Q4 2020 Brookfield Renewable Partners LP Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the P. P fourth quarter 2020 results conference call and webcast at.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero after.
After the presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one.
Please be advised that today's conference maybe recorded.
I'd now like to hand, the conference over to your host today, Mr. Konrad Husky Chief Executive Officer. Please go ahead.
Thank you operator.
Good morning, everyone and thank you for joining us for our fourth quarter 2020 conference call.
Before we begin we would like to remind you that a copy of our news release Investor supplement and letter to unit holders can be found on our website. We would also like to remind you that we may make forward looking statements on this call. These statements are subject to known and unknown risks and our future results may differ materially from more information you are encouraged to.
Review, our regulatory filings available on SEDAR, and Edgar and our website.
To kick off today's call, we would like to provide an outlook on our business and an update on our recent growth initiatives.
Afterwards.
Why it will provide an overview of our operating results balance sheet, and and funding plan as well as and ESG update.
Following our remarks, we look forward to taking your questions and comments.
2020 was another year of significant growth for Brookfield renewable.
Despite the economic challenges around the world, we delivered record results and continued to broaden our operations as we look forward to a multi decade opportunity to advance decarbonization and assist with the transition of global electricity grids to a more sustainable future.
Advancing the transition to a lower carbon future will require substantial capital.
In excess of 100 trillion dollars over.
Over the next three decades.
It will also require significant operating expertise.
Over 70% of the world's carbon emissions can be traced directly or indirectly back to power generation and the energy sector.
This will translate into even greater build out of renewables.
And in various regions, a substantial conversion of carbon intensive industries to cleaner and more sustainable methods of production.
Yeah.
Our size and.
Scale across multiple technologies and depths of operating and development expertise continues to be a meaningful differentiator and sourcing growth opportunities.
In 2020 alone, we invested nearly $4 $6 billion of equity across various transactions.
We will now spend the next few minutes going through a few key highlights for the fourth quarter.
And the United States.
We continued to build the largest distributed generation business in the country with over 2000 megawatts of operating and development solar.
This business helps commercial and industrial customers procure renewable power that is produced directly on site.
Decarbonising their own businesses by reducing their consumption from fossil fuel based generation.
And Canada.
We invested and a large power producer looking to reduce its carbon emissions and order to meet federal carbon targets.
Further we also partnered with the utility to pursuant to pursue green hydrogen opportunities leveraging our existing fleet of operating hydro projects.
In Europe.
We are building new wind farms backed by long term contracts with both leading global technology companies, who are looking to support and increasing carbon free electricity requirement for their green data centers.
As well as global energy companies that are looking to transition their businesses.
We are also investing and offshore wind development and scale.
Lastly, and Brazil, we started construction on one of the largest greenfield solar projects and the world.
This solar park will total 200 megawatts once completed and will sell sell power to commercial customers as well as utilities and the country.
In the quarter. We also increased the size of our global development pipeline to approximately 23000 megawatts.
Development remains a core competitive advantage of ours.
Standing across solar.
And hydro district, and distributed generation and storage in every market we operate and.
While we have a tremendous opportunity ahead of us we remain focused on delivering strong shareholder results.
We are pleased that over the last 20 years, we have generated an annualized 20% per share compounded total return, while maintaining a very strong balance sheet and a robust liquidity position.
Equally as important we continue to be a leader and accelerating decarbonization globally and our total portfolio of approximately 42000 megawatts of operating and under development assets.
Once completed will help avoid approximately 56 million tonnes of Cotwo emissions.
Or the equivalent of planting almost 1 billion trees.
Next we want to spend a few minutes walking through three recent transactions.
First.
In December we agreed to acquire Exelon generation companies U S distributed generation business.
Uprising up 360 megawatts of operating generation across nearly 600 sites with an additional over 700 megawatts of underdevelopment projects for $810 million.
In 2017, we took our first step into distributed generation.
After having identified a significant opportunity to build a high quality scale business and a highly fragmented and rapidly growing market.
Since then through both acquisitions and organic initiatives, we've expanded the business.
As demand for onsite generation continued to grow.
As both cost declines and solar technology, and the decarbonization ambitions of commercial and industrial clients accelerated.
With this acquisition, we will own one of the leading DG businesses in the United States with deep operating development and origination capabilities and a 2000 megawatt portfolio that generate high quality contracted cash flows that are diversified by geography and customer.
This investment represents the continuation of this strategy and furthers our goal of offering corporates and institutions, a one stop solution for both on and off site energy generation storage and procurement and energy efficiency services to help them achieve their decarbonization.
Goals and transition to a more sustainable future.
Secondly, and also in December we agreed to acquire the shepherds flat wind farm and 845 megawatt fully contracted wind generation facility located in Oregon for $700 million.
