Hello. Thanks, everyone. Just briefly, I wanted your attention. We will kick things off here in about five minutes. So if you're still looking to get some food, please do so. But we will look to get things kicked off shortly. And in the event of an emergency, we do have an emergency exit here to my left, as well as emergency exits down the hallway. And then please do listen to any advisories that come from the staff with respect to any emergencies that occur. But we look forward to getting things kicked off shortly. Thank you so much for joining us.
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Good morning. Welcome to Capital Power's 2025 Investor Day. I'm Roy Arthur, Vice President, Investor Relations and Investment Partnerships. On behalf of our entire team, I would like to extend a warm welcome to all of you and welcome you, those in person, as well as those who have joined us virtually. During the course of today's presentation, you will hear the management team make reference to forward-looking statements, which are subject to uncertainty. The presentation has a forward-looking statement slide with cautionary language that I would encourage you to read. All amounts will be in Canadian dollars unless otherwise noted.
I would like to begin by respectfully acknowledging that today's event takes place in the traditional territories of many nations, including the Mississaugas of the Credit, the Anishinaabe, the Chippewa, the Haudenosaunee, and the Wendat peoples who have called this land home since time immemorial and is now the home to many diverse First Nations, Inuit, and Métis people. We recognize the enduring presence of Indigenous people on this land. Capital Power is committed to our journey of learning, respect, and meaningful relationship building, and we are grateful to have the opportunity to work on this land. Today, you will have the opportunity to hear from several members of our leadership team as they present the elements of the agenda. And at the conclusion of the formal presentation, we will have a Q&A session during which time microphones will be available for people to ask questions in the room.
Our agenda today has been crafted to convey why we continue to have conviction in the critical role natural gas will play in meeting the needs of North American grids amid structural long-term demand growth. And more importantly, we will walk you through how our differentiated business model continues to position us to extend our track record of producing superior risk-adjusted returns. In addition to the presenters that we have here on the stage, we have our full executive team here with us and several key leaders from the organization. And I would encourage you who are here in person to interact with them at the conclusion of the Q&A session. And with that, I will kick off our presentation. Deliberate growth and durable performance. Deliberate growth, durable performance. That is our standard.
There are three key things I would like to impress upon you about this standard to which we hold ourselves to. First, we have delivered outsized returns relative to major indices and peer groups. Two, this has been a direct result of our relentless execution, balanced between growth and return of capital. And three, our progress has accelerated since our last investor day in 2024. Through deliberate growth and durable performance, we're powering superior returns to investors while preserving reliability and affordability for constituents in the regions where we operate. As a demonstration of our durable performance, over the past decade, Capital Power has delivered a 20% total annual shareholder return, outperforming all Canadian IPPs, all Canadian midstream entities, and both the S&P/TSX and S&P 500.
This performance has been a combination of share price appreciation and dividends, which we have consistently grown as well, all while remaining within our financial guardrails. Taken together, we've delivered CAD 65 per share of value consisting of CAD 20 per share from dividends and the balance from share price appreciation. So how did we deliver this? It was a team effort from a group of experts and innovators that are the driving force behind our success. They set us apart and drive us forward. Over the last 10 years, our team has delivered robust inorganic growth, including 10 acquisitions. This, along with our organic growth, has driven a quadrupling of our power generation capacity across our portfolio. Along the way, we've paid in excess of CAD 2 billion of dividends. To be clear, as a result of that growth, we are not just a bigger version of our business 10 years ago.
Beyond greater scale, we have diversified, lowered our cost, reduced our carbon intensity, and most importantly, we now have a portfolio with a robust pipeline of growth opportunities for further shareholder value creation. You will hear more about this as part of today's Investor Day. At our previous Investor Day two years ago, we made four commitments. First, expand flexible generation. Second, grow our renewables portfolio. Three, enhance returns through trading. Four, create Balanced Energy Solutions. In meeting each of those commitments, we have entered PJM, the world's largest power market, with a material foothold, organically grown our renewables and storage business in Canada and the United States.
We have expanded the reach of our trading platform to support our growing fleet and successfully launched Balanced Energy Solutions for our customers, including two MOUs representing 500 MW of data centers at two of our sites within our portfolio, one of which we announced this morning. Now that I have given you the story that has brought us here, we would like to share with you a quick video that highlights the team that makes this success possible, and following that, Avik Dey, our President and CEO, will discuss the natural gas expansion era that we are so excited about. Thank you for being here today with us.
The world runs on many things: on information, on innovation, on infrastructure. As the world accelerates, so does demand for more capacity, more connection, more energy to power our world further, faster, forward. Progress runs on power, and power runs on people, on our dedication, our ingenuity, our expertise. We are the people out here every day through dawn, dusk, and the dead of night. We lace up our boots and get the job done, working side by side to keep the current strong. We've grown from one corner of the continent to the next. And with every step forward, we evolve, adapt, and refine, balancing growth with responsibility and building on the grit of those who came before to stand the test of time. The need of this moment has never been greater, and neither has our power to answer it.
Meeting every challenge with sharp minds, every shift with strong hands, and every day with the skill and foresight to stay ready for what's next. Because we know stability doesn't mean standing still. It means staying ahead in a world that never stops moving, ready to rise with every challenge, protect what's precious, and power what's next. This is what power looks like. We are Capital Power.
Good morning, everyone, and on behalf of 800 fellow employees from across North America at Capital Power, welcome to our Investor Day. Today, we are going to talk about natural gas. Natural gas today is the most important technology to power North America's energy need. That's a theme you've heard from us before. But today, the need for natural gas has never been more pronounced. We are entering an era of natural gas expansion, and it's as a result of growing electricity demand. And today's story will be about why we believe natural gas demand is critical to meeting growing demand and why Capital Power is best suited to meet that moment. Our company from inception has been focused on natural gas-fired generation. That is what we do. That's what we've always done, and that's what we will continue to do.
And our mission is to own and operate those assets, add value to them, and be stewards of providing reliable, affordable, and effective generation to those markets we're in. Today, we believe that CPX is one of the most attractive plays in North American infrastructure because we do utility-scale power, and we do it exceptionally well and have done it since the inception of our company. We've never left. We never pivoted, and we've always stayed the course. We've demonstrated that through business cycles, we can deliver strong returns by operating safely and efficiently while we invest in those same assets to make them more efficient and operate them for longer. And that's not hyperbole for us. Since our inception in 2009, we've grown our capacity 4X. And during that same period of time when we started, we had a natural gas weighting of under 25%. Today, it's 90%.
We were committed to natural gas then as we are today. Our people, processes, and strategy are all built for this moment. We are going to talk about growth, so let's start with the case for natural gas. Why gas and why now? We have two major thematics at play that both drive more dispatchable power now. Firstly, it's the AI infrastructure boom. We've talked a lot about what that means for the economy, and we've talked a lot about the growth around AI, and it's not just data centers, and we'll talk about that in a moment. That underlying theme is creating exceptional electricity demand growth in the market.
When you combine that with what we've already been seeing across North America, which is growing reliability concerns around grid reliability meeting dispatchable firm electricity demand, we've got two major thematics at play, all requiring more power from all sources and more dispatchable power. And what that means in our view is that we ultimately need more natural gas. So let's start with U.S. infrastructure growth. Today, what we see in front of us is at least 100 GW of new electricity demand capacity coming from AI alone. And those numbers range from anywhere from 100-150 GW. And when we talk about that capacity coming online and that demand, what's important for us from a natural gas perspective is natural gas is cleaner, faster, more efficient, and more economic. And so we're not talking GW 50-100 or 100-150.
The first 50 are going to have to come from natural gas because it's the first electron that can be made available to the market. So when we look out over the course of that next five years and you look at that capacity build, this trend is already here. So over the past three years, we've seen a 50% CAGR in demand increase for CapEx. It's nearly CAD 600 billion a year of CapEx that's already going out toward this initiative. So we're just getting started on this trend. When we talk about where the market is, at our last Investor Day, we stood before all of you and predicted electricity demand growth and a changing sentiment toward natural gas. We declared that renewables would be one component of meeting growing demand, but that more had to be done, and natural gas was a key part of that answer.
Today, the market signals are clear, and the path paved for capital investment. Higher prices for power and longer contract length is a realized fact, as demonstrated by our announcements at MCV and our Alberta PPA. We believe that there is more to come. The signals, market, and investment could not be clearer for natural gas because it is the only near-term source of firm supply that can be delivered economically, reliably, and quickly. Focusing on the U.S. market, it's forecast that by 2030, the U.S. alone will need 20% more power generation. That's only five years from now, a timeline that demands utilizing the low-cost and fastest speed-to-market solution that can deliver at scale. And what's interesting about that is natural gas today represents 43% of all U.S.
