Q4 2021 Brookfield Renewable Corp and Brookfield Renewable Partners LP Earnings Call
In 1000 megawatts of capacity under construction or in late stage development and now have an overall global development pipeline of approximately 62000 megawatts.
We also maintained a strong balance sheet and executed over $13 billion of financings generating $1 $5 billion in proceeds from up financings net to Brookfield renewable bolstering our liquidity enhancing our self funding business model and minimizing our exposure to increasing interest.
Our near term maturities.
Looking ahead.
GE Carbonization is now firmly established as an objective of the global economy.
As one of the preeminent clean energy companies with a global presence.
GAAP operating capabilities and scale.
We are uniquely positioned to execute on the most attractive decarbonization investment opportunities around the world.
As we enter 2022, we continue to be one of the largest owners operators and builders of clean energy globally with best in class growth prospects and inflation linked cash flows that are supported by double digit years of weighted average contract life.
Given our strong financial and operating performance robust liquidity and positive outlook for the business. We are pleased to announced a 5% increase to our distribution to $1 28 per share on an annualized basis. This.
This is the 11th consecutive year of at least 5% distribution growth since 2011, when Brookfield renewable was spun out.
Some of the highlights for the year include.
We generated <unk> of $934 million or $1.45 per unit, a 10% increase from 2020 or a 17% increase on a normalized basis.
This resulted from.
From the stability of our high quality inflation linked contracted cash flows.
Organic growth and commercial initiatives.
And contributions from acquisitions.
We advanced key commercial priorities.
Securing contracts to deliver 11000 gigawatt hours of clean energy annually, including 6000 hours to corporate off takers and we also completed saving initiatives that have delivered $20 million of savings on an annualized basis.
We commissioned approximately 1000 megawatts of new capacity and have progressed over 15000 megawatts through construction and advanced stage development.
We also agreed to invest approximately $4 3 billion or approximately $1 1 billion net to Brookfield renewable.
<unk> capital across various transactions in every major market and technology, we operate in.
We further diversified our business with our first investment in offshore wind and we expanded both our hydro electric and battery storage portfolios.
And finally, we maintained a robust investment grade balance sheet and ended the year with over $4 billion of available liquidity.
And access to significant sovereign and institutional capital that we can invest alongside of which provides enhanced flexibility for future growth.
Next we would like to spend a few minutes, providing a spotlight on three important topics.
First.
The outlook for renewable energy.
Inflation and global supply chain.
Second.
Our recent acquisition to acquire urban grid.
And third the strong growth in our distributed generation business.
First off we want to reiterate our enthusiasm about the macroeconomic trends, we are seeing for global clean energy Supermajors.
It is projected that up two five trillion dollars of annual investment will need to be spent over the next 30 years to support the decarbonization of energy systems.
In addition.
Clean energy and electrification are the first largest and most impactful steps to achieving net zero.
Why put simply.
Because roughly three quarters of global emissions can be attributed back to power generation in the energy sector.
This will lead to an unprecedented buildout of wind solar and other clean energy solutions over the next decade.
The growth of which will dramatically outpace what we have seen over the past 10 years.
And as mentioned earlier, we believe we are uniquely positioned to execute on not only the most attractive but also the largest decarbonization investment opportunities in this environment.
Secondly, <unk>.
Over the past couple of years, there has been a lot of discussion about global supply chains and inflation.
There is no doubt that both have impacted our broader industry.
However, our globally.
<unk> diversified business and strong relationship with tier one suppliers, meaning we can manage supply chain disruptions such that they have not had any material impact on our business.
Our scale and centralized procurement function helps us ensure that we are our priority client for solar panel and wind turbine manufacturers and give us operational flexibility.
We have had to adjust the development programs for a small number of select assets, but.
But we have held the commercialization dates of all of our projects and none of those adjustments have had a material impact on our business or the returns of those investments.
We believe many of these supply chain challenges are transitory. However, we are confident that we are uniquely positioned to manage any challenges going forward to the extent that they persist.
