TransAlta Corporation Investor Presentation November 2018 1
Forward Looking Statements This presentation includes forward-looking statements or information (collectively referred to herein as forward-looking statements ) within the meaning of applicable securities legislation. All forward-looking statements are based on our beliefs as well as assumptions based on available information and on management s experience and perception of historical trends, current conditions, and expected future developments, as well as other factors deemed appropriate in the circumstances. 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, believe, expect, anticipate, intend, plan, project, forecast, foresee, potential, enable, continue, or other comparable terminology. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors that could cause actual results or outcomes to be materially different from those set forth in the forward-looking statements. In particular, this presentation contains, but is not limited to, forward-looking statements pertaining to: upside opportunities within the Alberta market, including as it pertains to the hydro assets; 2018 year-end EBITDA and CAFD of TransAlta Renewables; sources of free cash flow, including optimization of the coal portfolio between 2018 and 2020, the conversion of 2,360 MW to clean energy by 2022, and the receipt of $150 million annually in dividends from TransAlta Renewables; TransAlta obtaining full revenue of up to approximately $275 million from energy, ancillary and renewables credits following the expiry of the hydro power purchase arrangement ( PAA ); post-ppa power price in Alberta of approximately $55/MWh, capacity price of ~$6/kW-month and carbon price of $40/tonne; receipt of $100 to $200 million of free cash flow annually from Canadian coal post conversions; extent of emission intensity reduction and life extension from conversions; Tidewater Pipeline completion by late 2019, with Initial volumes of 130 MMcf/d with the potential to expand to 440 MMcf/d; benefits of fuel blending at Sundance and Keephills; the implementation of a capacity market in Alberta, the structure of the capacity market and the timing of implementation; the US wind development projects, including the capital cost and timing for construction and the closing of the Antrim wind project; growth opportunities from 2018 to beyond 2031, including behind the fence gas generation in Alberta, BC and Ontario, potential for growth in renewables, and greenfield development and acquisitions; and TransAlta having non-recourse debt of $1.2 billion in 2020. Factors that may adversely impact our forward-looking statements include risks relating to: legislative or regulatory developments, including as it pertains to the Alberta capacity market and Federal environmental legislation; high penetration of renewables and build out of gas; changes in economic and competitive conditions; inability to secure natural gas supply and the construction of a natural gas pipeline on terms satisfactory to the Company; the introduction of disruptive sources of energy or capacity; changes in the price for natural gas;; decreased demand for energy or capacity; availability of financing; fluctuations in market prices; the availability of fuel supplies required to generate electricity, including the availability and cost of natural gas within Alberta; legislative changes, including as it pertains to the capacity market in Alberta; changes to the relationship with, or ownership of, TransAlta Renewables; wind and hydro resources being less than long term average; reductions to our capacity factors; our ability to contract our generation for prices that will provide expected returns; risks associated with development projects and acquisitions, including permitting, labour and engineering risk associated with the coal to gas conversions; increased costs or delays in the construction or commissioning of pipelines to the converted units. The foregoing risk factors, among others, are described in further detail in the Risk Management section of our Management Discussion and Analysis and under the heading Risk Factors in our Annual Information Form. Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. 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. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect the Corporation's expectations only as of the date of this presentation. The purpose of the financial outlooks contained in this presentation 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 events 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. Certain financial information contained in this presentation, including EBITDA and CAFD, may not be standard measures defined under International Financial Reporting Standards ( IFRS ) and may not be comparable to similar measures presented by other entities. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. For further information on non-ifrs financial measures we use, see the section entitled Reconciliation of Non-IFRS Measures contained in our most recently filed Management's Discussion and Analysis, filed with Canadian securities regulators on www.sedar.com and the Securities and Exchange Commission on www.edgar.com. Unless otherwise specified, all dollar amounts are expressed in Canadian dollars. 2
TransAlta Today 2017 SEGMENTED CASH FLOW FROM THE BUSINESS 1 Coal / Future CTG Hydro Solar Wind AUSTRALIA Gas Corporate Offices Wind / Solar Wind / Solar Hydro 25% Hydro 7% 0%0% 0% 0% Coal Coal Gas 25% Gas 43% BC WA AB ON QC NB MN NH MA WY PA Significant generator with 8,000 MW of capacity Diversified operations with over 70 facilities in three countries Highly contracted (68%) with upside to Alberta market 1 Comparable EBITDA less sustaining capital productivity capital expenditures, reclamation costs, and provisions. It also excludes non-cash mark-to-market gains or losses as well as Energy Marketing and Corporate Segments. 3
Sources of Free Cash Flow Hydro Own and operate over 90% of Alberta s hydro Significant upside potential post PPA expiry (2021+) Critical back-up for renewables build-out in Alberta Coal-to-Gas 3,033 MW of owned capacity in Alberta Will optimize the value of the coal portfolio between 2018 to 2020 Convert 2,370 MW of the Alberta coal fleet to clean energy by 2022 Off-coal payment of ~$37 million for the next 13 years. Investment in RNW Diversified long-term contracted assets Strong balance sheet with access to competitive capital 61% ownership Receive ~$150 million annually in dividends from RNW Targeting free cash flow of $500+ million with a strong balance sheet post 2021 4