The project, which is fully contracted with a high quality off taker is one of the largest onshore wind projects in the United States and includes an attractive repowering opportunity that we expect to deliver by the end of 2022.
This repowering opportunity is one of the largest and the world and it is expected to increase total generation by approximately 25%.
Increasing the clean energy produced by approximately 400 gigawatt hours annually.
Having the expertise to undertake a project of this size showcases our decades of experience and driving operational efficiencies, while generating attractive returns.
The third transaction to highlight.
And that we also continued to use our differentiated operating and commercial capabilities to acquire ready to build development assets in Brazil at premium returns.
In December we agreed to acquire a 270 megawatt late stage development wind project, including and auction over further 200 megawatt expansion.
Ahead of construction and we intend to leverage our energy marketing capabilities to contract the project.
Which is located and one of the highest wind regions and the country.
Our relationships with global turbine manufacturers as one of the largest acquirers globally.
Should enable us to outperform on equipment procurement installation and operating costs.
With this latest addition.
And the last 18 months we.
We have acquired a collection of projects debt once constructed will represent a combined portfolio of over 2000 megawatts of long term recently built contracted wind and solar assets more than doubling our renewable energy capacity in the country.
In conclusion wed like to finish by summarizing our activities in 2020.
We advanced key commercial priorities, including delivering on almost four day.
Sorry, including delivering on almost $40 million of cost saving initiatives.
Securing contracts to deliver 3500 gigawatt hours of clean energy annually.
Which has the equivalent carbon avoided a planning almost 30 million trees.
And we also signed a number of strategic contracts with key corporate off takers.
Also in 2020, we completed the merger of Terraform power, both increasing and consolidating our activities and North America and Europe.
During the year, we commissioned approximately 460 megawatts of new capacity and progressed, almost 4200 megawatts through construction and advanced stage permitting.
And we also broadened our investor base with the creation of Pepsi and through the addition to several U S and global indices.
Given our strong outlook and financial position, we are pleased to announce a 5% increase to our distribution to $1 and 22 per unit on an annualized basis.
With that we will now turn the call over to white to discuss our operating results and financial position.
Thank you Connor.
And 2020, we generated <unk> of $807 million.
A 6% increase from prior year as the business benefited from recent acquisitions strong underlying asset availability and execution on our <unk>.
On organic growth initiatives.
On a normalized basis our per unit results are up 23%.
Turning to our segment results during the year, our hydro electric segment delivered <unk> of $662 million.
Although we experienced some dry conditions across our fleet, particularly in regions with higher value contracts.
Overall generation for the year was in line with long term average and our reservoirs are well positioned for a strong first quarter, which underscores the benefit of our diverse portfolio.
Next our wind and solar segments continued to generate stable revenues and benefit from the diversification of our fleet and highly contracted cash flows with long duration and power purchase agreements.
These segments generated a combined $376 million of <unk>, representing a 51% increase over the prior year as we benefited from contributions from acquisitions and approximately 440 megawatts of solar and wind projects commissioned during the year.
Our energy transition segment generated 100, and a 3 million and <unk> as our portfolio continues to help commercial and industrial partners achieve their de carbonization goals and provides critical grid stabilizing ancillary services and backup capacity.
Required to address the increasing intermittency of greener electric grids.
For example, our first hydro storage portfolio in the U K achieved five of its highest revenue days ever and the last couple of months as we sold essentially stabilized and services to the UK power grid and response to high demand from cold weather and low wind and solar.
<unk> levels.
Across our portfolio, we continue to focus on partnering with a broad range of customers and their de carbonization effort.
During the year, we executed agreements to supply, 100% renewable energy to one of the first planned industrial scale Green hydrogen production plants in North America with plug power and over 90% of J P. Morgan and real estate operations and New York State.
And South America, our focus continues to be on extending the average duration of our power purchase agreements, which stand at eight years, and Brazil, and three years and Colombia.
We signed two long term inflation linked power purchase agreements for our recently acquired solar development projects and in Brazil substantially contracted and these assets.
Yeah.
In recent months, many governments and our target markets have outlined new policies to address climate change.
And North America, where the majority of our Hydro fleet is located governments are increasingly considering potential carbon pricing mechanisms mechanisms.
For which our business is uniquely positioned to benefit.
As examples the current U S administration as reestablished a working group that is expected to increase the social cost of carbon to more than $50 per ton.
And in Canada, a carbon tax has been set at $30 per ton for 2020 and is set to increase almost six times to $170 by 2030.
Carbon taxes or carbon pricing provide long term support for growing wind and solar capacity.
Which also increases the value of our hydro electric power facilities due to their dispatch brutal nature and the grid stabilize and services they can provide.