Power generation, implying a capacity factor of around 33%, meaning natural gas is the largest and most underutilized source of reliable power generation. There is a wealth of capacity at existing natural gas assets waiting to be unlocked, and our business model is focused on acquiring and optimizing existing natural gas generation assets. That's why we are so excited about opportunities like recontracting. In addition, natural gas generation is fast and cheap. Let me repeat that. Natural gas is fast and cheap. As we've continuously advocated, meeting electricity demand growth is about doing more of everything. We need more renewables. We need more storage. We need more nuclear, every single one of them. However, if we're building a foundation for a rising pyramid of demand growth, the bottom or the foundation must be strong, durable, and reliable. It must support the weight of an expanding network of infrastructure above it.
Only gas can meet that moment today. We just mentioned on the previous page that existing gas infrastructure is only being used at a capacity factor of 33%. That means it can deliver power at a third of the cost of new build gas and four to five years faster than new build. If we expand that comparison to nuclear, we are talking at 1/10- 1/4 of the cost and 5-10 years faster. So how do we deliver value? Well, our business is simple. It's the same one that we've been running since 2009.
It's three key businesses: our natural gas generation business, which represents 90% of our existing capacity and fleet, second, a growing storage and renewables business to support that natural gas business in the markets that we're in and serve our customers, and thirdly, a Supply and Trading business that's built around our existing generation to support and optimize those assets and trade natural gas, power, and credits in all the markets around North America, and those three businesses work in conjunction with each other to go deliver outsized shareholder returns in our expectation. Combined, this platform delivers operational discipline and determined focus on building, operating, optimizing, and commercializing utility-scale power generation assets, and it has resulted in a scalable, stable, and growing platform, and most importantly, it's how we take molecules, convert them to megawatts, and ultimately monetize them and turn them into money.
We've successfully invested and acquired over CAD 8 billion in assets since 2016 and operate across five key North American markets. And we have a simple strategy where we acquire assets or develop them to grow, but then we optimize them to add more value. And we do this across three key areas or steps as shown in the page. First, operation and optimization of our assets. Last year, we talked about operational excellence, and we'll talk later about that operational discipline and how we own these assets and turn them into value and upgrade them, upgrade them, and operate them more efficiently. Those of you that joined us yesterday at Goreway got to see that firsthand. Secondly, we'll talk about the commercialization of our megawatts at Capital Power. How do we contract them? How do we hedge them? How do we deliver PPAs to off-takers and customers?
And then lastly, we'll talk about the benefits of the enterprise architecture that we have and our approach to how we fund and develop and manage and find creative solutions to support our ongoing business. Combined, this approach generates, at our expectation, outsized returns of 13%-15% or potentially higher. Later in the presentation, our leaders will describe how we deliver value through our optimization across each step of this stack. Something new that we're reporting on is also the deep pipeline of opportunity that we have here at Capital Power. That is two times the size of our existing fleet today. On the left, we have nearly 8 GW of opportunities to optimize our existing fleet or within the footprint of our existing fleet.
This includes everything from an upgrade of an existing plant to improved performance to co-location of a data center, all the way to full repowering at the end of life. In addition, we have an active pipeline of external opportunities that includes acquisitions and greenfield opportunities. Today, our focus is clearly on acquiring existing capacity given the strong value proposition we see on buying and optimizing assets versus building them ourselves. We do expect this to converge over time and come into balance, but for the short to medium term, we remain steadfast in our focus on acquisitions around existing gas generation assets, particularly in the U.S. market. And to further advance our acquisition efforts in that U.S. market, we are excited to be entering into an MOU for an investment partnership with funds managed by affiliates of Apollo Global Management.
Together, we aim to jointly invest up to $3 billion in acquiring new merchant gas power plants. The partnership with Apollo Funds would accelerate our growth, protect our balance sheet, and enhance returns for our shareholders. We're honored to be partnering with one of the world's leading investment firms. A repeating theme throughout our presentation will be, "We've been there and done that." We have a proven playbook for value creation rooted in three key pillars. Again, we're not pivoting. We're not opening new business lines. We're not expanding into new geographies. Same proven, reliable playbook. First, the platform, assets, balance sheet, and the ability to execute because of the 800 people that are deeply committed to powering change by changing power. Second, our edge. Simply put, it's our ability to commercialize, trade, and operate megawatts. This creates a unique advantage that's difficult to replicate.
The combination of the three results in Capital Power's edge of delivering clear value creation to our shareholders through our unique optimization pathways. Lastly, our outlook for growth and the multiple ways to win. Whether it's growing electricity demand as a thematic, AI infrastructure demand from the AI infrastructure boom, or the increasing need for grid reliability, natural gas generation is a proven winner. It's cheaper, it's faster, and it's already installed. At a market level, we have available capacity in the right markets. Shown on this map, you'll see the five critical markets we operate in: Alberta, Ontario, MISO, PJM, and WECC. Each market has a significant appetite for demand growth, creating a total of 100 GW opportunity for Capital Power.
And as I mentioned earlier, we are one of the only platforms in North America that has the in-house capabilities to operate, commercialize, and trade megawatts on both sides of the border. Operational discipline sits at the nexus of our approach. When we do all things well, good things happen, like long-term contracts and PPAs for data centers. The ability to operate safely and efficiently in combination with prudent risk management for trading and the ability to partner and cooperate with off-takers, load-serving entities, and utilities is our game. This is our edge. That's how we win. To support that ambition, we've put out 2030 targets, and this is why we're excited to announce them to you today.
Over the next five years, we anticipate delivering 8%-10% cash flow growth, 50% growth in our U.S. capacity, 3.5 GW of capacity net to the company over the next five years, and we're increasing our total shareholder return expectations to 13%-15%, 100 basis points higher than what we had expected and forecast at our 2024 Investor Day. Underpinning all of that is natural gas demand will grow, and we at Capital Power are best positioned to deliver. We would like you to walk away with a few key takeaways from today's presentation and arm you with the proof points that demonstrate our ability to deliver on our commitments like we have done in the past. First and foremost, our strategy works. It's clear, consistent, and is proven to deliver returns while growing to meet the market opportunity at our fingertips. Second, natural gas is critical. There is no substitute to power the North American economy that matches the reliability, affordability, and economics of natural gas.
It is the lowest cost and fastest speed-to-market solution to meet the demands of the demand supercycle that we are in mid-stride on. Third, our fleet and operational capabilities are perfectly aligned to capture this opportunity today, delivering unmatched value when compared to our peers. And finally, the growth opportunity off of our platform focused on acquisitions. We are primed to deliver unmatched value against our peers, funded through a continued disciplined approach to capital allocation. I'd now like to turn it over to Steve Wollin, our Senior Vice President and Chief Operating Officer, to kick off an important discussion around what operational discipline is, a key driver of performance and reliability across our organization. Over to you, Steve.
Thank you, Avik. So good morning. Today, Jason, Andrew, and I will be speaking about how our approach to operational discipline drives value creation across operations, commercial, and our trading teams.
These three pillars are critical to the Capital Power Advantage. Our ability to, excuse me, our ability to deliver all three is truly unique. Asset optimization is in our DNA at Capital Power, and our disciplined approach to operations, maintaining, and optimizing our assets delivers reliable megawatts and maximizes the capacity of our sites. We deliberately obtain assets with high optimization potential and then apply our expertise to deliver that potential. Equipped with deep experience in plant lifecycle, risk management, and maintenance best practices, we're in a prime position to recognize high potential plant value. This sets us apart from other buyers in the market, enabling us to foresee and deliver value others cannot unlock. Our ability to add value through the optimization of our fleet is supported by our capabilities as best-in-class operators, our superior assets, and our experience and track record in optimizing assets.
Starting with the best-in-class operations, our performance is demonstrated by our track record of running safe, cost-effective, efficient, and highly available plants. As operators, we have over 480 years of combined operational expertise just in our plant managers. We have a reputation for knowing generation and taking care of our fleet. This resonates really well with our people, attracts the best in the industry. Good operators want to be at good plants. We don't just buy and operate as delivered. We buy and we transform our acquisitions to create optimal value, as many of you saw yesterday in the Goreway tour. We've developed a team of technical specialists on the ground that are empowered and very passionate to take our assets to the next level in capacity, efficiency, and reliability. These teams are highly involved in our plant maintenance work.