Now moving.
<unk> to inflation.
Whether we are in a period of transitory or sustained inflation, our business performed well in either environment.
First in terms of our operating assets.
We foresee inflation as a tailwind to our business.
This is due to the fact that a significant portion of our business has inflation indexation.
In fact today over 70% of our contracts are indexed to inflation.
Further we have a largely fixed cost structure with limited exposure to rising labor costs and capital expenditures.
This together with the fact that we have effectively no direct exposure to rising interest rates means the compounding effect of inflating revenues should drive operating leverage across our platform.
Second in our under construction assets, we are always focused on avoiding basis risk by locking in major capex components at the same time, we signed Ppas for projects. So we have matched our costs and revenues and locked in at our attractive returns.
Finally.
For our future development pipeline to the extent there is inflation that impacts project costs.
For the most part we have seen a willingness from buyers of clean energy to share these costs through PPA price as the benefits that our corporate client see from decarbonization far outweigh the small cost increase they could start to face.
Unequivocably, we don't think inflation will meaningfully slow the adoption of clean energy if at all.
Next we will spend a few minutes talking about our recent acquisition of urban grid in North America.
Urban grid as a leading utility scale solar developer in the United States with 20000 megawatts of development pipeline and a leading position in the high value PJM market.
With this transaction, we have grown our global pipeline to approximately 62000 megawatts.
Urban grid pipeline includes 2000 megawatts of under construction are ready to build solar projects.
In addition, there are 4000 megawatts of Derisked advanced stage build out opportunities that we expect to back with corporate contracts and build out over the next six years.
Further there is also significant additional upside based on the depth of its remaining and growing pipeline.
The purchase price for the acquisition was $650 million and we view it as an opportunity to invest hundreds of millions of dollars into further growth in the future.
The reasons, we are excited about this transaction are numerous but to highlight a few.
This was a bilaterally sourced opportunity, where our ability to transact quickly and leverage our existing commercial relationships enabled us to transact with urban grid at attractive terms.
These relationships when combined with the construction ready and advanced stage pipeline.
Allow us to increase the scale of service to our largest customers as they look to achieve their own net zero ambitions through the use of Newbuild solar.
We are also extremely excited to work on alongside the experienced urban grid management team and build out their development pipeline of projects that are in high value U S markets, such as PJM MISO and TBA.
All 13000 megawatts of solar development in this pipeline have interconnection queue positions, which is specifically valuable in the PJM market given the high demand for clean energy driven by significant data center load and increasing ambition ambitious rps targets.
And a limited supply of site, giving them given that the market is undergoing significant interconnection queue reform.
As such we are well positioned to contract these projects, which are significantly de risked from an interconnection perspective with our deep list of corporate customers.
As a result of these dynamics our target returns on this investment are in excess of our 12% to 15% return target.
Lastly.
We also continued to execute on our growth plans for our distributed generation business in the fourth quarter.
With leading capabilities in North America, South America, Europe , and Asia, we are uniquely positioned to be a global solutions provider for clean onsite generation and decarbonization solutions.
Our global DG business is 4500 megawatts of operating capacity and our global DG development pipeline has now increased to approximately $6 5000 megawatts.
Over the past three years, our distributed generation portfolio grew revenue by approximately 40% annually bolstered by the acquisitions and strategic partnerships, we have signed.
In the quarter, we expanded our portfolio by acquiring 780 megawatts of operating and development assets in Europe , and South America, and we also signed a strategic agreement with <unk> Technology group.
A leading provider of balance of system solutions for storage solar and E mobility to pursue distributed renewable energy generation and EV charging solutions across the United States.
We are uniquely positioned with leading capabilities across four continents and to provide global solution for those looking for clean on site or behind the meter generation.
With that I'll turn the call over to white to discuss our operating results and financial position.
Thank you Connor.
In 2021, we generated <unk> of $934 million.
Or $1 45 per unit a.
