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EQUITY RESEARCH
January 15, 2024 Flash Research
CAPITAL POWER CORPORATION New Partnership With OPG To Explore SMRs In Alberta—
Intriguing, Longer-term Opportunity
Event: Capital Power (CPX) and Ontario Power Generation (OPG) have
entered into an agreement to jointly assess the development and deployment
of grid-scale small modular reactors (SMRs) in Alberta, with a feasibility
assessment expected to be completed within two years. CPX and OPG will
host a media event regarding the announcement today in Edmonton at 3:30
p.m. ET (1:30 p.m. MT) alongside government officials from Alberta and
Ontario (link to event here).
Our Take: The pursuit of SMRs in Alberta is a longer-dated project given
longer development/build timelines and no existing nuclear power
infrastructure in Alberta. Nevertheless, it’s something the Alberta government
had shown interest in over the last few years (released a Strategic Plan in
2022 on developing SMR technology; link). From CPX’s perspective, this is
an interesting new area of growth, but likely nothing that has a material
impact in the next couple of years, until we see more concrete plans to
advance an SMR project and figure out CPX’s economics. We expect limited
impact on CPX’s share price on this announcement.
Initial Thoughts/Questions:
SMRs Could Be Good For Alberta & OPG A Good Partner. Given goals to
bring down emissions (phase down gas-fired generation in coming decades),
while still providing reliable consistent power makes SMRs a logical option to
pursue (few alternatives) and this weekend’s grid alerts highlight the
importance of firm power and need to backstop variable renewable
generation. Further, we like CPX/Alberta bringing in an experienced firm like
OPG to help evaluate the potential path forward on SMRs in Alberta.
Long-dated. It would take a number of years to design, permit and build a
SMR facility in Alberta. Further, Alberta has no nuclear power infrastructure
(e.g., fuel handling & storage), which could add to the timelines. As such, any
potential meaningful investment and true financial implications for CPX would
take a long time (likely 2030 or beyond).
Why CPX? OPG could have likely picked a few different partners who can
offer local Alberta relationship/market understanding to work on SMRs. It will
be interesting to know why OPG is partnering with CPX, what CPX’s role will
be and whether there is exclusivity.
New Growth Angle For CPX, But Too Ambitious? SMRs would clearly be
something new for CPX and great a new growth opportunity. That said, we
wonder if the market will want to see CPX take this on at this time. CPX
needs to complete/ramp up the Genesee repowering project, decide if it
wants to pursue CCS at Genesee and has signalled it plans to be more
aggressive in growing its gas-fired fleet. We wonder if investors will like CPX
further expanding its horizons and taking on a new challenge.