A Member of Pat McKeough’s Inner Circle recently asked for his advice on a leading North American clean electricity producer with a diversified portfolio spanning wind, solar, hydro, and efficient gas generation assets across Canada, the United States, and Australia.
Pat likes the firm’s robust asset base, a proven track record of operational excellence and promising strategic acquisitions. However, he notes that investors should be mindful of the company’s low yield.
TransAlta Corp. (Symbol TA on Toronto; www.transalta.com) is one of Canada’s largest publicly traded power generators.
Established in 1911, the company develops and operates electricity generation facilities. Its assets are mostly in Alberta but other parts of Canada, the U.S. and Australia.
These generation operations include water, wind, solar, battery storage, natural gas, and coal. The company will stop coal-fired generation by the end of 2025.
Notably, TransAlta is one of the largest producers of wind power and thermal generation in Canada. It’s also the largest producer of hydro power in Alberta.
The company operates non-regulated businesses with a mix of merchant and contracted assets. Merchant assets do not have firm buying agreements in place when constructed. Instead, they sell electricity on the cash market.
Contracted assets are subject to power purchase agreements. Buyers agree to buy a fixed amount of electricity from the provider at a set price, for a predetermined time. Contracted assets provide stability and less risk. Riskier merchant assets, nonetheless, provide the potential for greater profits.
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TransAlta has 9,014 megawatts (MW) of installed capacity. It contracts 4,699 MW, or 52% of its total capacity, with financially strong suppliers.
Inner Circle: New facilities and acquisitions add to its prospects
TransAlta continues to bring new renewable energy projects to completion. For instance, in May 2024, the 200-megawatt Horizon Hill wind facility in Oklahoma achieved commercial operation. Two similar Oklahoman facilities, totalling 300 megawatts had achieved commercial production earlier in the year. As well, the company completed the expansion of a new solar farm in Western Australia. It has sold the electricity from all these projects under firm contacts.
Meanwhile, in December 2024, TransAlta completed its acquisition of Heartland Generation from Energy Capital Partners for a $542 million.
The deal included Heartland’s entire business operations in Alberta and B.C., adding 10 power generation assets with a capacity of 2,680 megawatts, including cogeneration, peaking, and natural gas-fired thermal generation, as well as a development pipeline featuring the 400-megawatt Battle River Carbon Hub.
To satisfy federal Competition Bureau requirements, TransAlta agreed to divest the Poplar Hill and Rainbow Lake assets.
TransAlta’s outlook is sound. The company should continue to profit from the long-term growth in energy demand across North America and its solid market position.
TransAlta’s Alberta assets make it the leader in Canada’s only deregulated power market. At the same time, its coal-to-gas conversions have let it substantially reduce the carbon intensity of its Alberta generating fleet.
The stock yields 1.6%, which is low for a high-quality Canadian utility stock.
Recommendation in Pat’s Inner Circle: TransAlta Corp. is a hold.