Hydro Upside Post PPA, TransAlta gets full revenue from energy, ancillary and renewables credits Balancing Pool receives energy and a majority of ancillary revenue today $225 - $275 Million Renewable Credits Energy Revenue $75 - $100 million Ancillary and Misc. PPA Payment Capacity Payment Ancillary and Misc. Today Post PPA (2021+) Comparable hydro assets valued at 12x to 14x EBITDA Assumptions: Post PPA power price of ~$55/MWh, capacity price of ~$6/kW-month and carbon price of $40/tonne 5
Coal-to-Gas Conversions Cumulative fleet life extended by approximately 75 years Reduced fixed and sustaining costs (~15%) with simplified operations Conversions will take 60 days at a cost of approximately $50 million per unit 3,500 LIFE EXTENSION FROM CONVERSIONS (MW) EMISSIONS INTENSITY REDUCTION (%) 3,000 2,500 2,000 1,500 1,000 500 0 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 Conversion Timeframe No Conversion Scenario Convert to Gas 48% 60% 95% 98% CO2 NOx SO2 Hg $100 to $200 million of free cash flow annually from Canadian coal post conversions 6
Gas Pipeline and Fuel Blending Sundance and Keephills can consume up to 175 MMcf/d by fuel blending through existing pipeline which represents ~30% of fuel requirement Tidewater Pipeline on track with completion expected by late 2019 Provides further benefits from fuel blending and conversions Initial volumes of 130 MMcf/d with the potential to expand to 440 MMcf/d TransAlta has the option to invest in up to 50% of the pipeline 2018 to 2021 Blending Benefits Reduces emissions Reduces carbon and fuel costs Abundant low cost gas supply Ability to scale back mine operations Maximizes value of coal assets prior to capacity market 2021+ Conversion Benefits Carbon emissions halved and particulate emissions are effectively eliminated Further reduction in operating and maintenance costs Extends asset life Fuel blending and conversions creates a competitive advantage by reducing carbon and fuel costs 7
Alberta s Capacity Market The Province endorsed the transition from an energy market to a new framework that includes an energy market and a capacity market. Reason for transition: Ensures reliability as Alberta s electricity system evolves Increases stability of prices Provides greater revenue certainty for generators Maintains competitive market forces and drives innovation and cost discipline Supports policy direction and is adaptable for the future Market generators will be paid through a combination of: Competitively auctioned contracts which will pay generators for their fixed costs and to keep their generating capacity available Energy and ancillary revenue from the spot market The Alberta Electric System Operator (AESO) is responsible for designing and implementing the capacity market which is anticipated to be in place by late 2021. TransAlta is well positioned to compete in a capacity market 8
Investment in TransAlta Renewables Significant Scale Enterprise Value 1 $4.1 Billion Market Cap. 1 $3.0 Billion 2018 EBITDA (guidance) $400 - $420 Million 2018 CAFD (guidance) $260 - $290 Million Dividend Yield 8.2% TransAlta s Ownership 61% Highly Diversified # of Assets Owned MW Percent of Generation Cash Flow Wind 21 1,332 46% Natural Gas 7 956 47% Hydro 13 112 5% Solar 1 21 2% Total 42 2,421 100% 1 Based on closing price on the Toronto Stock Exchange as of September 30, 2018. Balance sheet data as at September 30, 2018. 9
TransAlta Renewables Investment Highlights Highly Diversified 42 facilities across multiple regions and spanning various technologies Highly Contracted Portfolio 12 year weighted average contract life Strong Balance Sheet and Access to Competitive Capital Proven Track Record of Growth and Value Creation 2.3x Net Debt/EBITDA Raised over $0.9 billion of low cost project debt, with additional capacity $500 million syndicated credit facility $3.1 billion of acquisitions since IPO 63% Total Shareholder return since IPO in 2013 Cash Flows to TransAlta Approximately $150 million annually in dividends Opportunity to monetize cash flows from contracted assets through drop-downs 10
US Wind Development Projects Big Level - 90 MW Pennsylvania project One 15-year PPA with Microsoft Construction fully underway Capital cost of ~US$165 million Antrim - 29 MW New Hampshire project Two 20-year PPAs Construction began in July 2018 Capital cost of ~US$75 million All three counterparties have S&P credit ratings of A+ or better Commercial operation expected during the second half of 2019 11
Growth Opportunity Set Alberta natural gas pipeline 2018-2020 Potential for 500+ MW of renewables in Alberta and Sask. Behind the fence gas generation in Alberta, BC and Ontario Solar development in Australia and U.S. Significant acquisition opportunities in U.S., Canada, Australia 2021-2030 Conversion of 2,000-3,000 MW of coal to gas Potential for 4,000 MW of renewables in Alberta Repowering of existing wind sites in U.S. and Canada Acquisitions 2031+ Replacement of ~3,000 MW of converted CTG in Alberta with greenfield natural gas fired generation and storage Greenfield solar and wind in U.S. Acquisitions TransAlta/TransAlta Renewables well positioned to continue to grow 12
Significant Improvement in Balance Sheet Strength DEBT COMPONENTS ($ BILLIONS) $4 $3 $2 TA Recourse $3.4 B RNW Non-Recourse TA Non-Recourse $1 $0 TA Recourse $1.6 B TA Recourse $1.2 B YE 2015 Q3 2018 2020 Target¹ Supported by: Hydro Coal-to-gas RNW Investment Targeting TransAlta recourse debt of $1.2 billion in 2020 1 2020 Target assumes no capital allocated to new growth 13
TransAlta Actively Managing External Risks Key Risks Mitigation Techniques Political and Regulatory Uncertainty Strong relationships with political parties; both those inpower and the opposition In-depth understanding of industry regulations High Penetration of Renewables and Build Out of New Gas Mothballed units to be returned to service Converted units improve competitiveness Participate in the development of renewables projects Details Regarding Capacity Market Ongoing involvement in the development of market structure Improved operational efficiencies and strong balance sheet provide flexibility for when we enter a capacity market Risk exposures minimized through strategic plans and financial strength 14
Visit us at the Investor Centre on TransAlta.com Investor_relations@transalta.com 1-800-387-3598 15