For example, over the last five years alone, they've supported over 150 plant outages, ensuring the health and reliability of our assets. Paired with our in-house construction and engineering teams, in the same time period, we've delivered over 1,300 new MW to our fleet through construction projects, and through our sustaining capital program, delivered over CAD 25 million in annual EBITDA. In lockstep with our growth strategy, we have a dedicated integration team that quickly and efficiently ushers new acquired assets into our fleet, instilling our operational philosophy and moving them along to the next along the road to optimization, and well-run assets are safe assets. Excellence in operations equals excellence in safety, with our health and safety performance among the best in the industry, so supported by top-notch operations, we also have the right assets to deliver results. We focus on acquiring assets with the right characteristics.
These include optimal size, age, and technology, which enables superior asset performance, including higher availability, higher efficiency, and lower operating costs. I believe our track record demonstrates that we have the right plants with the right qualities to deliver top-tier performance. For example, starting with size. At our IPO in 2009, our average gas plant size was 112 MW. Today, it's 770 MW compared to the U.S. average of 585 MW . Larger plants drive economies of scale, pushing down support costs, and more importantly, demonstrate our conviction to grow and stay in this business. Our plants are also younger than the North American average, with a fleet average age of 23 years compared to the North American average of 28 years. Newer plants are more reliable, efficient, and allow us to influence the plant lifecycle early by implementing optimal processes and procedures to drive plant performance.
Finally, selecting the right technologies enables standardization, better parts availability, and a broader sharing of operations knowledge, all of which enables superior performance, which is demonstrated in how we consistently deliver top quartile fleet availability with an average equivalent availability factor of 91% over the last five years, well ahead of the industry average of 83%. Optimization and responsible operations also result in a cleaner and more efficient fleet, again demonstrated by the gas fleet efficiency with our heat rate 8% below the U.S. industry average. We maintain our availability by spending money efficiently and in the right places, with fleet capital costs at $8 per kilowatt below our peer average. I really wanted to draw your attention to this slide. In fact, I had quite a few questions about this topic last night.
It explains why, how, and when we spend our dollars, and why in some cases we can buy plants that have a bit of hair on them and make them into high performers. The design life of a gas plant typically transitions through four phases. In phase one, right after construction, costs typically start off a bit high through the first years of growing pains. This is the phase we currently are in at Genesee, currently as we're going to fine-tune that asset, get it to where we want it. In phase two, costs then stabilize between years five and 20. This is the current case with Goreway and Hummel.
In phase three, I would say the most important of the four, we see kind of a mid-life jump in cost between year 20 and 25 as turbines, balance of plant equipment such as cooling towers, motors, pumps need to be refurbished. Managing this phase is critical to the reliability of assets as they enter into the last half of design life and potential life extension. La Paloma, Harquahala, Rolling Hills are all currently in this phase with higher investment in progress. Finally, in phase four, costs drop off, stabilize again for the remaining 25- 40 years of design life until either you decommission the plant or you go into a major life extension. This is the phase that Arlington Valley, Decatur, and Frederickson are just entering, and MCV is just moving out of this phase and moving into a life extension program with initial higher costs.
For plants that are new to Capital Power, obviously depending on their history, we typically plan on an uptick in cost for the first two or three years of ownership as we bring them up to our performance standard. But by making the right front-end investments, we deliver superior long-term costs and operational performance. This represents Capital Power's edge in operations. We invest at the right times in the right places with the long game in mind. Enabled by our operations performance and the right assets, we have the know-how and the technical teams to deliver continuous asset optimization. Examples of that optimization include the repowering project that just delivered at Genesee last year, where we added 512 new MW to that plant and actually transformed it into the most efficient gas plant in Canada, which I think many of you saw last year in our tours.
Battery storage projects like those at Goreway and York with COD this year, expansion projects like the 78 gas turbine under construction at the East Windsor site, turbine upgrade projects like that at Decatur, York, and Goreway, providing more megawatts and improved heat rates. And as we continue to recontract our plants, we deliver important life extension programs like the one currently in progress at MCV to ensure we deliver reliable megawatts well into the future. So how does our optimization strategy affect our long-term assets? So looking back on our track record for the thermal assets we've owned since 2019, we've been able to add nearly 900 brownfield MW. These are megawatts added well below the cost of new entry.
The strong relationship between our technical teams and our ops teams has enabled us to deliver these megawatts through in-service upgrades, which minimizes the disruption to ongoing generation of megawatts and revenue. In parallel to optimizing our equipment, we've continued to drive our operations philosophy into the culture of these assets. This optimization, in concert with the asset lifecycle, has driven down costs of capital and major maintenance by 23%, and with the addition of more efficient megawatts, we've also driven down our carbon intensity by 37%. Optimization leads to a cleaner and more cost-effective fleet, so looking ahead, our assets are primed for continued expansion. Our existing assets alone offer up to 3 GW of additional capacity, all below the cost of new entry.
These 3 GW are made up of a combination of potential upgrades, additional turbines, repowering projects, all of which we have experience in delivering and a proven track record of delivering. So in conclusion today, I trust that we've demonstrated that through our focus on top-tier operations, our proven track record at acquiring and building the right assets, and our continuous focus on optimization, that we're positioned to grow and deliver the Balanced Energy Solutions needed to support the North American power industry today and into the future. Thank you. And with that, I will turn it over to Jason Comandante, SVP, Supply and Trading, who will lead the next part of our conversation on operational discipline, focusing on Commercial optimization.
Okay. Thanks, Steve. And good morning, everybody. In addition to Capital Power's operations edge, we also hold a commercial competitive advantage.
That commercial advantage is what allows us to capture the right value for our reliable and dispatchable megawatts. Capital Power's long-standing thesis is playing out. The value of reliable megawatts is increasing. We've built the North American power portfolio to express that view, and our operations team has set the stage for our Commercial, Balanced Energy Solutions, and Supply and Trading teams to optimize it. Throughout this portion of the presentation, Andrew and I are going to talk to you about the value of our megawatts and how we're going to capture that value. I'll start with Supply and Trading and merchant markets, and Andrew will then later focus on contracting. This is a simple but important picture. This is what we do. We buy for and schedule natural gas to our facilities. We operate those facilities that turn fuel into reliable megawatts, and we monetize those megawatts. It's simple.
Fuel in, value out. The key question here is, what is the right value for our product? What is the right value for our megawatts? Broadly speaking, in any industry, the long-run price for a good or service will equal the all-in cost of producing that good or service. And power is no different. We're coming out of a period during which natural gas-fired megawatts have been undervalued. This was due to trends such as energy efficiency decelerating or altogether temporarily pausing demand growth, the proliferation of renewables adding supply, and the threat of natural gas-fired generators' lives being shortened due to prioritization of decarbonization over reliability and affordability. During that period of undervaluation, Capital Power remained steadfast in our view and seized the opportunity to build a fleet and a platform around that fleet. And we remained patient.
While we waited for our view to play out in markets, we honed our integrated operational, commercial, and trading crafts. Our competitive advantage now is our ability to excel across all three of those crafts. And Steve already spoke to you about operations. Commercially, we've developed deep synergistic relationships with our off-takers that convert into value-add contracting opportunities, and we prepared our sites for growth and the potential to serve on-site load. From a Supply and Trading perspective, we've translated our experience managing inputs and outputs of power generation facilities into a commodity optimization competitive advantage across power, gas, and environmental products. And we did this while standing up our Balanced Energy Solutions business in anticipation of the emergence of a new customer class stemming from AI-driven load growth. The graphic on this slide brings it all together.
Starting at the bottom, we have our foundation, our 12 GW of capacity split between contracted and merchant megawatts. The section above that foundation represents our asset expansion potential. Those are the megawatts, and above that sit the dollars. Operational excellence is crucial for those dollars and our ability to commercialize. It's what allows us to hedge into markets and contract with customers with confidence. The circles above our assets and their expansion potential represent how we commercialize our product. On the left is our Commercial team that contracts our contracted assets with off-takers. On the right is our Supply and Trading team that deploys hedging programs, optimization strategies, and proprietary tactics across deregulated markets to derive value from our merchant assets.
And in the center is our Balanced Energy Solutions business designed to transcend our contracted and merchant assets and capture those large volume, high complexity, multi-jurisdictional customers such as those in the AI space. Fast forward to today. In our core merchant markets, forward prices are pointing towards supply and demand coming into balance. They are reflecting the all-in cost of new production. In Alberta, power prices from 2025-2030 are expected to rebound and increase by 80%. But more importantly, clean spark spreads are expected to increase by 130% from CAD 30-70 a MWh . Simply put, the gross margin for a baseload power plant in Alberta is projected to more than double. To put that in perspective, a CAD 40 per MWh increase on 1 TWh of generation equates to roughly CAD 40 million of additional EBITDA.