While we always prioritize contracted generation for our perpetual hydroelectric facilities, we always look to ensure we retain upside optionality for when when we believe prices will improve.
Across our hydro electric fleet in North America, we have contracts rolling off for assets that are primarily deliver power to highly liquid markets and the U S northeast.
Fortunately these contracts on a net basis deliver power prices in the range of the current market.
Therefore on renewal, we expect minimal impact to our overall revenue.
While retaining meaningful potential upside should prices see future support from carbon pricing mechanisms.
We also continued to advance our global development activities, including progress and almost 2800 megawatts of construction diversified across distributed and utility scale solar wind and storage and hydro and over 11 different countries.
We're also progressing almost 1400 megawatts of advanced stage projects through final permitting and contracting.
In total we expect these projects to contribute approximately $110 million and <unk> on a run rate basis when completed.
We also continue to maintain a robust financial position, we have approximately $3 3 billion of total available liquidity and.
And our investment grade balance sheet has no material maturities over the next five years and almost 85% of our financings are non recourse to Brookfield renewable.
During 2020, we continued to take advantage of the low interest rate environment and executed on almost $3 5 billion.
Of investment grade financing, extending our average corporate debt maturity to 2014 years, and reducing our borrowing costs by $5 million per year.
We continue to advance our green financing strategy to benefit from growing demand for Green Securities and diversifying our investor base.
Turning to ESG operating and our business with strong ESG principles is simply the right thing to do.
And we have always believed that strong ESG practices drive long term value to our business and create high barriers to entry.
Inherent in our position as one of the largest publicly traded renewable energy companies.
Is the understanding the climate change possesses a serious threat to communities.
Businesses and ecosystems around the world.
We have established ourselves as one of the preeminent renewable franchises and are playing a critical role and adjusted addressing climate change and reducing carbon across the world by shifting power generation, which accounts for more than 70% of global carbon emissions.
To a sustainable pathway for the future.
To demonstrate our commitment we were proud to announce and our second ESG report, which was published today, our ambition to double our avoided carbon emissions by 2030.
To summarize with our scale track record and global capabilities, we are well situated to partner with governments and businesses to help them achieve their goal of greening the global electricity grid.
We believe the prospects for the growth of our business are better than they have ever been and we look forward to further opportunities to provide capital and solutions to drive decarbonization.
That concludes our formal remarks for today's call. Thank you for joining us this morning with that I'll pass it back to our operator for questions.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.
To withdraw your question press.
And Keith.
Again that is star then one if you'd like to ask a question at this time.
Our first question comes from the line of Rob Hope with Scotiabank.
Good morning, everyone.
First question's just on Repowering.
We're seeing a number of projects and the op rate now for Repowering and when we take a look at Shepherd. It would seem that this could be the driving force of the M&A opportunity there.
Can you just talk about how you're viewing repowering do they have to be the older turbines with around 10 years left of contract and could this provide you an advantage when youre looking at we'll call it mid life.
Wind assets in North America.
Thanks, Rob.
The way we look at Repowering is it's really the halfway house between and operating asset and a development asset and its that development component.
And it allows us to differentiate ourselves and.
When you look at a project like shepherds flat the scale of the Repowering opportunity is something that we feel that very few other operators around the world could take on.
It requires significant operating expertise it requires a very deep relation with the turbine supplier, providing the new technology.
And it also requires a strong understanding of of that power market because at the same time, you're extending the life of the project Youre Repowering.
To answer your question specifically.
Every situation is a little bit different day.
Depending on the wind resource and the region that technology are you, replacing and what youre, replacing it with <unk>.
Along with as you mentioned the remaining contracted life.
<unk> of the project that you are repairing theres always going to be different dynamics, but the punch line, we'd want to leave everyone. With is this is going to be a tremendous growth area.
Any developed renewables market around the world and that's really a byproduct of two things one technology has come so far in the last five to 10 to 15 years that older projects can be built with significant improvements and production.
And to the demand for that increased general and that increased clean power generation is simply accelerating whether it would be utility off takes our corporate off takes and so we see this as a major growth area and one that we'll look to pursue and in all of our major developed markets.
And I appreciate the color there and then switching over.
The Ocean can you give us an update on kind of the Poland opportunity, there and kind of the timing you expect and we have seen some kind of.
Competing projects announced there as well.
Certainly.
So Rob we have a live tender in the market. So it's probably not prudent for us to comment on the tender itself the.
And the tender is due on February 17th and we will have the results of our offer at that point.
We spoke about on our last call that we view it as an attractive market that has growth opportunities, but needs investors with very significant scale access to capital and operating capabilities in order to build out the growth opportunities that are available in that country.
And.