A 10% increase from 2020.
<unk>, 17% on a normalized basis as the business benefited from recent acquisitions.
Strong underlying asset availability and execution on organic growth initiatives.
During the year, our hydro electric segment delivered <unk> of $639 million.
The portfolio continues to exhibit strong cash flow resiliency, given the increasingly diversified asset base.
<unk> price environment, and our recent re contracting initiatives delivering strong results, even when generation was below long term average.
Our wind and solar segments generated a combined $581 million.
<unk>, representing a 55% increase over the prior year.
We benefited from contributions from acquisitions and approximately 770 megawatts of solar and wind projects commissioned during the year.
Our energy transition segment generated $162 million of <unk>.
Revenues from our pump storage assets as well as our distributed generation portfolio continued to demonstrate strong growth of global electricity generation Decarbonize.
Next looking at our balance sheet and liquidity.
Our financial position remains robust with approximately $4 1 billion of.
Total available liquidity at year end and.
And our business model is self funded.
During the year, we executed on key financing and capital raising initiatives aimed at maintaining robust access to capital and a prudent debt maturity ladder as well as a low risk investment grade balance sheet.
During 2021, we continue to take advantage of the low interest rate environment.
As Conor mentioned, we executed on $13 billion.
Of investment grade financing.
Included $1 5 billion up by Nancy's net to Brookfield renewable.
<unk> weighted average debt maturity of 13 years with no material maturities over the next three years.
With these financing activities completed our business is well protected against the potential of rising interest rates.
We have very limited exposure to near term maturities or floating interest rates across our business.
We also continue to use opportunistic capital recycling as an important lever to drive value and fund growth.
During the year, we executed an agreement to sell over 600 megawatts generated proceeds of one 5 billion.
Including an agreement in the fourth quarter to sell a 625 megawatt solar PV portfolio in Mexico on an attractive valuation of $400 million, which is more than double our underwritten value.
Before we hand it over for the question and answer session I want to spend a few minutes on two topics.
Our development pipeline as well as our recent $1 2 billion Canadian dollar asset level up financing in Quebec.
As Conor mentioned, we achieved a record level development over 2021.
We commissioned approximately 1000 megawatts of new capacity and finished the year with over 15000 megawatts of construction and advanced stage projects.
These projects are diversified across distributed and utility scale solar wind storage hydro and green hydrogen in 14 different countries.
In total we expect these projects to contribute almost $180 million in annual <unk> to our business once completed.
We are pleased to have been able to commission nearly 1000 megawatts capacity.
On time and budget during the year, including our 360 megawatt solar project in Brazil, which were delivered ahead of schedule and our recently completed 160 megawatt wind Repowering in New York State.
This repowering is expected to increase generation of the facilities, 25% by increasing rotor diameter to almost 120 meters and we will also extend the life of the project by 30 years.
The project, which was completed at a 40% discount to new build cost is backed by revenue contracts with high quality Counterparties with a weighted average duration of 12 years that will increase revenues by approximately $10 million.
We also added a 20 year full Rob long term service agreement with production guarantees.
De risk the project going forward.
This repowering was completed on time and on budget. Despite the despite the supply chain challenges facing developers around the world.
We expect to earn returns on this project in line with our typical 12% to 50% return target.
Looking forward. It is estimated that 200 gigawatts of global wind capacity will reach 15 years of age within the next five years, creating an attractive opportunity for developers like App.
Grab the right skill set and scale of capital.
Looking at our own portfolio, we are progressing another 1600 megawatts of repowering opportunities in the United States and we look forward to updating you on these in the future.
Regarding our latest financing initiatives, we strategically fast tracked our refinance refinance refinancing activities into 2021 due to the potential of rising rates.
And as a result, as I mentioned previously we have no material maturities in the near term and very limited exposure to interest rates.
Today I want to walk you through that we have up financing.
This transaction reinforces the opportunity we are seeing to sign attractive contract for large scale hydro's that appropriately valued the dispatch of bulk carbon free nature of the assets and an increasingly intermediate grid.