Capital Power's baseload generation portfolio generates well over 10x that volume. And this isn't an Alberta phenomenon. In PJM, where we have 2 GW of capacity, market prices, inclusive of energy and capacity, are projected to increase more than 50% from 2025 levels as we approach the end of the decade. Our Supply and Trading team takes a disciplined, responsible approach to commodity optimization, ensuring we strike the right balance of pursuit of the upside and prudent risk management. All of this trading activity fits within a structured set of dynamic, executive-supported and Board-approved commodity and credit risk policies, procedures, and guidelines. In 2026, our Supply and Trading team will buy roughly CAD 1 billion worth of natural gas for our merchant facilities that will generate well over CAD 2 billion worth of power revenue.
We do this through combining the quantitative, such as deployment of advanced analytics and proprietary modeling, with the qualitative, our long tenure of experience with commodity markets and disciplined approach to creating value. Heading into 2026, the final year of the price trough, this active commodity portfolio management has led us to be well hedged, but we're far less hedged in 2027 and beyond in anticipation of price recovery. In closing, our North American-class Supply and Trading team optimizes Capital Power's six major merchant facilities across all three energy commodities, competing in five major deregulated power markets, and importantly, we run this all out of one central office in downtown Calgary with a highly experienced leadership team that has created a cohesive culture driving at a single focus, being the best asset-backed energy trader in our space.
I'll now turn things over to Andrew Pearson, Vice President, U.S. Thermal, to talk about contracting, the successes we've had, and opportunities in our future.
Thanks, Jason, and welcome, everyone. Capital Power's re-contracting opportunity across its fleet has never been brighter. As Jason mentioned, Capital Power has organized its commercial optimization around three teams: Supply and Trading, Balanced Energy Solutions, and Commercial. Today, I'll be focusing on the Commercial and Balanced Energy Solutions teams. As shown in this graphic, Capital Power's North American portfolio represents 12 GW of capacity, underpinned by over 4 GW of long-term contracted assets well into the late 2030s and beyond, 3 GW of contracted capacity opening up in the 2029 to 2032 timeframe, and 5 GW of merchant capacity, predominantly in Alberta and PJM. This mix is intentional. It maximizes choice on when and how to lock in value.
I'll be focusing on the 3 GW of currently contracted megawatts with expirations in the next 4-7 years. We are leaning into earlier engagement, higher prices, and longer duration across our contracted fleet. With that optionality laid out, let me quantify what that means in dollars. Over the last three years, demand growth has accelerated, and supply constraints are requiring new generation builds in the markets our contracted assets are in. This thematic has off-takers now looking to contract as early as possible for long-term, and pricing is dictated by the cost of replacement, which continues to rise. As a result, Capital Power's contracted portfolio is poised to see significant growth in contracted EBITDA through re-contracting starting in 2029.
Across the approximately 3 GW of contracts, a 50% increase in contract pricing by 2033 would result in an increase of over 220 million EBITDA when compared to 2026 values and requires little to no incremental capital expenditures. We also continue to have discussions on extending tenor with counterparties valuing reliable megawatts over the long term. This supports our cash flow visibility and weighted average contract life. As Steve mentioned, Capital Power consistently delivers top quartile in availability through prudent execution of our capital plan. This investment and track record, our U.S. Thermal fleet is the premier partner for long-term contracts with utilities and hyperscalers. Case in point is the transformative re-contracting at MCV. The newly secured 10-year contract at MCV stands out as a milestone for Capital Power.
It delivers an impressive 85% increase in price compared to the current agreement, and the 10-year term is five years longer than the previous extension. This clearly demonstrates our ability to partner long-term with strong investment-grade utilities. This proactive approach underscores our commitment to long-term value creation and stability for our stakeholders and our counterparties. Expanding our commercial reach, Capital Power is also advancing toward definitive agreements for 250 MW with a leading colocation data center developer. This initiative highlights our agility in responding to evolving needs of the energy market, particularly the surging demand from hyperscale data centers and AI infrastructure. By leveraging our Balanced Energy Solutions business, we are able to offer tailored, reliable power solutions that meet the stringent requirements of these sophisticated customers. Together, these activities illustrate the significant potential for EBITDA growth through both strategic re-contracting and innovative commercialization.
Our ability to secure premium, long-duration contracts well ahead of market cycles and to tap into new high-value customer segments positions Capital Power at the forefront of value optimization in the North American power sector. Our Balanced Energy Solutions team tailors solutions for hyperscaler, enterprise AI loads, and other large-scale customers. We bring value to these customers through reliable power, fast deployment, strategic sites with land, essential infrastructure, and future-ready compliance. We are actively marketing five sites with over 3,000 MW of potential data center load. This is designed to crystallize value at superior pricing and longer durations versus wholesale alternatives. Why we win? We have the know-how to excel at development, contracting, and operations, all underpinned by highly reliable generation and our investment-grade profile. This all aligns with the needs of the hyperscaler customer. Here's a concrete example we can speak to in Alberta.
In Alberta, we are monetizing our phase one allocation by progressing an investment-grade data center developer PPA at 250 MW for 10+ years, leveraging our merchant fleet to lock in long-duration premium pricing. This is what we mean by crystallizing merchant value, converting market upside into stable contracted cash flow while keeping operational flexibility. Pulling the pieces together, re-contracting plus re-contracting plus Balanced Energy Solutions plus merchant momentum leads to a CAD 1 billion opportunity. I would bring all of this together to highlight the significant commercial opportunity that's in front of Capital Power. Absent any growth capital, Capital Power can grow its Adjusted EBITDA by up to CAD 1 billion simply through increasing contract rates and capturing rising merchant power prices in Alberta and PJM.
This EBITDA growth is underpinned by the following drivers: higher re-contract prices at assets with contracts expiring in the early 2030s and realization of already higher forward prices. With its Supply and Trading, Balanced Energy Solutions, and Commercial teams, Capital Power is organized to capitalize on this unprecedented opportunity to add value throughout the value chain. Next up is Roger Huang, Vice President, Corporate Development and U.S. Renewables, to walk us through how we create value through growth.
Thank you, Andrew. Good morning, everyone. I'm excited to be here today to walk you through how Capital Power is well positioned for long-term growth. I'll spend time discussing our acquisition strategy and how we'll continue adding megawatts to fuel our optimization pathways. Capital Power, at its core, is a natural gas-focused growth platform.
To reiterate Avik's remarks, North American power demand is growing at unprecedented rates, and natural gas generation is critical to supplying that demand. In our view, the best way to participate in this thematic is through the acquisition of natural gas generation. Acquisitions offer an attractive return profile driven by a clear and large dislocation in asset prices. Acquisitions also provide Capital Power the fastest path to meaningfully grow FFO per share. We have a large opportunity set, 17 GW of which we only need to action 20% to meet our 2030 goals. Over the past decade, Capital Power has completed 10 acquisitions, representing more than CAD 8.5 billion of assets and 9 GW of capacity. We're proud of our track record, and it's the foundation for our continued growth. Early on, we focused on acquiring fully contracted assets to drive stability and value.
But as power demand has accelerated, fueled by a growing reliability gap and the rapid growth in AI-related compute, we have strategically shifted towards acquiring merchant facilities where we can unlock value. With each acquisition, we have honed our ability to identify and capture value. As an example, take this year's CAD 3 billion Rolling Hills and Hummel acquisition, our largest acquisition to date and entry into a new market. We engage a seller in a bilateral process, select the assets of our choice, and acquire them at attractive value. Ultimately, our track record shows that we skate to where the puck is heading and should reinforce to shareholders that Capital Power will remain disciplined and M&A. This chart is at the core of why we see acquisitions as the most attractive avenue to invest in growing North American power demand.
The cost of new build gas generation, roughly CAD 2,500 a kW, is nearly two times the cost of acquiring existing plants. This value gap is unsustainable and is a clear signal that energy and capacity prices will rise. Put simply, new supply must be built to meet growing demand. Prices must increase to incentivize new build. As a result, existing asset prices will see an increase in prices and higher plant utilization. This will lead to an increase in values for existing assets. And we're seeing these recent dynamics across our portfolio. Our MCV plant saw an 85% increase in price, and the PJM market saw a 22% increase in capacity prices. These trends are being reflected in the M&A market, with recent transactions clearing at CAD 1,500 a kW, a 50% increase from six months prior.