And since we launched our tender other foreign investors have also.
<unk> seen the opportunity and we're seeing more activity and that market, but we'll wait until February 17th to comment on our tender.
Alright, I appreciate the color. Thank you.
Sure.
Our next question comes from Sean Stewart with TD Securities.
Thanks, Good morning couple of questions just following up on shepherds flat.
How should we think about the costs for that Repowering opportunity dollar per megawatt and and.
And how do you guys think that type of opportunity fits on your.
Total return spectrum.
When you highlight the range you gave for IRR across M&A or development opportunities.
Sure.
And so.
And with redevelopment and and all tie back to the comments from the previous question. It is halfway between and operating asset and a development opportunity.
And with shepherds flat.
Fantastic thing about this opportunity is the project itself will never stopped producing it will remain operational the whole time through the redevelopment process sorry through the Repowering process that will take place over the next 18 months and as a result and.
We do not foresee the need to inject future.
Into the project.
And the Repowering will be funded through financing and ongoing cash flow.
In terms of.
The cost of the Repowering.
We arent there is no need to rebuild the entire tire wind turbine. What we're doing is we're installing enhanced technologies largely near the top of the wind turbine and therefore as a rough metric you can think of.
The cost of Repowering as being somewhere between a third and a half.
Newbuild construction cost.
In terms of returns.
Pretty down the fairway.
Partway between our operating targets and our development targets. So we expect this to be a low to mid teens type return, which we think is a fantastic outcome given the contracted nature of the project and the core geography of the United States.
Thanks, Sarah Connor.
Why is it a question for you and the the proportionate breakdown for the quarter.
Brazil Hydro and solar EBITDA were above revenues for the quarter on a proportionate basis and.
Theres some of that is probably the balancing pool and Brazil, but.
Any other context, you can give on that.
And that discrepancy this quarter.
Yes. So in each case, we would have received we would've recorded other income that would have increased debt EBITDA above the revenue.
And the case of Brazil Hydro what occurred is we had in 2015, we had filed the claim and this was a collective claim that the generators across the.
Country had filed where there were challenging the way we were being allocated our generation under the central pooling.
Mechanism and in Brazil, and we were successful.
And obtaining a positive resolution and that case and so it resulted in a effectively a onetime catch up of value for lost revenues over prior periods. So that was the impact and Brazil Hydro and then on the solar side.
<unk>.
<unk> just given the nature of that business, where there is a lot more capital recycling and building new assets and and <unk>.
Flipping them.
Lower returns than what we built and driving accretion that way.
Given the core part of that business and in terms of how it creates value is that kind of value arbitrage. We are recognizing the gains from sale of those activities.
Through our other income and so there were some of those recognized in the quarter.
Okay, Thanks, and I'll get back in the queue.
Yeah.
Yes.
Our next question comes from Mark Jarvi with CIBC capital markets.
Thanks. Good morning, everyone. Just wanted to go on to the comments around carbon tax essentially come in and the U S and I guess, a couple of questions would be to pay.
And your comments around where you can clear power and the spot market versus when.
And you're on your prior contracts are you, implying that youll, probably sitting a little bit higher uncollectible generations and you can see how this plays out.
Hi, Mark.
So we obviously focus on maintaining a very strong contracted profile across our fleet of asset, but what we always like to do especially with our perpetual assets are hydro's is maintain the optionality and the back and if we if we think there is a strong.
And the likelihood of higher power prices in the future.
Why it was referencing in his comments is while we do have some shorter term contracts in that region rolling off and they're rolling off at net revenues that are very in line with current power prices and therefore, if we were simply to re contract at current market levels, we would see very little impact on our financials, but with.
Free thing potential power price support from carbon mechanisms, whether it would be taxes or carbon prices.
We will look actively to retain that that upside optionality and the future in particular with our perpetual assets being our hydro's that are located in two of the core markets, where carbon taxes are being considered.
Yes, Mark and the only thing I would add is quite here as debt.
For sure we're aiming to be contracted and so I don't think it should be.
And I interpreted that we will reduce our contract or <unk>.
<unk> of our portfolio that is contracted but unless we're seeing long term values on power prices will focus on say a five year contract versus a 2000 and so it doesn't change our perspective on being contracted it just means that the duration that we're looking for unless we see real value and kind of for that long duration priced debt.
Appropriately compensates us for that long duration upset.
Okay that makes sense.
And then just lower and that area and in New York and Governor Cuomo came out and said that they would be looking to contract with.
Wind and hydro put into service before 2015, and I suspect some of your assets would qualify for that is that something that you guys will be actively involved and again and the context would you like that long term contract that we're thinking about it.
Tangible looking sort of five year.
Contracts and disposable wipes and preserve that optionality.
