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Hello and welcome to Powering Sustainable Ideas, a new podcast series from RBC Capital Markets where we interview the leaders and companies driving the sustainable future. I'm your host for this episode, Joe Coletti. Today, we're broadcasting from RBC's Global Energy, Power and Infrastructure Conference here in New York. And we'll be talking to Avik Dey, president and CEO of Capital Power.
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Avik has over two decades of experience in the energy business, holding various roles across executive leadership, operations, entrepreneurial ventures and investment strategy. So it's a pleasure to welcome him to the podcast. As president CEO. Avik is currently leading Capital Power strategy and future outlook. In this episode, we'll explore how Capital Power is invested in powering change by changing power, how their capital allocation framework is reliable and affordable, and how clean energy is accelerating the decarbonization agenda.
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Avik, it's great to have you on. Great to be here, Joe. I'm excited. Avik, let's start by having you give a quick overview of Capital Power for our audience. You could talk a little bit about how you operate within the energy space, and what your priorities are for the company as you lead the way to net zero. Great.
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Well, thanks for the opportunity. We're excited to be here and talk about how we are powering change by changing power at capital. Power is a North American focused, independent power producer. What that means is we generate power across all of North America. Our generation assets are 50% in the US and 50% in Canada. And importantly, we focus on providing reliable, affordable and clean electricity to our customers.
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And those customers are large commercial customers or their utilities or, system operators in communities that require generation at large scale utility level. What's unique about our business is we have three simple businesses. We provide flexible generation, which means natural gas, which is reliable 24 over seven 365 days a week available dispatchable power generation. That's our first business.
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Our second business is renewables. We are a proven developer of renewables across North America, and our third business is trading and origination, which manages energy risk on our behalf and for our customers. That includes natural gas and power. So with those three businesses, flex gen renewables and trading in origination, we're able to provide balanced power solutions to our large customers.
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And it's a business that's gone from one that was very flat in terms of demand growth expectations for the last 20 years to one now that's completely pivoted to one where we're now expecting long term secular growth from all the exciting things we talk about. Like, you know, I data centers, electrification, EVs reshoring and overall GDP growth.
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So we think we're in a really great position to grow our business and meet the growing needs of electricity demand across North America. Can you talk about your Genesee Repowering project and how it's designed to help increase capacity and lower carbon intensity? What will the impact of this project mean for the province of Alberta? Forget about the province of Alberta.
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It's impactful for North American power generation. This is a facility that produce power from coal for the last nearly 40 years, and instead of abandoning it or retiring it, we've re powered it. So we're investing $1.5 billion, into changing this plant into a completely gas fired power generation facility. And most importantly, we are reducing emissions by half on this facility while also increasing our capacity of dispatchable firm power by nearly 50%.
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So it's going from 800MW to 1300 megawatts while we're reducing emissions in half. It's the single biggest decarbonization project done in Alberta's history. Genesee pro forma for this project will be the largest power plant in the province, and it'll be the most efficient gas plant in the country. And why I think it's such an important proxy is while we've been focused on cleaning our grids, we also need to firm our grids.
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And this is a great example of we're cleaning it and we're firming it with cleaner from generation from the most efficient gas plant can actually. One follow up question on that is what's the hardest part of making a transition of a facility like that? No. Look, these are major capital projects. It's a major infrastructure project. You know, we're mid-stride on completing it today.
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You know, on any given day, we'd have up to 1200 workers who are constructing, engineering, fabricating, and assembling heavy equipment on a site. That's 50km southwest of Edmonton. So these aren't simple engineering and construction projects. They're major infrastructure developments. So the biggest hurdle to it is catalyzing the people, the capital and the resources to make them happen.
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Can you share your thoughts on the role of dispatchable natural gas and battery energy storage systems, and helping decarbonize the grid? So we have experience working across major electricity markets all across North America. And I think for those of us that have been in the utility space or the generation space, we've all recognize that there's a threshold under which you can't fall under for firm, reliable power, you need at least 50 to 60% of your power in any community coming from reliable power.