While the opportunities from the value gap remain open, we are well positioned to take action. Acquisitions are just the start. Over the past 10 years, we have been disciplined buyers and have acquired assets at around 7x EBITDA, but the real story is what happens after the deal is closed. Through our optimization pathways, we have increased EBITDA by over 20%, adding nearly CAD 1.6 billion of enterprise value. For shareholders, that means CAD 200 million in additional cash flow per year with minimal CapEx investment. This includes the 180 MW of upgrades that Steve mentioned and the contract extensions at MCV that Andrew presented. Value creations have reduced implied acquisition multiples from 7x to 6x EBITDA across our portfolio, and our optimization pathways give us a clear competitive advantage in M&A processes. Our acquisition strategy is straightforward, and we've consistently executed for the past decade.
We buy mid-life natural gas assets where we identify clear optimization pathways. We'll continue to pursue contracted assets, but we see the greatest value in merchant plants. We are often asked why we have been and continue to be successful in M&A. Several factors in our strategy work to our advantage. First, a distinct execution of our acquisition playbook. We have a clearly defined set of core markets and asset characteristics, allowing us to prioritize opportunities. Once we've identified an opportunity, we can move quickly through acquisition, integration, and optimization. Second, pattern recognition. Our long history in M&A means we've seen many of these assets before, whether they have traded hands previously, we have owned them, or they share technologies we already operate. This familiarity reduces uncertainty and accelerates value creation. Lastly, buyer credibility and competitive dynamics.
We're often the advantage buyer, especially where other IPPs face market concentration limits or private equity lacks operating capabilities. The takeaway is simple. The market is moving, competition is rising, but our relative position has strengthened. We bring speed, certainty, and value, and ultimately, we have the right to win. Our current M&A pipeline is 16 GW and reflects actionable opportunities. We expect our pipeline to expand as higher valuations and capital rotation bring more assets to market. This pipeline can be broken up into three categories. Number one, existing partnerships, where our partners on existing assets have finite investment periods, and when they exit, we are the natural buyer. Number two, single asset opportunities. These are highly competitive processes, but we bring more value than most buyers. This is our bread and butter. And lastly, platforms, which are multi-asset or multi-region portfolios.
These are more complex, but also more compelling. The competitive dynamics are attractive, processes are quieter, and buyer pools are smarter. Taken together, this pipeline gives us a multi-year runway of executable M&A. As Avik mentioned, this morning, we're excited to announce an MOU to form a CAD 3 billion equity partnership with Apollo Funds to acquire merchant natural gas assets in the U.S. This is a potential one-of-a-kind partnership with one of the world's largest institutional investors. The key point here is alignment. Both organizations share a strong conviction in the long-term growth of North American power demand and the essential role that existing natural gas generation will play in meeting it. For Apollo, Capital Power represents a proven operator with a long track record of disciplined M&A and post-acquisition value creation.
For Capital Power, Apollo is a differentiated and highly complementary partner, having deployed CAD 40 billion into next-generation infrastructure since 2022. To summarize the partnership, it enables us to buy more merchant natural gas assets at greater speed and scale while maintaining our contracted merchant risk balance and preserving our balance sheet strength and investment-grade rating. Furthermore, our shareholders benefit due to the management and performance fees we earn. Of the CAD 3 billion as contemplated by the MOU, Apollo Funds will commit CAD 2.25 billion, and Capital Power will commit CAD 750 million, or at least 25% of the total pool over a five-year investment period. Capital Power originates opportunities and can choose to pursue them independently or offer them to the partnership. Together, Capital Power and Apollo are creating a platform with a clear competitive advantage to pursue the most attractive opportunities in the market.
While M&A is our primary growth engine in the near term, we expect greenfield development to become a meaningful part of the supply equation beyond 2030. We have the capabilities today and are continuing to build the capabilities required to execute greenfield projects. To date, we have brought more than 1 GW of greenfield assets online and have another gigawatt in the pipeline. We're actively advancing several storage opportunities and expect our BESS pipeline to expand significantly in 2026. Our greenfield strategy is simple. Every project must have the right customer, the right contract, and the right opportunity. Looking ahead, Capital Power is exceptionally well positioned for long-term growth. We have a multitude of ways to win, and we can materially grow our size and footprint. Our existing fleet alone has up to 8 GW of embedded growth opportunities.
In addition, we have more than 17 GW in our M&A and development pipeline, an opportunity set that will continue to expand. Together, our proven playbook, our enhanced funding partnership with Apollo, and our consistent execution of optimization pathways give us confidence that we can convert this pipeline from opportunity into reality. With that, I'll hand it over to Scott, our Interim CFO, to walk through our returns-driven financial model.
Thanks, Roger. Capital Power's business platform is uniquely positioned to create sustainable long-term value in this natural gas expansion era. As Avik said, we are natural gas, leveraging our skill to grow, optimize, and deliver top-tier shareholder value. How do we make this happen? Our proven return-driven financial model is key. This is how we optimize at the enterprise level to outperform.
Steve, Andrew, and Jason have talked about our asset and commercial optimization pathways, and sitting on top of it all is our enterprise optimization. Our investment-grade balance sheet enables us to acquire high-value assets, secure top-tier low-cost capital, and become the counterparty of choice for PPAs and hedging activities. This drives a clear competitive advantage and stronger returns for Capital Power. The Apollo deal announced earlier today accelerates our ability to grow and offer enhanced returns without compromising balance sheet strength. Our business is optimized to drive enterprise-level growth and value. Our disciplined capital allocation offers a rising dividend, while most of our cash flow will be reinvested to fund our strategic fleet expansions. Maintaining investment-grade credit ratings across three agencies sets us apart and allows us to continue access to low-cost capital in both Canada and the U.S. market.
This ensures we can prudently fund growth at the most competitive rates. Our differentiated funding model is further strengthened by the Apollo partnership and allows us to accelerate those growth pathways. Capital Power has a 12-year record of dividend growth with a 6% CAGR over that period, while also delivering 12% Adjusted EBITDA CAGR and a 20% Total Shareholder Return CAGR, clear proof of our commitment and ability to deliver strong shareholder returns. Now, how do we do that? It's the result of our disciplined capital allocation strategy, which I will walk through on the next slide. Our ongoing commitment to reinvest in the business with a differentiated approach to value creation through optimization pathways underpins our confidence in achieving a robust Total Shareholder Return of between 13% and 15%. We are pleased to provide guidance reaffirming our previously communicated dividend growth rate of 2% to 4% through 2030.
We do so from a stable base that maintains our dividend payout within our AFFO target range of 30%-50%. This approach ensures that the majority of our cash flows will be reinvested in our business, supporting high-growth opportunities that Roger highlighted earlier today. This investment in our business is within a capital allocation target of approximately 80% natural gas and 20% to renewables and storage. This allocation is roughly consistent with our current portfolio composition today. Our strong balance sheet is the foundation for fleet growth and is managed prudently within a stable base. Approximately 75% of our cash flows in 2026 are secured under long-term hedges or contracts, ensuring steady cash flow available for M&A, optimizations, dividends, and ultimately delivering total strong shareholder returns. 90% of our PPAs are with A-rated or higher counterparties, providing revenue certainty and visibility.
Our contract life on PPAs averages around 9- 11 years, which has been consistent over time and highlights the quality of our assets. As Andrew discussed earlier today, contracts expiring are well positioned to be recontracted at higher prices for longer duration. This leverages the increased demand for reliable power that we're very well positioned to capitalize on. The recently announced MCV contract adds 10 years of contract duration, with the contract running through 2040 at prices that are 85% higher than current contract. Lastly, our investment-grade credit ratings across three agencies validate our financial strength and provide superior access to low-cost capital in both the Canadian and U.S. debt and hybrid markets. It also enhances our ability to commercialize megawatts at lower credit costs. We can acquire assets like Hummel and Rolling Hills and finance them in an investment-grade platform at lower cost, enhancing overall returns.
Looking at our 2026 guidance, this shows the summary of our expectations for Adjusted EBITDA, AFFO, sustaining CapEx, and dividend growth. Our Adjusted EBITDA is anticipated to be in the range of CAD 1.565 billion- CAD 1.765 billion, reflecting a modest increase relative to our 2025 revised range. And this is a reflection of our strong contracted asset base, significant hedging activities, and a full-year contribution from the Hummel and Rolling Hills acquisition. AFFO is expected to be between CAD 890 million- CAD 1.01 billion and is slightly lower year- over- year, reflecting higher sustaining CapEx, taxes, as well as the full-year financing from the acquisitions previously noted. We anticipate an uptick in sustaining CapEx in 2026 with a range between CAD 290 million and CAD 330 million. This will occur over 493 outage days across 39 planned outages, 24 of which are from our gas facilities.