So mark when it comes to developing new assets and pulling new wind and solar projects out of the ground.
We do really like to back that New Council investment with with a long term contract that will ensure that we will get both our targeted return.
Both our return of capital and our targeted return on capital so whether it be in the United States, California, and New York or whether it be what we're seeing in our business and in Europe.
We are increasingly pulling new assets out of the ground either backed by long term contracts with governments and.
And as you mentioned like in New York State or increasingly from technology companies that are that are trying to service and ever increasing.
Green energy requirement for their green Datacenters and for energy companies that are looking to transition their business.
To answer your question directly when we are investing new capital and new projects to pull them out of the ground. We do like to focus on a longer term contract to ensure we get that return of and targeted return on capital.
I think there was an opportunity to take existing assets and try to contract I'm just given the ambitious targets and New York State. So that's something that you'd be comfortable with in terms of locking in a longer term contract for some of your hydro assets or would you rather keep that mentality and a shorter duration contract and preserve a bit more freedom and optionality and <unk>.
Carbon pricing.
We will look at it on a case by case basis.
And really something we would consider and we will look to manage our contract profile appropriately but.
Part of the Joy of our business is RF embedded.
Commercial capability and our power marketing capability.
And other operators may see the.
The government's comments in that state and now have a sole way of contracting their power.
We have the optionality to compare that versus a corporate contract with attacker and energy or an industrial company and.
And do the one that offers us the best value upside. So we wouldn't want to necessarily commit to doing those contracts are not doing those contracts will look at it versus the other commercial power marketing opportunities, we have within that region.
Okay and then my last question is just on the distributed generation businesses starting.
Starting to build scale and closed.
And the Epsilon transaction and some other deals.
Just wondering if we look forward a year from now what would be the target in terms of and the development opportunity sort of on an annual basis in total.
Blue Sky.
Scenario and think about that business, where does that kind of take over time and sort of the go to market strategy in terms of.
It.
I guess like the origination strategy in terms of how you expect to kind of grow that business on organic basis.
Sure. So there's a few a few different things to unpack there.
Our strategy Hasnt changed we look to buy for value and then we go growth through operations.
And when we look at distributed generation, our strategy Hasnt changed and the three 5% to 40 years that we've been investing and the space.
We view it as having three or four of some of the strongest.
Market themes supporting this business, which are.
Increased focus on decentralized power.
Declining solar costs.
And.
Distributed generation really being one of the best examples of how corporates and industrials are looking to decarbonize their own production processes.
Really what it is is we're building on site clean power generation that they can draw.
Two to power their business without needing to pull from a typically thermal.
Supported central grid.
This is a platform that we own net that is probably one of the ones that has the most exciting growth prospects and it has growth prospects. Both in terms of the products. It can offer but as well as simply delivering more size and its core strategies, we expect to do.
And to develop.
Hundreds of megawatts, a year of new DG business, our new DG assets across the United States. We equally we'll look to continue to do acquisitions roll ups.
But perhaps the most exciting thing is.
What distributed generation does is it gives us and interface with a commercial and industrial customer that is looking to decarbonize their business and while our primary product is that provision of on site clean power. It gives us the opportunity to sell them storage to sell them energy efficiencies.
And a number of other products that can help that business achieve its decarbonization goals and as a result, we don't think it's only an increase of existing revenue streams that will drive this business.
But an increase and existing revenue streams and continuously adding new revenue streams, as corporates and industrials and get a little bit more advanced and they're thinking of how theyre going to hit their 2030 in 2050 targets.
Great. Thanks for that I appreciate it.
Thank you.
Our next question comes from Robert Barry with National Bank financial.
Yes.
Good morning, gentlemen.
Good morning.
Follow up on the organic growth.
Wind and the U S. Can you talk about your tax equity strategy do you have an appetite for tax equity or.
Looking to work with tax equity partners and and how will you will account for a per tax equity.
Yes look.
For sure we have an appetite for tax equity with the tax credits that are available and the U S.
It provides a really effective source of capital that reduces the overall cost of capital and the project and then Optimizes our structure.
Going back to corners.
Earlier about Shepard's flat is one of the great things about shepard's flat as we can effectively complete the repowering, which is going to give us 25% to 30% of incremental generation and.
And we can fund that entirely with <unk>.
Investment grade debt.
Because of the incremental yield you get enough of it and the incremental revenue or tax equity because of the tax credits that are available and so all of that incremental.
All of that incremental cash flow with no new.
New capital required from US, which is a great thing for us tax equity it will be where it is applicable it will continue to be.
And we think about optimizing the capital structure and terms of the day.
<unk> accounted for it is just like any other liability on our balance sheet, it's factored into our maturity profile and so.