We signed a 40 year fixed escalators and power purchase agreement for our 265 megawatt facility with Hydro Quebec.
The PPA is at an attractive premium to the prices.
<unk> has historically achieved generating an additional $20 million of revenue from the project per annum.
Given the duration of the contract and the quality of the counterparty. We currently we have raised $1 2 billion Canadian dollars 1 billion of which was an up financing of 40 year Triple B investment grade debt on the facility at a fixed coupon of 4%.
<unk>.
This is our largest project financing to date and we are highly confident that we will redeploy this capital into growth.
And when deployed at our target return it is expected to generate more than $100 million of annual net <unk> for the business.
Said differently through the re contracting and up financing of a single hydro asset. We can fund the majority of our targeted 2022 capital deployment at exceptionally attractive rates.
With over 5500 gigawatt hours of generation available for re contracting over the next five years.
In an increasingly constructive pricing environment for our hydro.
Portfolio.
We have significant capacity across our fleet to execute on similar contract that we expect to contribute additional <unk> and generate a highly accretive funding source for our growth.
On behalf of the board and management of Brookfield renewable we think all our unit holders and shareholders for their ongoing support.
That concludes our formal remarks for today's call. Thank you for joining us this morning, and with that I'll pass it back to our operator for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from Robert Hope with Scotiabank.
Good morning, everyone.
The lesser capital deployment since last quarter seems a little bit longer than normal.
When the opportunities presented themselves or is the pipeline that youre seeing out there right now stronger than normal and if it is stronger than normal kind of what geographies and kind of asset generation types are most interesting.
Hi, Robert Good morning.
Great question, it's certainly an acceleration of the pipeline.
Very simply what we are seeing is a growing opportunity set and we'd probably classify it in three buckets very simply the industry is getting larger so there are more and more opportunities to buy large or scale operating portfolios. So that's kind of bucket one that we are seeing growth.
Secondly.
As has been a theme for a number of quarters approaching in the couple of years now we are seeing an increasing number of opportunities to do derisked development at very attractive risk adjusted returns and that's growing within our business and.
And then thirdly increasingly we're seeing opportunities to be a capital provider and an operating partner to corporate that have their own decarbonization goals, but either don't have the capabilities or the money to fund the processes to get them to their objective.
<unk>.
We're in a great period, because all three are accelerating right now and that's candidly what you saw in terms of our growth activity in Q4.
That's very helpful. And then just diving a little bit deeper into that development point that you put there if we take a look at 2021, you put roughly 1000 megawatts into service up from your development pipeline.
Is this a new run rate could we see this even increase further just given how much you've kind of increased the overall backlog there kind of what's the targeted amount of capital and megawatts you obviously put into.
Service per year.
Certainly.
The way we look at these opportunities is always really from two perspectives, one or are they attractive risk adjusted returns and to what's driving the growth and the increased deployment into development is simply the demand we're seeing from our customers.
Our largest customers are providing us with an abundance of corporate PPA demand and therefore some of the transactions.
You would've seen us complete in Q4, both urban grid in North America, and Synovus in Germany.
It's really about providing project pipeline that can match that corporate demand.
In terms of your question around is one gigawatts the go forward run rate.
Absolutely not.
Go forward run rate is significantly higher than that based on not only our pipeline, but the number of projects that we already have under construction or are contracted to be built out in the near term in fact, if we look over the next three years are expected.
Build out is.
North of nine Gigawatts over the next three years.
I appreciate the color. Thank you.
Our next question comes from Sean Stewart with TD Securities.
Thanks, Good morning.
Just following on Rob's question.
I think Conor.
Honor the context, you gave in your prepared comments was you expect that the return potential for the urban grid build out would be.
Above the high end of the targeted 12% to 15% return range can you qualify that at all or are we at the high end of the range significantly above the high end of the range any context, you can give there.
Certainly.