This sustaining CapEx positions our business to capitalize on strong market fundamentals beyond 2026. This will be accompanied by a 2% dividend increase in 2026, subject to Board approval. Overall, the guidance range reflects our confidence in our business strategy and our ability to deliver and generate strong financial results that position us well to capitalize on future growth. As you've heard throughout our presentation, we have multiple pathways to be able to deliver our 8%-10% AFFO per share growth targets. Our outlook is powered by operational discipline at every level. Steve walked you through how our asset optimizations and best-in-class operations team deliver reliable, safe, efficient megawatts, the foundation for everything that we do. Jason and Andrew demonstrated how we capture and lock in value through commercial excellence and recontracting, with a potential CAD 1 billion+ annual opportunity on existing assets.
Roger highlighted how disciplined M&A and post-acquisition optimizations scale our platform for long-term growth. That's why we're confident in our ability to deliver on our 25+ GW pipeline, our 5 GW of merchant upside in PJM in Alberta, and our 3 GW of contracting and other upsides. We are very well positioned to convert this into long-term reliable cash flow growth. This is the Capital Power Edge. With that, I'll turn it over to Avik for closing remarks.
Thank you, Scott. With our advantage, we're confident in our ability to deliver industry-leading performance, driving returns for you, our shareholders. Underscoring our growth and value creation strategy by 2030, I want to affirm that we are targeting the following: 8%-10% cash flow growth, 50% U.S. growth through additionally owned capacity of 3.5 GW , and finally, 13%-15% TSR.
That's a 100 basis points CAGR from our 2024 Investor Day last May. This is why Capital Power is one of the best long-term natural gas plays in North America. Thank you, Scott, Jason, Andrew, Steve, Roger, for sharing your insights and expertise today on behalf of our 800 other colleagues who are working across our fleet and offices across North America. As you've heard today, Capital Power is one of the best-positioned IPPs to create long-term shareholder value in the North American energy sector. We have a proven platform, industry-leading expertise, and a demonstrated track record of execution that's delivered enhanced value creation well over a decade. That is what sets us apart, and our advantage is our shareholders' advantage. Today, North America needs more power, and natural gas is critical to meeting this demand across the continent.
Capital Power has the track record, strategy, expertise, and momentum to continue to meet this demand through delivering strategic growth through acquisitions. We have an unparalleled ability to deliver excellence across asset optimization, commercialization, and enterprise optimization. That's what we refer to as our optimization pathways. When put together, this platform enables us to methodically add value beyond just the front-end acquisition. That results in the top-line returns that we provide to our shareholders. With our bold strategy and relentless execution, we are positioned to win. Before we kick off with the Q&A, I'd just like to offer a couple of quick acknowledgments, first to Roy and Noreen. Roy and Noreen, over the past two years, have done an absolutely phenomenal job of being the front-facing stewards of our investor relations program. And many of you who interact with us, they are our frontline.
And I just want to acknowledge the phenomenal work that both of them do. So thank you to both Roy and Noreen. And then lastly, I would like to acknowledge Sandra Haskins, who is retiring at the end of the year. And as our CFO and a long-tenured employee of Capital Power, over the past 24 years, has made an incredible mark on our organization and the industry at large. So Sandra, thank you. So with that, we'll kick off our Q&A. We'll be taking questions from those in the room. Please raise your hand if you have a question and a mic will be brought to you.
Thanks. It's Ben Pham with BMO Capital Markets. A couple of ones from me on the U.S. merchant acquisition allocation process. I mean, historically, you've been more contracted gas and extending contracts and creating value through that.
Could you talk about this newer strategy in a sense? I don't know how merchant versus the contract strategy. Is it better to buy merchant over contracted gas assets? A bit more clarity. We appreciate it. Thank you.
Yeah, thanks for the question, Ben. So as Roger alluded to in the growth section, we see this amazingly great opportunity to acquire assets at a value significantly lower than what new build is. That was the spread between, call it 1,000/kW-2,500/kW new build. Our historic strategy was a merchant portfolio in Alberta and contracted portfolio elsewhere. As the market has tightened and we see more demand growth, the opportunity to acquire assets like MCV, like Rolling Hills, where they have lower capacity factors and opportunities to apply asset optimization, opportunities to wholesale, opportunities to recontract, we see those more in merchant assets.
So as Scott mentioned, our adherence to and commitment to our investment-grade balance sheet is as pronounced today as it always has been. But the opportunity to be able to acquire merchant assets and now do that in partnership with Apollo gives us an opportunity to accumulate an inventory of assets that has significant internalized growth opportunities. And so we see a very compelling opportunity to continue doing that. So for us, it's maintaining that mix of contractedness, merchant exposure in the aggregate portfolio to maintain our balance sheet strength, maintain our ability to support our dividend, maintain our ability to reinvest cash flow. But we also see this growing opportunity to accumulate assets that are merchant that have more runway in them than a contracted asset would.
And maybe a follow-up on that statement, the U.S. gas merchant, the Apollo opportunity you've mentioned, you can certainly do acquisition yourself, CPX 100%. And you mentioned earlier too just how you think about the two pathways. But can you clarify a bit more, add context on what is right for CPX 100% versus going into Apollo?
The Apollo JV is focused on U.S. merchant assets. And specifically for those assets that we can't acquire wholly and require a partner, we've come to agree with Apollo that we will pursue those opportunities together. I am less focused on what we can do standalone. I think this opportunity is a phenomenal opportunity to partner with a world-class investment firm who sees the same thematics at play as we do. And we get to lock arms and go pursue these assets together.
Whereas historically, our approach would be each and every asset, in particular ones at scale, we would have to pull capital together, find a partner once we've identified and advanced in the process. Whereas now we get to accelerate our approach, we enhance our overall capacity to pursue these types of assets. And frankly, we can do more faster and larger deals in partnership with them. But to specifically answer your question, it would be the difference between a contracted asset and a merchant asset. We're primarily focused on merchant in partnership with Apollo. So if we were to do something solely, it would be something that's more contracted in nature.
Good morning. Nick Amicucci with Evercore ISI. Avik, just wanted to try and parse out a little bit just on the 16 GW of current M&A pipeline. I think Roger had mentioned existing partnerships, single asset opportunities, and platforms.
Can we break that down just kind of even directionally? And as well, if we can just kind of get a sense of where the enhancement in margin opportunity lies among those three.
So we haven't broken it out specifically in buckets, but I'll describe them. So the existing partnerships would be assets we already own in partnership with others. So the opportunity, to the extent they're financial partners, they will all generally have explicit hold periods, and we'd look to be the partner of choice there. And in the other two buckets, that's why we walk through the value proposition of our asset optimization pathways. Each and every asset that we've acquired since 2016, we've been able to acquire and identify those asset optimization pathways, whether it's asset upgrades, efficiency upgrades, enhancements, expansions, repowerings.
So when we acquire an asset, we've been consistent in our communication to shareholders around when we buy things. We typically model them based on what we see as a five-year forecast run rate average EBITDA. And generally, we've been able to deliver 6%-8% AFFO per share accretion off of those. Well, what contributes to those accretion dilution numbers, which is why we show the 4%-6% increase from buy-in to output, is our ability to go in and recontract that asset, upgrade that asset, and better trade around it. And that's how that all rolls together. So when we look at that internal opportunity and the external one, it's a combination of assets in the market, bilateral relationships that we're talking about, bespoke deals, and then what's inherent in our partner portfolio today. Does that answer the question?
Yeah. Yeah. Thank you.
Hi. Rob Hope, Scotiabank.
I want to go back to the merchant versus contracted balance. So slide 64 shows kind of the breakdown between renewables and natural gas, very skewed to natural gas. What would that look like on merchant versus contracted? Really, what I'm trying to get at is, do you need to add a little bit of contractingness just to keep that balance in the overall portfolio?
Well, it's interesting, actually. When you look at the allocation, so renewables today will be 10%, and we're looking at the allocation of 20%. So the 80/20 split, to answer your question specifically, no, it doesn't really make a difference. Because as Scott said in the finance section, our average contractingness is 9- 11 years.
And so when you look against our investment-grade balance sheet and how we manage our two metrics to maintain that, when you're allocating to such a small percentage of that overall portfolio, it takes a lot to move that needle on overall contractingness. Why we like renewables isn't because of contractingness. We do see over the medium-term a convergence of the sectors, which we're all going to be in the business of delivering power. We're focusing here on natural gas, but in the markets, we are an important player around natural gas generation. We do see the benefits of having a renewable portfolio and a renewable strategy that supports it. So it's not inherently because of the contractingness it brings.