And it shouldnt be thought of as any different really outside of the nuances of how it earnings return.
So will that be showing up and your EBITDA line, if you will selling there.
Tax equity to our partner.
No it won't be going through so there is there are certain companies in this space, who recognize the EBITDA of the tax credit and then the show that as a reduction below EBITDA, we don't show it that way. So we kind of look through the tax credits and really just factor and the cash impact of these of the tax equity.
On our business.
Alright, Great and then secondly, it was a very high level question here last year, you invested $2 5 billion.
And growth initiatives and I believe historically, you've talked about targeting about $1 billion and investment per year can you discuss your goals for investment in 2021.
It might be split between organic growth and M&A and then also what we might anticipate and capital recycling to support that growth.
Sure.
So to put it very simply.
Our pipeline is as strong today as we've ever seen it before.
And we have the benefit of a massively growing renewables industry as more wind and solar is being added in every market around the world.
We've got increasing opportunities to be a solutions provider to corporates and industrials and utilities that are looking to decarbonize and.
And at every opportunity, we're finding new ways to leverage our per.
<unk> advantage is our size our scale, our operating and technical capabilities across new types of transactions.
We mentioned earlier.
In the call and the growth potential, we see and Repowering well, that's only going to accelerate going forward given that the installed base of wind and solar did nothing but increase over the last 15 years and therefore on a lag basis. The repowering opportunities are going to increase over the next 15 years.
Similarly, we're seeing growth and.
New asset classes that debt leverage renewable power and decarbonization solutions, whether it be green hydrogen or green data centers and you can see through some of our contracting.
And activities as well as some of the partnerships we formed in the last six months. These are areas, where we expect to be a significant player going forward. So.
While we arent going to.
Commit to one dollar amount here on this call the growth opportunities, we see today are bigger than they've ever been before.
And.
We have the benefit of a very strong balance sheet debt allows us to pursue as many of those attractive growth opportunities as.
As we can find.
I think the second part of your question was around organic growth versus M&A.
And if you looked at our business.
Maybe five or seven or 10 years ago.
You've always done development, but it was maybe 90% M&A and 10% development.
Over the last three to five years, we've really enhanced our development capabilities and every one of our target markets around the world. We now have local fully integrated development capabilities across all major technologies and every one of our target markets.
And what this does.
Is it really just gives us a flexibility and how we pursue growth we're always going to pursue those M&A targets, but they are large and by their nature chunky.
But what the organic growth lever that has been consistently growing inside our business allows us to do is just have a constant pipeline.
Projects, where we can.
Invest capital at very attractive returns and pull through those projects as quickly.
Or and.
And as timely as we want to and.
Five to 10 years ago, we may have been 90% M&A and 10% development I think going forward that poor portion is going to increase the increased slightly it might be 80, 20 or $85 15, but it is and additional growth lever that gives us.
Added flexibility.
As we look to grow our business.
The last comment I think you touched on and apologies if I've missed anything.
Capital recycling.
And.
Capital recycling is very core to our business and something that we have.
<unk> been doing for a number of years now we were very active and 2020 and we expect to be active again in 2021 and.
And one question, we often get is with the flood of.
Capital flowing into renewables and ESG strategies.
Is that having an impact on your return targets are you having to compressed returns and.
The answer is absolutely not we've never competed on cost of capital we've looked for those opportunities, where we can differentiate ourselves using something other than cost of capital and therefore, we've never compromised on our return targets.
That hasnt changed today and with the pipeline, we see we see no need to compromise on our long term return targets, but.
And what the flood of capital into renewables has done is it's created a new value lever for our business when it.
And it comes to capital recycling.
And increasingly when we executed our business plan and we're in a position to sell and.
And operating de risked likely contracted asset that we have cleaned up and simplified through our ownership. We are seeing offers from that increasing amount of renewables capital that far exceed the value that debt.
And that we.
And believe our business has if we're going to hold it within our own platform and therefore, we do think we will use capital recycling to fund the tremendous growth, we see but we actually see it as an incremental value lever because we're only going to pursue capital recycling and situations, where we're selling assets at a greater value.
And we see and holding them and our own portfolio.
Great and thanks for the color.
Our next question comes from Ben Pham with BMO.
Okay. Thanks, good morning, everybody.
Couple of questions on the 23.
And what development pipeline and I was wondering if you can and package that you did that.
Similar to an investor day in terms of debt tilt towards the technology and mix.
<unk> and and.
Maybe the breakdown between early stage and late stage.
Yes, sure so maybe I'll start Ben and then I'll hand to Wyatt.
The growth and our development pipeline and is.
