance C coal-fired power plant.
Capital Power earlier this year said in March it was ditching a deal to buy electricity from the plant in response to a change in provincial regulations that took effect in 2016.
“These two resolutions, plus yesterday’s announcement that Alberta will move to a capacity based power market, remove much of the risk associated with operat- ing coal power assets in Alberta,” Quezada said.
Meanwhile, BMO Capital Markets also raised its target price for Capital Power, from $21.39 to $23.50 on Friday.
Capital Power’s compensation from the Alberta government was higher than the $600 million BMO expected, analyst Ben Pham wrote in a research note.
“CPX is the clear winner from this outcome, with the highest payment of $734 million ... However, we note that CPX was also the most negatively impacted from the government’s decision last year to phase out coal,” he wrote.
TD Securities Inc. also raised its target price, from $21.39 to $23, on Friday.
“Although there is uncertainty with respect to the revenue stream of all the Alberta power plants once a capacity market is introduced by 2024, we are optimistic that the legacy power generation will be treated fairly and that incremental new capacity beyond coalto- gas conversion could be built by these companies,” said Toronto-Dominion analyst Linda Ezergailis in a research note.