Perhaps the easiest thing to do is explain some of the context around that transaction.
Sure.
As many on the call would have seen.
Throughout 2021, Theres been a number of.
Transaction activity related to large development platforms in the United States and I would say as a business we.
Looked at all of those opportunities.
And we couldn't find one that works for us appropriately from a risk return or a value entry point perspective.
And then we came across urban grit and the joy of urban grid, both for us and the management team of urban grid is it's an incredibly complementary transaction.
The management team and what the company of urban brand is best in class that is securing land interconnection and permits the early stage component of development.
Where we would like to think that Brookfield renewable in the United States is leading is in corporate PPA procurement power marketing financing and construction and by finding that business yet.
It had.
Its greatest strength in areas that complement ours.
We were able to buy at what we think is very attractive value because we didnt have to pay for anything that we already had.
From there when you take those assets that we acquired through urban grid and you marry them with our existing demand from corporate contractors, particularly in the PJM market. We think we will be able to pull many of those projects through faster than perhaps urban Craig could.
On its own and Thats really driving returns one of the most exciting things is since this transaction has been announced a number of our customers have actually reached out to us preemptively to try and secure some of the future power that might come from these assets so to put some context around.
This transaction, we view it certainly at least the high teens type return in our initial underwriting and there is certainly upside from that.
Level.
If we choose to pursue capital recycling of the assets in the future.
That's great detail.
Further to that when you talked about nine gigawatts over three years.
You guys clearly have a lot of internal horsepower to manage this.
Based on.
Recurrent.
And its human capital resources.
Limit do you think the company's capable of now in terms of annual <unk>.
Development.
Is there what's the upper limit that you would think would be feasible for the company.
Okay.
I'm not sure there really is an upper limit at this point are certainly not one that we're worried about we certainly see certain significant operating leverage existing within our business to push more assets through our existing platform.
Yes.
Perhaps.
One piece of context, we can provide to that is.
When we look at an acquisition like urban grid make no mistake about it it comes with best in class assets, but one of the other things. We're also getting as part of that transaction is a best in class management team that is going to drive value in the assets that came with the transaction and also across our broader.
Portfolio. So every time, we do a transaction like that and not only adds to the pipeline but to use your word. It also adds to the horsepower to do more development and more growth activity in the future, but we're certainly not seeing any limit in.
In the near term.
Okay. Thanks, Conor I'll get back in the queue.
Yeah.
Our next question comes from Rupert <unk> with National Bank financial.
Good morning.
So finally I referred in the pits.
Of your of your hydro facilities on the benefits of <unk>.
Financing on hydro how are you thinking about sell down some hydro is it fair to say, we're still a price at which you might consider to sell down or really is up financing.
That's kind of representative of a way you can recycle some of the capital from hydro's from the future.
Rupert.
Great question.
We have them sell downs of hydro in the past most recently a few years ago.
What we would say is.
What really has created the opportunity, particularly around.
The lease up financing is.
Versus even 12 months ago, certainly versus 18 months ago. There is a much much more constructive pricing environment.
Round hydro's, particularly in North America and for the last couple of years.
Due to the pricing environment, we have been very hesitant to do anything that kind of locks in value around this portfolio, whether it be financings or monetization now we do believe our hydro portfolio is best in class and does truly represents some irreplaceable and strategic assets in key North America.
Can markets.
<unk>.
We value them appropriately that is not to say that we would never sell them. There is a price for everything but in the robust financing markets and when we can find a very strong counterparty such as we did with hydro Quebec.
We do see more opportunity in the near term to do things like the very accretive up.
Financing that we completed in Q4.
Alright, very good thank you.
Looking at the German solar development 17, 100 megawatts.
You highlight youre looking mostly at corporate contracts to build that out I was wondering if you can give us some color on what we're seeing in Europe right. Now we have this really high power price environment.
Celebrating development opportunities.
What is it going to do for.
Return potential in that market.
Certainly so we think maybe two comments.
One thing that shouldnt be overlooked about the current.
