TransAlta Corporation National Bank Annual Canadian Energy - PowerPoint PPT Presentation

TransAlta Corporation National Bank Annual Canadian Energy Infrastructure Presentation June 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: future sources of free cash flow; the conversion of 2,600 MW from coal-to-gas and the timing and benefits thereof, including the optimization of the coal portfolio, the extension of fleet life by 75 years, the extent of emission intensity reductions and the reduced fixed and sustaining costs; annual dividends from TransAlta Renewables; free cash flow in excess of $500 million post-2021; hydro upside, including energy revenue, capacity payment and ancillary revenue; construction of the Tidewater Pipeline; the benefit of co-firing, including reduced carbon and fuel costs; the implementation of the capacity market; continued relationship with TransAlta Renewables; the capital costs associated with the two U.S. wind development projects; the closing of the 29 MW New Hampshire wind project; growth opportunities and ability to realize growth, including the Bighorn expansion, Brazeau energy storage project and Dunvegan; guidance for 2018 earnings before interest, tax, depreciation and amortization (EBITDA) and cash available for distribution (CAFD); the repowering of existing wind sites between 2021 and 2030; adjusted funds from operations (FFO) targets relative to net debt; and the correct valuation for the coal and coal-to-gas assets that would increase the share price by $5 to $8 per share. 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; 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; 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 Comparable EBITDA, FFO 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 AUSTRALIA Coal / Future CTG Solar THE BUSINESS 1 Hydro Wind Gas Corporate Offices Wind / Solar 25% Hydro 7% BC AB Coal QC ON 25% NB Gas WA 43% NH MN MA WY PA Significant generator with 8,266 MW of capacity Diversified operations with over 65 facilities in three countries Highly contracted (70%) 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 3 Corporate Segments.

Sources of Free Cash Flow Hydro Coal-to-Gas Investment in RNW • Own and operate over 90% of 3,313 MW of owned capacity in Diversified long-term contracted   Alberta’s hydro Alberta assets • Significant upside potential post Will optimize the value of the coal Strong balance sheet with   PPA expiry (2021+) portfolio between 2018 to 2020 access to competitive capital • Critical back-up for renewables Convert 2,600 MW of the Alberta 64% ownership   build-out in Alberta coal fleet to clean energy by • Receive ~$150 million annually in Potential Brazeau pumped  2022 dividends from RNW storage hydro project Off-coal payment of ~$37 million  for the next 13 years. Opportunity to monetize. Targeting free cash flow of $500+ million with a strong balance sheet post 2021 4

Hydro Upside $225 - $275 Million Renewable Credits  Post PPA, TransAlta gets full revenue from energy, ancillary and renewables credits  Balancing Pool receives energy and a majority of ancillary revenue today Energy Revenue Capacity Payment $75 - $100 million Ancillary and Misc. Ancillary and Misc. PPA Payment 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. LIFE EXTENSION FROM CONVERSIONS (MW) EMISSIONS INTENSITY REDUCTION (%) 4,000 3,500 3,000 Conversion Timeframe 2,500 48% 2,000 60% 1,500 1,000 500 95% 98% 0 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 CO2 NOx SO2 Hg No Conversion Scenario Convert to Gas $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  New Tidewater Pipeline on track with completion expected by early 2020  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 2021+ Conversion Benefits • • Reduces emissions Carbon emissions halved and • particulate emissions are effectively Reduces carbon and fuel costs eliminated • Abundant low cost gas supply • Further reduction in operating and • Ability to scale back mine operations maintenance costs • Maximizes value of coal assets prior to • Extends asset life capacity market Fuel blending and conversions creates a competitive advantage by reducing carbon and fuel costs 7