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That's what ensures you have, you know, proper grid voltage synchronicity in your transmission and grid infrastructure and enough power to ensure that you have available capacity 24/7. And what's happened over the last 15 years, which has been fantastic, is we've brought the lowest cost power possible into our grids at scale, which is renewables. The challenge with renewables is the sun's not always shining, the wind's not always blowing.
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So we need other ways to firm our grid. And this is where storage comes in. So even where you have a electricity market like Ontario, Ontario has made great strides. They made great strides early in scenting renewables. And then, you know, once renewables came in, there was a recognition that we needed more firming capacity as well. And so natural gas plays a key role in facilitating, you know, nuclear or hydro and renewables.
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But there's a secondary step we can also take, which is we can add battery storage to natural gas facilities. And what that does is when you have a natural gas facility. So let's say in the evening where the sun goes down and we don't have renewables available historically, we would fire the natural gas turbine and we would use that for peaking.
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But because we've built out so much renewables many times during the day when the sun is shining, we may have excess renewables. Well, if we store that excess renewable capacity in the batteries at location of the natural gas site, historically, when we would fire those natural gas turbines, we can use that excess renewable to help, not fire those generators.
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But you still have those generations on location when you don't have batteries available or when you need to fire it to maintain reliability. So it's why we're so focused on our business of flex gen, because we see an increasing need for gas fired power generation plus batteries to help decarbonize and firm grids. Everything I hear you say just talks about the technology and innovation, sort of at the center of continuing towards the path towards net zero.
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And you guys are you're living it and obviously playing a key part in everything that you're talking about doing. You made two significant diversifying acquisitions recently. Can you talk to us about how these acquisitions are helping you execute on your strategy. And also do you expect to see more consolidation and M&A activity more broadly across the sector this year?
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Yeah, firstly, on our acquisitions, we acquired three plants last year, all three in the US and all three in the WEC, which is the, you know, the Western market. So we bought a plant called Fredrickson in Washington, La Paloma in California and Kahala in Arizona. They were diversifying for us in the sense that it increased our capacity in the US and changed our weighting 50 over 50 overall between the US and Canada.
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Why we're excited about it is it exposes us to markets that have secular electricity demand growth. And importantly, there are large markets that are reliant on gas for reliability. So those are markets that we go in and we see upside opportunities to acquire the asset, optimize it, make it more efficient, and then potentially expand our, capacity at those existing plants.
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And we continue to see more opportunities across the US to continue to acquire and optimize assets. We think that's been a core competency for us for over a decade. We have a long history of buying plants and optimizing them and expanding them and extending them. It's been a cornerstone for our value creation story for shareholders for a decade, and we continue to see more of those opportunities in particular, because over the course of the last 15 years, we looked out 20 years plus and said we generally saw flat electricity demand and, you know, post the pandemic because of all the things I mentioned at the beginning of this podcast, like I data centers.
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Yeah, EV growth, electrification, reshoring, GDP growth, those are all secular trends that are pushing electricity demand. We think electricity demand in North America alone is going to double over the next 25 years. So the opportunity to buy these critical assets that have tremendous and growing scarcity value that are currently connected to the grid, is something that we want to build upon.
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So I want to also touch on nuclear a little bit. You recently announced your partnership with Ontario Power Generation to explore nuclear energy viability in Alberta. Can you talk a little bit about where you are with this project right now, but also how the deployment of SRM technology can help ensure the energy and grid stability for Alberta and beyond?
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We're incredibly honored to be partnered with OPG. OPG has a long track record and history of being a leading global operator of nuclear power generation. Not only have they been efficient, they've been safe, and they've been a leading innovator on the technology side as well. So, you know, in terms of, Alberta, we've entered a partnership with them to explore the viability of small modular reactors, in Alberta and also of nuclear power in Alberta.