High power price environment is for the last five or six years as the corporate PPA market has developed really what we have been doing is we've been selling green power.
But in a market such as this one where.
On energy and commodity prices have gone up dramatically.
<unk> of our corporate PPA on our renewables asset is there are no input costs. So our long term corporate PPA is not only clean power. It also acts as an insurance policy against future price spikes or shortages in global commodity markets like we're seeing currently and we're really using that.
Not just in Europe , but around the world to enhance and drive an accelerated.
Build out of our corporate PPA business and our development pipeline.
In terms of what we're seeing in Europe , Theres, probably one dynamic that we would highlight particularly around corporate ppas, that's really exciting to us which is increasingly the very large European offshore wind market.
<unk> is going to a subsidy free model.
And why that's really exciting to us is Brookfield renewable if historically these have been feed in tariff type auctions that have turned into cost of capital shootouts thats not typically how we like to source business.
But increasingly as these very large offshore wind projects need to be built out on a subsidy free basis. This represents some of the largest corporate contracting and power marketing opportunities, we're seeing around the world and really creates an opportunity for us to use our capabilities that have been.
<unk> using onshore wind and solar in North America, and Europe over the last several years and now apply them too much much larger offshore wind development opportunities in Europe . So we're still doing the same things onshore, but there's also this large growth opportunity for power marking for subsidy <unk> III.
Offshore wind in Europe too.
So do you think this environment could accelerate your growth in Europe are you looking to put more resources into Europe , given given the state of the power market there.
Our growth in Europe has been pretty pretty strong over the last few years I would say and we don't see it slowing down so.
We continue to scale our platforms, our largest businesses are in North America, and Europe , and they continue to grow on I would say a double digit basis year after year after year.
Both markets are very constructive for US right now so we will continue to deploy as much capital as we can as long as we're seeing attractive risk adjusted returns.
Thank you for the color.
Our next question comes from Mark Jarvi with CIBC.
Thanks, Good morning.
Just want to come back to the.
Contract and the financing that they provided.
In terms of the premium pricing lift and you call. It is there anything in particular, especially with the seasonality of the power supply capacity payment requirements by the by the by the buyer of the power that drove the uplift in I'm just trying to think through lower then we can see a similar magnitude of an uplift on some of our other hydro assets.
Certainly, perhaps I'll start and Wyatt.
If there's anything you'd like to add certainly chime in.
What really created the opportunity around <unk>.
Which we thought was very exceptional was one we had a motivated buyer.
<unk> of the power Hydro Quebec.
But too.
Hydro, Quebec is a best in class high quality counterparty and what we have been doing over the last four years, we have been preserving the backend optionality of our hydro's in order for us to see.
Final long term contracts such as this and give up some of that back and Optionality, we really need to see two things we need to see a significant premium a very attractive price, we got that in lease up and secondly, we need to see that from a very high quality counterparty because that allows us to do this.
<unk> up financing such as the one that we did in December which unlocked a huge amount of capital today that we can immediately invest in accretive growth and we will always look at these opportunities on a returns basis and a accretion.
<unk>, if you will and it's really two components. One are we getting the attractive price and two are we getting a high quality counterparty that will also facilitate a very attractive financing that will unlock that capital that can fund accretive growth.
Are there many opportunities like we have.
It's tough to say, but we certainly see more in our portfolio, maybe not quite of the same scale.
It was a special asset, but we would expect to do more of this activity in the next few years certainly if the constructive pricing environment continues.
Yes, and Mark this is why it here the only thing I would add is around your specific point with hydro Quebec.
And look we don't want to talk on their behalf, but from what they've said publicly one thing that was a value to them with the capacity that this provides them during winter.
And then they also have the ability to export that power in the summer when their capacity requirements are less but there was a seemingly.
Specific instance, here that drove that desire to contract this asset, but as Conor mentioned overall in terms of the environment for our hydro's, just given the ability to deploy <unk>.
Carbon free power.