It's because we strategically believe that if we're going to commercialize megawatts, we need to be able to be in that business and be able to play in that stack. As I said in the beginning of my section, it's going to take all kinds of technology. Gone are the days you could be a fossil player or a clean player. Today, we're emerging into the marketplace that you have to be able to deliver electrons. You have to be able to understand complex regulatory and market structures. And you have to understand complex transmission and distribution systems. And so we're in the business of building, managing, operating, and delivering electrons. So you can't not be in that business, and we see a strategic benefit to being in it.
All right. Thank you for that.
And then maybe switching gears, going back to the Apollo partnership, as well as your goal to get an increase of 3.5 GW, it seems that the 750 MW over five years, or CAD 750 million over five years, is something that could be probably larger. Maybe can you speak to how you got to that 750? And it does appear to get to that 3.5 GW, you're going to need more than that.
Yeah. So the way I would describe the partnership is it's CAD 3 billion U.S. of equity, of which we're committing up to CAD 750 million, and Apollo is committing upfront CAD 2.25 billion. But there's flexibility within that. So CAD 3 billion of equity, if you conservatively consider leveraging that at 50/50, CAD 3 billion becomes a CAD 6 billion U.S. war chest to go acquire assets.
What we have in place in the JV is an ability asset to asset to scale our ownership interest from 25%-50%. So whether that number goes above 750 and we deploy more capital, there's flexibility from Apollo and from us to make that work. But what we wanted to ensure upfront was a commitment that worked well within our own funding capacity over the next three to five years.
It's Maurice Choy from RBC Capital Markets. I'm just going to ask both my questions right here. The first one's on Apollo, the second one's on funding. On the Apollo MOU, can we just come back to how this MOU came about in the first place, how you chose Apollo versus other alternatives, where your investment criteria or risk models may align or differ? And the second question on funding, there's clearly a lot of capital requirements here.
And just your view about funding plan for all this, including common equity issuances and asset sales, and what is the credit metric guardrails here, be that debt to EBITDA or FFO debt? Thank you.
Great. Scott, why don't you start on the last one on credit, and then I'll come back to the Apollo JV?
Sure. Yeah. In the nearer term, very well positioned, so our floor from an FFO to debt perspective is 20%. We've got cushion above that, so the inverse, when you look at debt to EBITDA, target to be in the mid-three range. We have incremental capacity from a hybrids perspective as well, and our business generates significant free cash flow.
When you look at 2026, for example, you take the middle of that AFFO range, call it CAD 950, you take dividends off from that net of the DRIP, you're still going to end up with about CAD 600 million in discretionary cash flow. As Avik talked about the leverage perspective, at 50/50 leverage that allows you the opportunity to do well over CAD 1 billion with your existing balance sheet in place. Very well positioned from that perspective.
Thanks, Scott. In terms of Apollo, when I rewind the clock back to 2023, when I joined the company, we have a company that for well over a decade has a great track record of acquiring assets and optimizing them. That's been our ethos since inception.
And we also have this demonstrated success of being able to find creative financing solutions to pull together assets we want to acquire. And that's been reliant on partnership capital from great financial institutions like BlackRock and Manulife. But it's been a strategy that was primarily focused around finding capital when we find an asset and being in competitive dynamics that were much less competitive in the 2010s, frankly. So in many instances, there were limited buyers for assets, and we had the luxury of time and flexibility to pull that capital together once we were in processes.
And as the market started to evolve over the last couple of years, and the market became more and more competitive, and our success and track record of delivering against this acquisition strategy in gas became more public and our competitors saw our capabilities there, we've been approached by multiple parties over the last couple of years. We could have entered into a partnership at any point in time in the last couple of years, but the value proposition for us was, what problem are we trying to solve? And so what we're really excited about in Apollo and why we landed with Apollo was they brought a constructive and creative solution to the table that solved our issues. And our issues were the following. We wanted to be in a position to acquire more assets without compromising our balance sheet and our investment grade, our investment-grade credit rating.
And we wanted to be able to go into processes with that established partner in hand. Secondly, we wanted a partner that understood and was invested in the same thematics that we are, that had flexible balance sheet, flexible pools of capital to bring that to bear and relationships across the broader infrastructure space, including hyperscalers, utilities, and the broader financial community. Apollo brought that to bear. And then thirdly, if we were going to commit ourselves to a partnership and a vehicle, have some form of enhanced return profile for our shareholders for bringing and being able to monetize those operating skills that we brought to the table into that partnership.
So whereas before, when you're raising capital, when you have a deal and you've got a deadline coming at you more quickly than you can talk to multiple parties, we were able to capture all of that in the partnership with Apollo and have an aligned partner that wants to grow an asset base and recognize the value of what we brought to the table.
Just a quick follow-up. Is this an exclusive agreement where you cannot pursue something outside of this JV, or is this one where they get first rights and if they say no, you can pursue it with other partners?
So upfront, we are exclusive with them for a period of time until we hit definitive agreements, but it's solely for projects that we require a partner for. So it's much more complicated than just that straight answer.
But we intend to. Any acquisition for a gas-fired power plant that's merchant that we require a partner, we intend to work with Apollo on.
Mark Jarvi from CIBC. In terms of the 8%-10% per share cash flow, when you guys think about forecasting that, how would you internally think about the uplift from existing assets, so capital light versus capital-intensive growth?
Maybe to take the first part, not the last part, we think nearly half over the next five years will come from internally generated opportunities to either upgrade, uprate, or expand within the perimeter of our existing fleet, so that'll have some component of capital-intensive and capital light, as we described in that section, but those are the most accretive opportunities in the entire fleet because it's within the footprint of our existing fleet.
And then in terms of the doubling of the U.S. capacity, again, internally, how do you guys see the split between acquiring new assets versus leveraging the existing assets and just conviction level and repowerings at this point?
I would say there's no repowerings within that window included. So it could include expansions and acquisitions, very levered towards acquisitions. But as we described that 3 GW opportunity set within the existing fleet, there's timing. You'll have to apply your own risk to how and when that comes into play. But it's what gives us the confidence on forecasting out the AFFO because there's multiple ways to win there, whether it's recontracting, expansions, PPAs with data centers, or the acquisition to support that.
Last question was just you talked about competitive dynamic, some more competition for assets, but lots of opportunities to create upside.
How would you define going in IRRs today and the upside case for those versus maybe two years ago?
So what's really interesting about that, Mark, is that our underwriting case is pretty much the same as it was before. So when we came into our last Investor Day, we reaffirmed our TSR around 12%-14%. And our underwriting approach was look at a five-year average EBITDA. And generally, we were underwriting some form of a recontract. And in aggregate, we were looking to get a 12%-14% return. Our realized returns have been mid-teens across the board. So today, when you look at the value appreciation, Roger made mention to the clearing price on some CCGTs at 1,500 a kW. Over the last five years, you more anchor on CCGTs at, call it 900-1,100.
When you do the math on that, what hasn't changed in IPP land in the U.S. over the last five years is funding availability. Primarily on a single asset basis, these assets are getting funded with Term Loan Bs. So your funding model is at best 50/50, 60/40 leverage to equity. So if I was borrowing CAD 550/kW for a PJM asset five years ago, even though the capacity market is now double, triple, quadruple, I'm still able to borrow that same amount. And so unlike other industry verticals where you've got top-line revenue increasing, valuation multiples increasing, equity value increasing, you generally see the debt funding availability go up. We haven't seen that in gas-fired generation as much because you have to post ISDAs, you have to post LCs, you have to hedge.
And the leverage model sweeps all the free cash flow back to the lenders before equity participates. So the value increase that we've seen is really a pass-through on the first, call it PJM, for example, the capacity market. So the PV goes up CAD 1,000 a kW to CAD 1,300 a kW. That's basically pass-through on the capacity. So the equity is still taking the same risk. Can you own it? Can you go add value to it? And how are you playing the capacity versus the energy market? So when we come out and say, "That asset we're buying at CAD 1,300 a kW," and we're roughly taking the same risk, underwriting the same value proposition, it's the same as when we did it two or three years ago. The difference is the lender is the one that you're passing through those first dollars on.
It's a long-winded answer, but it's a question I get a lot. So I thought I'd take a minute to describe how we think about it.
