Wednesday, October 25, 2017

Transcanada sell-off of Ontario solar assets an ugly reminder of FIT debacle

TransCanada had issues a press release announcing it's disposal of solar generation assets in Ontario:
TransCanada Corporation (TSX:TRP)(NYSE:TRP) (TransCanada) today announced that it has entered into an agreement to sell its Ontario solar portfolio comprised of eight facilities with a total generating capacity of 76 megawatts to Axium Infinity Solar LP, a subsidiary of Axium Infrastructure Canada II Limited Partnership, for approximately $540 million. The transaction is expected to close by the end of 2017 subject to certain regulatory and other approvals as well as customary closing adjustments.
It's not uncommon to read of really low prices for solar somewhere in the world (an example), so I thought maybe displaying the price for specific projects in Ontario might be an interesting contrast.

The 76 megawatts of solar capacity being sold are:

The math to estimate average cost per megawatt-hour (MWh) based on the remaining terms of the contracts and assuming a 16% average annual capacity factor:
540,000,000 divided by (76 * 365.25**15.8*24*.16) = $320.63/MWh
32 cents per future contracted megawatt-hour is what TransCanada is selling for. The contracts are all Feed-in-Tariff (FIT) 1 deals. The FIT1 rate for projects like these (ground mounted and  greater than 500 kW capacity) was $443/MWh. I'll leave it to others to attempt a net present value analysis - my recollection is FIT 1 rate multipliers were 25% of inflation, so tomorrow's dollars wouldn't be worth as much as today's.

By 2018 TransCanada  previous owners (corrected) will already have received over $1.2 billion $198 million (corrected) in FIT payments for output from the facilities (if the capacity factor assumption above is valid).


The news release included another curiousity:
A large independent power producer, TransCanada currently owns or has interests in approximately 6,200 megawatts of power generation in Canada and the United States.
TransCanada has a significant interest in Bruce Power, which alone is 6,200 MW. They also have an interest in the Portlands and Halton Hills Generating Stations and is currently constructing the Oakville Generating Station - albeit far away from Oakville (they're now calling it Napanee).

Calculating capacity by the TransCanada's ownership share, they'll have a little over 4000 megawatts of capacity in Ontario until Oakville/Napanee enters service, when they'll have a little under 5,000 MW.


Geoffrey Morgan has a good report on the sale in the Financial Post - which led to another correction to my original post:
Calgary-based pipeline giant TransCanada sold its solar power portfolio to a subsidiary of Montreal’s Axium Infrastructure Inc. for $540 million, capturing a price appreciation of $83 million in around three years. The portfolio includes eight facilities that generate a total of 76 megawatts of renewable power, a sector which analysts say wasn’t a strategic fit for TransCanada, which bought the assets from Guelph-based Canadian Solar Inc. for $457 million through a series of transactions, the last of which was carried out in 2014.
I had the opinion when Canadian Solar got to build/overbuild Samsung's solar farms that saving that company was an important aspect of not simply killing the Samsung deal when the government had the chance. This information fits into that narrative.

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