Specific reason may not kind of replicate but the overall environment. We expect there could be other reasons that our hydro has become more attractive to contract long term.
And so we as we mentioned we have a meaningful amount of additional capacity coming off contract over the next five years, and we think that that could create very meaningful opportunities like this going forward.
And then a couple of years ago, you guys reworked.
So the energy marketing contract.
Phil.
I think the pricing, they're supposed to step down over time, and given what you're talking about here with low and demand for hydro is there an opportunity here to rework that were stopped out of that agreement. If youre thinking you can lock in longer term.
On some of the.
Hydro facilities.
So in terms of that contract.
It's a long term contract it remains in place there's nothing today that would suggest.
That we're going to adjust that.
And really the point, we would make is.
Sure.
While the pricing environment is constructive on a almost universal basis across our hydro fleet.
The power price markets that these assets operate in are very different and in certain places, we do still have attractive contracts and we're going to leave those in place and continue to benefit from those inflation linked cash flows, but what we're probably most excited about and what why it just.
<unk> alluded to and something we touched upon briefly at Investor day at several months ago is the contracts that are rolling off in the next few years are actually some of our lower priced contracts and are the ones that are best positioned to take advantage of this more robust pricing environment.
Got it and then maybe the last thing in terms of.
Causing developed by von Hippel and.
Even stronger when you look out into 2022, and you talked about some of the supply chain things, but things like <unk>, where the net metering policy Southern California is there any impact of that is going to have.
Delay on any of the DG or utility scale solar stuff, we're trying to do in the U S. In 2022 .
No.
If it is it's immaterial and it might be a couple of projects at most.
The growth of that business is driven by I would say macro dynamics that far exceed call it near term regulatory decisions. So.
No no no concern from us they are based on potential regulatory outcomes.
Okay. Thanks.
Our next question comes from Nelson <unk> with RBC capital markets.
Great. Thanks, and good morning, everyone.
So Conor you were you touched on those three buckets in terms of capital deployment I know in the past you guys were more focused on acquiring operating assets and then more recently.
There has been a larger focus on acquiring I guess development assets or platforms.
Given your return expectations on urban grid should we assume that going forward.
You will be acquiring more development platforms on assets rather than operating assets.
I wouldn't say so.
What I would say is we.
We look at all the opportunities that are available in the market and allocate our capital to where we see the best risk adjusted returns and there is two or three dynamics that suggest that there could actually be an increasing environment for operating assets going forward.
Maybe just to reiterate a point, we have been doing a little bit more development recently, but that's because we have the corporate PPA demand.
Backstop it.
And really turn that into Derisked construction at really attractive returns, we will continue to pursue that activity as long as we have that abundance of corporate contracting demand.
The second point I thought it might be important to highlight is one thing that we were excited about when you look at our growth activity in Q4 is.
In one quarter, we executed.
Mana in each of our target markets and across each of our target asset classes. We obviously did did wind and solar but we bought operating hydro's for the first time since 2017, we're very excited to continue to find opportunities in that market and we also found.
<unk> in our transition and storage bucket.
In the U K. So there is certainly nothing to suggest that we arent finding opportunities.
For operating assets as well and then the last point I would make is.
<unk>.
It has been a very robust period of growth for the broader industry.
And it's also been an extremely robust period in terms of access to capital and we are very fortunate that we have a self funding business model and therefore can pursue acquisitions kind of regardless of our access to the capital markets, but certainly given some of the disruptions.
Downdrafts for stock prices in our sector, we do see opportunities, where some businesses with with large operating portfolios, but growth ambitions as well me.
That rely on the capital markets for capital might need solutions to to fund that growth and that could shake more operating assets loosen the future or it could represent opportunities for public market transactions, which is something we haven't done.
As much of I would say in the last 18 months so.
I would say in terms of what we're seeing across our pipeline today, there's actually probably more operating assets in the pipeline than than there were maybe six or 12 months ago.
