TransAlta (TSX:TA) Ordered To Extend Coal Use While Funding Gas Shift

• The U.S. Department of Energy has ordered TransAlta to keep its Centralia Unit 2 coal plant running beyond its planned retirement.
• The order overlaps with TransAlta’s agreement to convert Centralia to natural gas under a long term tolling deal with Puget Sound Energy.
• TransAlta has completed a sizable senior notes issuance and moved to temporarily mothball Sheerness Unit 1.

TransAlta (TSX:TA), currently trading around CA$17.245, is navigating these operational changes after a sharp pullback, with the share price down about 15.0% year to date. Despite recent weakness, the stock remains materially higher over the longer term, up roughly 53.6% over three years and 99.3% over five years, underscoring a multi year repositioning of the business.

The DOE order, Centralia conversion plans, new financing and Sheerness mothballing together frame the next phase of TransAlta’s transition strategy and risk profile. Investors will be watching how the company balances mandated coal operations, gas conversion timelines and capital allocation to sustain reliability while advancing decarbonisation goals.

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How TransAlta stacks up against its biggest competitors

The DOE order effectively asks TransAlta’s leadership to stretch its coal exit timeline at Centralia, even as it commits roughly USD 600 million to convert the unit to gas under a long dated tolling deal. This tests the team’s ability to juggle regulatory reliability demands with decarbonisation and capital discipline. Paired with the decision to mothball Sheerness Unit 1 and a US$400 million senior notes issue, this signals an active, hands on approach to portfolio pruning and balance sheet management rather than a passive run off of legacy thermal assets.

TransAlta Narrative, Leadership And Valuation

This development cuts both ways for the existing narrative that strong production and a cleaner fleet will drive upside. Short term coal exposure and incremental capex could pressure earnings, while still supporting the long term goal of repurposing Centralia into contracted, lower carbon generation. With the stock trading below an analyst fair value estimate of roughly CA$23.59 and consensus still baking in higher margins and earnings by 2028, investors will want to see leadership, including the incoming CEO, clearly articulate how these moves keep TransAlta on track with its transition and capital return plans.

Balancing Risks And Rewards In The Transition

• ⚠️ Regulatory and policy risk increases as TransAlta must comply with federal reliability mandates while coordinating state level approvals for the Centralia gas conversion.
• ⚠️ Execution risk on the USD 600 million Centralia capex and Sheerness mothballing could result in cost overruns, downtime or weaker returns than the targeted 5.5 times build multiple.
• 🎁 The long term Centralia tolling agreement and new senior notes enhance contracted cash flow visibility and funding for growth projects if leadership allocates capital prudently.
• 🎁 Optionality to return Sheerness Unit 1 to service and to leverage growing data center and electrification demand could support the earnings growth profile that underpins the current fair value narrative.

What To Watch From Here

Investors should watch how management updates guidance on Centralia timelines, Sheerness economics and balance sheet targets, and how the board and incoming CEO frame these decisions within TransAlta’s broader decarbonisation, data center and renewables strategy, which you can explore further by visiting the community narratives hub for evolving views on the stock.

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