Is really being driven by two things one it is the fact that we have built our development capabilities and every market that we operate in and around the world and therefore, we are just far more comfortable and seeing far more opportunities to leverage that enhanced capability and you're seeing that flow through.
In the growth and our development pipeline.
Maybe just as a indicative.
Anecdote, we mentioned three transactions in that we completed in Q4.
Shepherd flat.
And.
The excitement of the opportunity is primarily around the Repowering opportunity also comes with a 400 megawatt development pipeline.
And the Exelon DG business has a large in place and operating portfolio, but also comes with a 700 megawatt development pipeline and similarly, our transaction and Brazil is up close to 500 megawatt development opportunity. So what we're seeing is and increasingly.
And the ability to differentiate ourselves by pursuing those transactions that have both really strong downside protection because of the.
And in place cash flows from the existing operating business, but a nice upside value growth lever through.
Embedded development option as well with that maybe I'll pass to Wyatt on the breakdown.
Yes, so Ben in terms of the 2000 and do what's what I would say is it's diversified across region.
Similar to our business, it's across all of the regions. It is.
We were 75% right now and developed markets and overall business 25%.
Emerging markets debt development pipeline can be thought of similarly in terms of breakdown between those two markets and then in terms of technology.
And is.
The most abundant are wind and solar and solar on the back of.
Our investment and <unk> and and just the development pipeline, we have there after the distributed generation businesses from pursuing and the U S as well as and China and some degree.
The wind side as Conor mentioned, we have very attractive wind pipeline and the U S. We added to that with the acquisition of separate flat. So it is definitely.
And definitely going to be tilted towards wind and solar because those are the the technologies that are being and <unk>.
Renewable space that are being developed and.
And the most significant form and so thats reflected in our development pipeline, but it is diversified across the various technologies, we look at and.
And I think just further breaking that down of the <unk>.
23 Gigawatts.
As I mentioned in my remarks close to five gigawatts of that is either under construction or has an adverse.
Vance stage, where we're kind of and the final period of a final point of getting permits are contract.
What have you and then obviously the remaining 18 gigawatts had a bit farther to go but we're very confident that a good portion of that will be developed over the foreseeable future.
Okay. Thanks for that and is there.
And you are.
And you are relatively large company and as you bring on more development there is the development and <unk>.
And so that's that's rising as well.
But really what's is there a sweet spot on or maybe how how much more you can go before there are certain stresses in your system that you can't handle is there and that number out there you can share.
Not really.
And what we would say is.
And the joy of our scale as we get tremendous operating leverage out of the expertise we have across the platform. So within our business. We are experts in every geography and every asset class.
And and.
While those experts are located all over the world, we're able to draw and that expertise whenever we're pursuing pursuing growth.
And any of our target regions, so and.
As our business growth our costs will grow as well, but we expect there to be significant operating leverage and that growth.
So we see it as an upside going forward.
Okay.
And maybe one one last question.
Okay.
How do we think about your cost of equity capital today relative to other sources and and.
And I only bring it up because I think in the past.
We've always kind of ignore the market cost of that equity you have always looked at I think you have targeted growth rates, which are north of 10% and you've always said you have cross sell equity at hurdle rates of 10% plus and and look.
At that versus other sources and you include the and management fee ban and that analysis. So.
How do you think about.
Now just given your stocks and incredibly well at the same time and metrics have also doubled at.
And at the same time.
Sure. So our approach is consistent.
We have and always will be value investors and.
Tying back to the comments from a previous question.
The growth pipeline today is tremendous and continuing to leverage the same capabilities and the same competitive advantages that we've had for years and decades, we see no reason that we would need to change our targeted returns.
And we have a very robust pipeline that we think we can execute on in those targeted returns range. So.
And there's very little appetite internally and gives.
Given the growth that we see and the attractive opportunities ahead of us we don't.
And really see ourselves changing our return targets net.
Now that being said.
Our share price is performing well and.
And all that does is it does give us and incremental flexibility when we think about funding and growing our business.
And we've always look to maintain a number of funding sources as well.
We look to fund the massive growth opportunity ahead of us and.
And the performance of our share price can be helpful. There, but we're never going to use it unless it's going to create long term value for our shareholders.
Okay. Thanks, guys.
Our next question comes from Andrew Kuske with Credit Suisse.
Thanks, Good morning, I think the questions for Connor and and I guess over the last 10 years or so we've all become pretty comfortable with the interplay with Brookfield asset management is private funds and.
The business that they run and the interplay with bat.
Could you maybe provide some color and and outlook on how BAMS impact fund category may work with ups business into the future.
Certainly.
So so brookfield.
And is looking to launch a impact fund that will focus on the transition of the global economy.
Net zero.
And a component of that fund will be focused on the build out of new renewables globally as well as.