Hi, Tanner James at Jefferies. Sorry. Just a question here, maybe following up on Mark's question, specifically on some of the very recent bid-ask activity that you're seeing for existing gas assets. We heard from GE Vernova yesterday some recent Greenfield order and pricing acceleration that they're seeing specific to the fourth quarter. And you identified on the presentation this near-term dislocation between brownfield and greenfield. Just to what extent is there a flow-through of this price that could potentially occur in real time to the existing assets?
Or conversely, maybe as we're thinking about the M&A market at large, could this price movement perhaps further dislodge existing assets, albeit as you're moving within or above the 1,000-1,500 a kW range in the market currently?
I don't think it actually dislodges. I think it goes the other way. And the reason why I believe that is so turbine orders have gone up. IRPs are getting updated every year now. And load-serving entities are trying to figure out, "How do I bring forward capacity into rate base?" And yet we've got 550+ GW of capacity that's being used a third of the time effectively in the U.S. What we're not seeing at large is 20-year PPAs for all those turbines being ordered.
And so the game here today, more than any other time in the last 25 years, is how do you recontract assets, how do you work with load-serving entities, and how do you be a bridge to off-takers to help make it all work? So whereas historically IPPs versus utilities was a zero-sum game, today I don't think it is anymore. And I think the proof point of that is what we were able to do in partnership with CMS in Michigan. Historically, a relationship between an IPP and a utility would have said, "Look, I'm going to contract this out," and that's acting in opposition to what their plans are in terms of what they want to add to rate base. In this situation, we proactively went to CMS and said, "We have this asset. We could recontract to you. We'd like to do a data center.
How do we help you help us? How do we make this work for the market, for you, and for us and off-takers?", and those solutions, I think, are what are going to manifest themselves into that conversation, so if it's a utility ordering turbines for a rate base, there's going to be opportunities to contract existing supply, and we're going to see that convergence. We may not see it in terms of duration, so we may not get 20-year contracts on existing supply, but we will certainly have to get 10-20-year contracts, and if there's opportunities to uprate, repower, expand on existing sites, that will always get done before a new build. Why? Because I can put it online faster and cheaper than that new build.
Patrick Kenny, National Bank. Avik, just wanted to get your thoughts on this recent push here to build out Canada's data sovereignty. So now that we've got the grand bargain MOU and the Alberta government formulating a game plan by July, we had Microsoft's announcement earlier this week. Just curious what that could mean for your Alberta or Ontario fleet in terms of contracting opportunities and maybe can speak to what you see as your competitive advantage for offering these customers maximum data security and redundancy.
Yeah. Our federal government has been unequivocal in the importance of building infrastructure in Canada, increasing economic productivity in this country, and the importance of data sovereignty in addition to national defense.
When we embarked on this journey on data centers in Canada, we saw an incredible opportunity in Alberta because all of the physical, economic, infrastructure ingredients were there to create a large ecosystem to support AI build-out. But we had a big problem. And that problem was the Clean Electricity Regulations physically prevented any build-out of natural gas generation anywhere in the country because it, in fact, wasn't net zero. It was physical zero by 2050. And so we had this challenge. Now, at Capital Power, we had the advantage of having what's probably one of the best sites in all of North America at Genesee because we had overbuilt through repowering, and we have 500 MW of available capacity today, access to transmission and distribution, access to water, physical acreage, and footprint to go co-locate data centers.
So the announcement between Alberta and Canada is a formidable one in that it allows us a pathway to building new natural gas-fired power generation in Alberta. We need to complete that process and solidify what a carbon regime is under that exception. So that's yet to be done. So today, I don't have an active data center project in Alberta similar to where we were in June, but I am much more excited about the proposition going forward once we resolve that. The data sovereignty piece just adds another layer to it, which is the national importance of having that capacity here inside our borders. But fundamentally, Alberta was an attractive regime. It would have been three or four years ago a Tier 4 regime. And today, it has the opportunity to become a Tier 2 regime with speed to market as the critical advantage.
What I would also say, and I think is the most important point, is the advantage for Alberta today is one thing and one thing only. It's speed to market. So what data sovereignty focus in Canada does is it adds a longer tail.
Right. And the 250 MW MOU announced today, I mean, you alluded to the fact that that's just a fraction of your capacity at Genesee, let alone your Alberta portfolio. So how should we be thinking about perhaps within that MOU ramping up phases beyond 2028 or adding new customers, new MOUs as we go throughout the years?
Well, the way I think you should think about our Alberta portfolio is we have the youngest, most efficient, and largest fleet in the entire province.
So our ability to commercialize megawatts for customers is better than any of our competitors, on top of which we have an investment-grade balance sheet. So if you are a counterparty wanting to invest billions of dollars into Alberta and want a sound counterparty to contract power with over a long term, we're a pretty good counterparty for it. And so the 250 MW, and rewind the clock back to June when we elected not to pursue a sub-400 MW data center, is we didn't pursue it because we felt this was the best way for us to maximize the opportunity for our shareholders. Our business is selling power. We happen to have one of the best locations for a data center at Genesee, and we will monetize that when appropriate. But the best way to leverage this opportunity set is for us to sell power for longer for higher prices.
So from our standpoint, I think it's a macro call on Alberta. Do you think that market's going to tighten? And then the second question is, who's going to benefit from it? I would argue we're best positioned to benefit from it to the extent there's going to be customers that need long-term suppliers of electricity for balance sheet, for scale, and efficiency of our fleet. I don't know, Jason. Do you want to add anything to that?
John Mould, TD Cowen. Sorry, I'm over here. Maybe just following up on that question a little bit, and apologies if I missed this, but do you have a timeline for when you're hoping to finalize that 250 MW MOU? Is there potential to expand it further?
And I guess in your kind of a two-part question, I guess, but in the context of your comments just now on Genesee and the opportunity set that it presents, how does that MOU play, I guess, affect, I'm going to use that phrasing, the potential for you to do something broader down the line at Genesee and beyond clarity on this phase two process with AESO? What else needs to fall in place to allow you to maximize that optionality of the Genesee site more broadly?
Yeah. In terms of the MOU, the MOU does not in any way impede our ability to go do a data center at Genesee. Just think of it as our normal course business of commercializing megawatts from a fleet that does 10,000 GWh a year. So it's our normal course portfolio optimization.
It just happens to be with an investment-grade data center counterparty that needed long-term power. So that's point one. We expect to conclude it sometime in 2026. And yes, we think there's potential for expansion there with that party or others. So I think for us, what's important is we've maintained full flexibility here and demonstrated that the opportunity set is there for Alberta. And really, the most important point is we expect a tightening market in Alberta, and we expect to see that over the course of the next three or four years. And this is the first step of that. So Jason talked about that tightening market and the impact on our own spark spreads and margin. And as you saw on that spark spread graph, 2026 is the trough.
But after that, we see a significant upside in that portfolio that's going to require zero CapEx from Capital Power. So that investment in repowering, we start seeing the fruits of that investment really coming through 2027- 2030 and materially so.
Okay. Thanks for that. And maybe then just one on your broader approach to M&A. When you're looking at gas-fired M&A, how do you consider the potential for solar-plus- storage to cannibalize the reliability attributes of gas-fired power over time? And even though it's really long-dated, I'll throw in SMRs as well just for completion.
So SMRs aren't going to get done until 2040+. So that's my answer on SMR. It's going to be an important player in the markets that already have established nuclear as a regime. But for context of wholesale markets where you're 20 million a megawatt, it's not going to be a significant player.
Solar and solar-plus- storage, I mean, the perfect poster child for this is what we've seen play out in places like California. So what solar and storage does is it flattens the duck curve, right? The peak versus trough demand. So we see less of those high-priced hours at play. We've seen that in Alberta as well, not because of solar-plus- storage, but because of how much renewable capacity we have in that market. The challenge in many of these markets is going to be voltage stability for the underlying grids. So there's a capacity constraint to what you can do in solar and storage. So on the margin, it's going to negatively impact pricing outlook the more solar and storage we do, but it doesn't change the reliability imperative around natural gas.
So what it will do is it'll deter price signals for new build, but I don't think it'll change the underlying economic proposition for existing capacity. Existing capacity will win 100% of the time for two reasons. It's installed, actually, three reasons. It's installed cheaper and faster. Great. Well, if nothing else, once again, thank you for attending this snowy, wet morning here in Toronto. It was a pleasure to host all of you. Thank you for your time. We know you've got lots of really important things to do, and it means a lot to us at Capital Power that you choose to spend your time with us and choose to invest in our 800 people who are powering change by changing power. So thank you all, and look forward to having a conversation after.