Capital Power AFFO rises 40% as Meta data centre deal secures 250 MW

Capital Power Corporation reported second-quarter adjusted funds from operations of C$328 million, an increase of approximately 40%, as recently acquired United States power plants and Canadian clean-technology investment credits strengthened cash generation. The Toronto Stock Exchange-listed electricity producer, which trades under $CPX, generated C$740 million of revenue and other income, C$351 million of adjusted EBITDA and C$214 million of operating cash flow. Capital Power also highlighted a greater-than-10-year energy supply agreement with Meta Platforms Inc. for 250 megawatts of capacity and electricity supporting a planned data centre in Sturgeon County, Alberta. The Meta load is expected to enter service during the second half of 2028, giving Capital Power a long-duration customer connected directly to artificial intelligence and cloud-computing demand. The results strengthen the company’s growth outlook, but the reported C$43 million net loss, lower generating-facility availability and the significant contribution of government incentives to adjusted funds from operations require a more cautious reading of the headline numbers.

Revenue and other income increased from C$441 million a year earlier, while adjusted EBITDA rose from C$322 million. Adjusted funds from operations increased from C$235 million, and adjusted funds from operations per share climbed to C$2.09 from C$1.55. Capital Power nevertheless reported a net loss attributable to shareholders of C$44 million, equivalent to C$0.33 per share, compared with a C$132 million loss during the corresponding 2025 quarter.

Capital Power reaffirmed its 2026 guidance for adjusted EBITDA of C$1.57 billion to C$1.77 billion, adjusted funds from operations of C$890 million to C$1.01 billion and sustaining capital expenditure of C$290 million to C$330 million. The company also increased its quarterly common dividend by 2% to C$0.7048 per share, marking its 13th consecutive year of dividend growth.

Why Capital Power’s 250 MW Meta agreement changes Alberta’s data centre outlook

Capital Power’s agreement with Meta Platforms Inc. covers 250 megawatts of capacity and energy for more than 10 years. The electricity will support a data centre being developed in Sturgeon County, with the associated load expected to begin operating during the second half of 2028.

The agreement is strategically significant because it converts discussion about Alberta’s potential as a data-cententre market into a committed commercial load. Data centres require large amounts of dependable electricity around the clock, making long-duration supply arrangements valuable to both technology companies and generators.

For Capital Power, the contract provides visibility beyond wholesale electricity prices. A long-term agreement can reduce exposure to fluctuations in Alberta’s power pool and make it easier to justify investments in generation capacity, transmission connections and plant upgrades.

The company did not disclose the agreement’s electricity price, total revenue value, supply assets or contractual escalation provisions. The financial contribution therefore cannot yet be calculated from the announced 250-megawatt capacity alone.

The absence of contract-value information matters because a large power commitment does not automatically guarantee an attractive return. Profitability will depend on the cost of producing or procuring the electricity, fuel prices, carbon costs, transmission requirements and the contractual allocation of market risk.

Capital Power said the agreement demonstrates that Alberta’s data centre opportunity is translating into committed load and investment. Management also pointed to increasing clarity around the province’s approach to large electricity users, market design and energy policy.

The contract could become a model for other power arrangements if Alberta attracts additional artificial intelligence and cloud infrastructure. Generators with existing dispatchable capacity may be positioned to serve customers that cannot rely only on variable renewable output.

Natural gas-fired power is likely to remain important because data centres require continuous service through periods when wind or solar production is unavailable. Renewable generation, battery storage and demand-management systems can complement that supply, but reliable thermal assets can provide the capacity needed to stabilize the system.

That opportunity creates a policy and emissions tension. Data centres may accelerate electricity investment and economic development, but rapidly rising load could increase natural gas consumption and carbon emissions unless new demand is paired with lower-carbon generation, storage, efficiency or carbon-management technologies.

Capital Power is positioned across several of those categories. Its portfolio includes natural gas generation, renewables and battery storage, giving the company flexibility to structure supply arrangements that combine reliability with environmental attributes.