The operations surrounding investment by businesses to accelerate that transition to carbon neutrality.
And we think there is many companies that will have the capital and skills to do this themselves, but equally there are a huge portfolio of companies that could add.
And use our expertise and our capital and our development capabilities to help them achieve their goals.
Our view is this launch of new fund by Brookfield creates just and additional growth opportunity and an additional equity deployment and opportunity for Brookfield renewable.
And to participate and investments that fit Brookfield renewable strategy of growth and renewables and offering decarbonization solution. So we view, it as and incremental growth lever and incremental upside.
Okay. That's helpful. And then maybe just an extension on that.
Can you give us some color just on what Youre seeing from corporate the corporate community and primarily debt has been interested and engaged and longer term contracts.
Are you getting some of the and tech companies and others that there actually are more interested in owning the underlying assets to on possible your co investment basis with yourselves.
Yeah.
It's a really good question and.
Okay.
We will answer it directly but perhaps some background context is helpful. Here.
If you go back 10 years. It was really governments that we're the preeminent force and trying to drive climate change and then maybe 4% to seven years ago, a handful of leading corporate debt voluntary decarbonization initiatives and.
Over the last two to four years youre seeing investors be more discerning about their capital allocating it to sustainable strategies and now and the last 12 months to 18 months Youre seeing banks and lenders do the same and in being more.
Subjective in terms of where they allocate their loan book all of this it can be viewed on a transition as there is an acceleration and the commitment by all stakeholders to decarbonization and.
And what we've seen over that time period is the demands are corporate and industrial.
Customers that are looking to procure green power changeover time and.
And.
Andrew rather than say, it's a trend one way or the other.
And what we would rather say is there is simply more types of contracts being executed and the market.
And some some corporates are looking for shorter term contracts. Some corporates are looking for longer term contracts.
And some corporates are happy to take.
And the intermittent power that comes from a wind or solar facility others are looking for unique situations, where they can procure 24 seven renewable power.
Few can provide but we're in a luxurious position to be able to do by matching our wind and solar generation with our hydro portfolio, we are increasingly seeing situations, where some of those corporate and.
And are considering different ownership structures of the underlying assets.
But by and large.
We would say the theme hasnt shifted if youre talking to and industrial company or a corporate company or a tech company. They want to focus on what their businesses are good at which is providing a good or service that is core to their call. It business objective in most cases, they are very happy for us to.
Be the capital provider and the.
Owner, and operator of whatever power production or generation or decarbonization solution is required to decarbonize their core business. There may be some flexibility on the edges of that but more often than not and there is still very comfortable and prefer for us to own non asset which.
Core to our business and they keep their focus on what's core to their business.
That's great. Thank you very much.
Our next question comes from Pearce Hammond with Simmons energy.
Good morning, and thanks for taking my question and I know you've kind of addressed this earlier with the question as it related to project returns and where they are changing but I am curious given the surge in interest and capital wanting to get deployed into wind and solar projects are you seeing any inflationary pressures.
Jack level and as far as good and wind and solar projects and install for example, like trucking cost to deliver the turbine to the side or electricians are skilled personnel working on the site or maybe put it. Another way are you seeing the expected cost deflation for wind and solar moderating relative to expectations. You may have had say a year ago.
Thank you.
Thank you and it's a great question and.
And in general.
And.
Really two things driving that yes, there is more demand for these products and services and that can lead to very call it regional and short term.
Shortages or that may temporarily increased prices, but.
They are de Minimis and don't really affect our business.
There is two probably broader themes that are still at play that overwhelm any of that short term disruption. One is the overall cost of wind and solar continue to decline and that is as the industry growth theres still economies of scale being achieved and.
There are still incremental technology improvements that are driving costs down and really cementing renewables as the lowest cost form of energy production and that trend may have plateaued versus the rapid declines of three five or seven years ago, but.
The trend is still certainly downward.
The second point, we would make is at Brookfield renewable.
Our growth, which which we've spoken about at length on this call is continuing to.
Deliver a further competitive advantage, which is we are.
Developing and achieving very significant economies of scale when it comes to procuring parts or services to build construct developed or even simply operate our renewables facilities around the world and.
And we across all major technologies are one of the biggest buyers and the world and as a result.
We are largely insulated by any of those short term disruptions because.
We are viewed as a core customers our core customer to the biggest suppliers whether it be of.
<unk>.
Equipment.
And <unk> services within the renewable sector.
That's a very helpful answer thank you very much.
That concludes today's question and answer session I'd like to turn the call back to Mr. Tucker for closing remarks.
Great.
As always thank you everyone for your support we look forward to updating you next quarter with our Q1 'twenty and 'twenty. One results. Thank you and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
And then.
And.
And.
And.
[music].