Canada's largest power generator cuts dividend by 78% in coal phase-out

TransAlta, Canada's largest publicly-traded power generator, has cut its dividend 78% in preparation for a transition away from coal to natural gas and renewables. TransAlta currently has more than 70 power plants in Canada, the US and Australia, and is said to be in negotiations with the Alberta Government to "ensure the company has the certainty and capacity" to invest in cleaner power. Alberta is the largest carbon polluter among the Canadian provinces, and in order for the government to meet its goal of 30% renewable energy by 2030, it will need to replace about 6,000 MW of coal generation capacity with cleaner fuel sources such as natural gas and wind energy.

Rail cars are shown at a coal-burning TransAlta plant, near Centralia, Wash, in this file photo.Ted S. Warren/The Associated Press Share

TransAlta Corp. slumped after the Alberta electricity generator cut its dividend in preparation for a phase-out of coal power in the province.

The shares fell 9.8 per cent to $3.94 at 11:40 a.m. in Toronto. It initially dropped 14 per cent, the most on an intraday basis since 2008, to a record low.

The quarterly dividend was cut to 4 cents a share from 18 cents, the company said in a release Thursday. Calgary– based TransAlta doesn't expect to raise equity this year as the reduced dividend will "strengthen its balance sheet."

"The dividend cut appears largely motivated by the need to improve the balance sheet in a period when TransAlta credit spreads have widened significantly," Ben Pham, an analyst at BMO Capital Markets, said in a note to clients. "We were surprised by the extent of the reduction."

TransAlta, which has more than 70 power plants in Canada, the U.S. and Australia, said it will negotiate with the government of Alberta to "ensure the company has the certainty and capacity" to invest in clean power.

Falling Dollar

"There is significant opportunity in this policy as we have brownfield and greenfield opportunities across the province that fit the policy environment," Chief Executive Officer Dawn Farrell said in a conference call with analysts on Friday. The company expects the government to identify a coal phase-out negotiator by the end of the month and that negotiations on how to wind down coal will take about a year, she said.

The falling Canadian dollar is making it more expensive to build new wind and gas-powered generators, Farrell said. The cost to build new projects with those technologies is more than double the current market price for power of about C$30 a megawatt hour, she said.

Alberta, home to Canada's oil sands and the largest carbon polluter among provinces, will need to replace about 6,000 megawatts of coal generation capacity with cleaner fuel sources such as wind and natural gas to meet the government's goal of 30 per cent renewable energy and a coal phase out by 2030.