The Meta agreement provides commercial validation, but the company must still deliver the electricity in 2028 and maintain performance across a contract lasting more than a decade. Construction delays, regulatory changes or rising input costs could affect the economics before the data centre begins operating.

How US power acquisitions drove adjusted EBITDA while increasing financing costs

Capital Power’s second-quarter revenue and adjusted EBITDA benefited from Hummel Station and Rolling Hills, two United States natural gas-fired generating facilities acquired in June 2025. The company paid approximately US$2.2 billion, equivalent to about C$3 billion, for the assets, which added roughly 2.2 gigawatts of capacity in the PJM electricity market.

The acquisitions explain much of the year-over-year increase because the facilities were owned for only a small portion of the second quarter of 2025. During the latest quarter, they contributed across the full reporting period.

Capital Power said stronger adjusted EBITDA from the acquired United States flexible-generation portfolio was partially offset by higher outage costs and increased corporate expenses. The company also incurred higher depreciation and finance costs related to the expanded asset base.

Net finance expense increased to C$92 million from C$64 million, while depreciation and amortization rose to C$185 million from C$138 million. Those increases demonstrate the difference between acquiring additional earnings and generating additional profit for common shareholders.

A power plant can produce higher adjusted EBITDA while acquisition debt, depreciation and integration costs limit reported earnings. Capital Power’s C$43 million net loss therefore does not mean its facilities failed to generate operating cash, but it shows that the costs attached to its expansion remain material.

The company partly financed the Hummel Station and Rolling Hills transaction through common equity and senior debt. Issuing shares helped protect the balance sheet but increased the share count over which future cash flow is distributed.

That dilution is visible in the first-half figures. Total adjusted funds from operations increased to C$482 million from C$453 million, but adjusted funds from operations per share declined slightly to C$3.08 from C$3.12.

The result means the acquired assets have increased companywide cash flow, but the first-half improvement had not yet translated into higher cash flow per common share. Capital Power’s longer-term investment case depends on the portfolio producing enough incremental cash to overcome the combined effect of new debt and additional shares.

The PJM assets give Capital Power exposure to one of the largest electricity markets in North America. Rising capacity prices, plant retirements and increasing data-centre demand could improve their long-term value, particularly if reliable generation becomes scarcer.

The opportunity remains exposed to outages, gas prices, market regulation and future environmental requirements. Flexible natural gas plants can benefit from electricity-system volatility, but their earnings can also change quickly when availability declines or market rules are revised.

Why Capital Power’s C$328 million AFFO requires a closer look

Capital Power’s adjusted funds from operations increased by C$93 million to C$328 million. That improvement was larger than the C$29 million increase in adjusted EBITDA and included C$174 million of Canadian clean-technology investment tax credit grants.

The company recognizes qualifying grants in adjusted funds from operations when it completes the required regulatory filing rather than when the government pays the cash. Management said this treatment removes timing variability associated with the administrative processing of approved incentives.

Including the grants is not necessarily inappropriate. The incentives form part of the expected economic return on eligible renewable-energy investments and can reduce the net cost of building projects.

However, the C$174 million contribution represented more than half of the quarter’s reported adjusted funds from operations. Investors should therefore avoid interpreting the entire year-over-year increase as recurring growth from electricity sales and facility operations.

Capital Power also generated C$214 million of cash from operating activities, compared with C$143 million a year earlier. That increase was supported by the United States acquisitions and larger distributions from equity-accounted investments, partially offset by higher interest payments.

Capital expenditure and purchases of other assets reached C$211 million during the quarter, compared with C$141 million a year earlier. The near equivalence between operating cash flow and capital spending shows that the company remains in an investment-heavy stage.

Some of that expenditure supports maintenance, while other spending can create future growth. The financial distinction matters because sustaining capital is required to preserve current earnings, while growth investment is intended to increase future capacity or cash flow.