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You know, so for us, we're Alberta market experts. We're generation experts. We're not nuclear experts. They are. So we're honored to bring our expertise to bear with them, to evaluate the viability of not just the technology of small modular reactors, but also to explore with them, you know, the regulatory and permitting requirements to to be able to create a nuclear industry, to talk about how the environmental permitting for your facility would work inside the province as well.
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So it's an initial phase for us to look at the technology, the economics and the regulatory environment to facilitate a nuclear industry in Alberta. Why that's important is we are heavily dependent on natural gas for power generation in Alberta and in Alberta. If we have a net zero ambition, which we do, then one of the ways to meet baseload demand is clean nuclear nuclear's firm.
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It's dispatchable and it's clean. And so as we look to displace a grid that is heavily dependent on gas, we need to rely on things like carbon capture and sequestration or potentially pivoting to something like nuclear. So we're here at our conference in New York, and you've been meeting with investors. You know, while your time here, I'm just curious if there's any big takeaways or consistent themes that you're hearing in your conversations with investors.
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You know, it's the macro environment coming up a lot, like what kind of things we've been hearing throughout the couple of days. Well, the biggest theme that's come out for us is this focus on power as an ancillary play on AI and data centers. That's been the pervasive conversation at every single meeting we've had, which is the single biggest bottleneck to building out data centers, actually, is in semiconductors.
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It's access to power to go build out these hyper data centers, which require a tremendous amount of electricity. Each one requires 1000MW of power at least. And so trying you know, investors are trying to understand how Capital Power is positioned for that. You know, how we can be a solution provider to those hyper data centers and how will benefit from growing electricity demand against our fleet?
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That's been really the major theme. The other major theme is really this disconnect between the Canadian IP space and, you know, how they've performed in the market versus the US peers who have basically been on a tear for the last 12 months as a result of, you know, shifting tides amongst generalist investors into IPPs trying to position for this new, exciting growth play.
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And that hasn't really necessarily played out for Canadian IPPs to date. So staying on the themes and trends for a second, maybe building on what you said, I want to close with a little bit of a big picture question. You know, what, beyond what you've been talking about, maybe with investors just over these last two days, you know, are there other themes and trends that you think investors maybe need to be playing a little bit closer attention to?
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Whether it's on the renewable side or the energy space more broadly as we're looking forward. The single biggest thing for playing energy transition today and things have evolved. You know, I've been an investor and a participant in and operating roles over the last 25 years, and I would say the last ten years pretty heavily focused on energy transition.
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And I think where we are in the world today is energy transition has now evolved into energy expansion, which means we have to do all things better. You know, I inherently had a view, you know, two thirds of global emissions sit in the industrial complex, heavy emitting industries. That's the really hard to abate stuff. And it's also the most important stuff that keeps things moving, keeps things growing, keeps things funded, keeps people fed.
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Right. Those emissions set in energy, transportation, agriculture and electricity usage. And as we move from energy transition to energy expansion, I had this inherent view that carbon markets and the creation and proliferation of global carbon markets would be the great unlocker of value creation for decarbonizing these heavy emitting industries. And I think what's coming to bear is that that is a high bar to achieve, because today reliability and affordability are just as important as achieving clean grids and decarbonizing those heavy emitting industries.
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So what that does is it puts it back to industry and capital markets to find solutions that are economic. So for me, we really have to take on this pivot with urgency that the energy transition, which was really backstopped by policy imperatives. Now that we're moving to a world of energy expansion, we've got to work that much harder to find commercial solutions that make economic sense for us and for our off takers to facilitate the investment into decarbonize.
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And that's a big shift. It's a very big shift. And I think that's a great point to end on. And so I really appreciate you being here. Appreciate you being at the conference. And hopefully you'll come back again next year. Absolutely. And thanks for having me. Well that's all for our conversation. Thanks again for listening to Powering Sustainable Ideas, brought to you by RBC Capital Markets.
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