Generation increased to 10,137 gigawatt-hours from 9,022 gigawatt-hours, reflecting the larger portfolio. Facility availability declined to 87% from 93%, indicating that more of the fleet was unavailable because of planned or unplanned outages.

Lower availability can limit revenue during favorable market conditions and increase maintenance expenses. Capital Power attributed part of its performance pressure to higher outage costs within the United States flexible-generation segment.

The stronger volume and cash-flow figures therefore came from a significantly larger asset base rather than uniformly better plant performance. Restoring availability will be important if the company is to capture the full earnings potential of its acquisitions and future data-centre agreements.

What the dividend increase and CPX share decline say about investor expectations

Capital Power raised its quarterly common dividend from C$0.6910 to C$0.7048 per share. The increase extends a dividend-growth record that began more than a decade ago, but the 2% adjustment is smaller than the 6% increase announced in 2025.

The slower increase appears consistent with the company’s current capital requirements. Capital Power is absorbing acquisition financing, investing in existing facilities and pursuing electricity demand connected with data centres and grid reliability.

A modest increase allows the company to preserve its dividend-growth record without committing substantially more cash before the acquired United States assets demonstrate sustained per-share accretion.

Capital Power shares traded near C$65.49 on July 29, down approximately 3.9% during the session. The decline suggests investors focused on the quarterly net loss, earnings quality, availability pressure or the limits of the Meta disclosure despite the higher adjusted funds from operations. The explanation for a single trading session is necessarily an inference because the market does not provide one definitive reason for the move.

The Meta agreement had already been announced on July 8, meaning much of its strategic value may have been reflected in Capital Power’s share price before the earnings release. The July 29 report confirmed the contract’s importance but did not add financial pricing or project-cost details.

The bullish case is that Capital Power now owns a larger North American generation portfolio as electricity demand rises from artificial intelligence, cloud infrastructure, electrification and industrial development. Its combination of dispatchable power, renewable projects and storage creates several ways to participate in that growth.

The cautious case is that Capital Power has expanded through a major debt-and-equity-funded acquisition while adjusted funds from operations per share remained slightly lower during the first half. Government incentives and fair-value changes also make the reported results less straightforward than the revenue increase suggests.

The Meta contract provides valuable commercial evidence that large technology customers are willing to make long-term commitments in Alberta. The next test is whether Capital Power can translate those commitments and its expanded United States portfolio into sustained per-share cash-flow growth after interest, maintenance and capital spending.

Key takeaways from Capital Power’s second-quarter results and Meta energy agreement

• Capital Power Corporation generated C$740 million of revenue and other income, up from C$441 million, primarily because of acquired United States generation and favorable fair-value movements.
• Adjusted EBITDA increased 9% to C$351 million, while adjusted funds from operations rose approximately 40% to C$328 million.
• Capital Power signed a greater-than-10-year agreement to provide 250 megawatts of capacity and energy for a Meta Platforms Inc. data centre in Sturgeon County, Alberta.
• The Meta load is expected to begin operating during the second half of 2028, creating long-duration demand but leaving the contract’s revenue value and pricing undisclosed.
• Hummel Station and Rolling Hills added approximately 2.2 gigawatts of United States natural gas-fired capacity after Capital Power acquired them for about US$2.2 billion.
• Net finance expense and depreciation increased following the acquisition, contributing to a quarterly net loss of C$43 million despite stronger adjusted EBITDA.
• First-half adjusted funds from operations increased in absolute terms, but adjusted funds from operations per share slipped to C$3.08, showing that acquisition-driven growth has not yet produced clear per-share accretion.
• C$174 million of clean-technology investment tax credit grants was included in quarterly adjusted funds from operations, making the headline increase less representative of recurring facility cash flow.
• Facility availability declined to 87% from 93%, creating an operational priority as Capital Power seeks to benefit from stronger electricity and capacity-market fundamentals.
• Capital Power increased its dividend by 2% for its 13th consecutive annual increase, while the decline in $CPX shares showed that investors remain focused on cash-flow quality and execution.