Okay, that's great color and just one quick follow up you mentioned youre doing more development due to demand from corporate Ppas.
So with the elevated power prices.
Are you kind of look.
Opportunities to develop on a merchant basis on kind of.
Benefit from near or medium term power prices before maybe caught contracting or longer term.
To derisk assets like.
Is that a strategy now in terms of let's do merchant for a few years and then look to contract later on.
We've operated our portfolio on a highly contracted basis.
For the last five or six years.
We arent going to materially change that strategy.
Good news about the higher pricing environment as that is showing up and PPA pricing as well, but the vast majority of the developed and vast vast majority almost all of it is going to be done on a contracted basis. That's really why we've been excited about the opportunities. We're seeing is because if you can.
<unk> take a project that's ready to build match it with a corporate contract magic with a full wrap EPC contract and our long term O&M agreement.
You can do that at a really attractive return, but it's a very very derisked project. It give some of that up if you play for the merchant price.
We've had success doing what were doing and thats going to be our continued playbook going forward.
Okay, that's great. Thanks Connor.
Our next question comes from Mark Strouse with Jpmorgan.
Yes. Good morning, Thanks for taking my questions and thanks for all the color is very helpful.
One kind of clarifying question.
Conor when you talked about over 70% of the contracts index to inflation.
The other.
Whatever it is 30% less.
Is that fixed or are those kind of they have escalators, but the escalators are fixed.
Should we think about that.
A largely fixed and really I'd make two comments there on a regional basis, there's one market around the world that has largely fixed contracts for <unk> India.
Standard in that market.
And then secondly, some corporate Ppas certainly not the majority of them, but some of them are fixed price and when we get a fixed price corporate PPA, we certainly take that into account.
In our underwriting, but the comment I would make is when we say.
30% are not indexed to inflation those are largely fixed contracts.
On a regional basis, notably, India, and then some of our corporate contracts just because that's what our customers prefer.
Yes.
Comment I'm sorry.
The only other comment I'd make mark is that even though 70% of our contracts are fixed through inflation and therefore, the remaining three are fixed when you have a business of high margins that we'd have roughly 70% and then fixed rate debt. Even if you have full cost inflation.
The level of margin.
The operating leverage you get with those high margins, even at 70% of your contracts being index and then even additional leverage down at the <unk> level was very meaningful.
Yes that makes sense okay. Thank you.
Our next question comes from Andrew <unk> with Credit Suisse.
Thanks, Good morning, there's obviously a fixation on inflation for money, but maybe if you could talk a little bit about.
Potential disinflationary benefits.
Maybe coming from just technological improvements, whether it's automation and operations automation and construction other forms of incremental Muslim.
With some simple examples like some technologies have been around for a long period of time.
But with higher prices.
On the technology makes sense, and then extract sector extra value extra production levels and the solar panels. As one example, so you can just give some commentary on that.
Consequences.
Even more expanding margins.
Andrew Thank you and I appreciate you highlighting this.
We made a comment in our prepared remarks that some of the.
Supply chain disruption that has created a little bit of capex inflation in our sector.
In the last couple of years, we view it as largely transitory and Theres really been too over arching impacts of that one is the shortage of polysilicon supply for solar panels, and then secondly, simply logistical disruptions as the entire global economy tries to reef.
Start from being completely shut down during COVID-19 when we look at those two things. The great News is there is very good visibility on incremental poly silicon capacity coming online throughout 2022, So we expect that supply demand dynamic to dramatically improve.
Prove over the next 12 months and then simply as the World recovers in the global economy recovers from Covid, we do expect.
Some of those logistical issues to continue to work themselves out.
What should not get lost in those discussions is.
Wind and solar on a global basis are still relatively young industries in the Grand scheme of things.
They are truly only operated at massive scale for approximately 10 years or you could argue argue even less and as more and more wind and solar is built out around the world supply chains continue to scale up and broader production costs continue to go down that simply <unk>.
<unk> of scale, playing out and then within wind and solar we are still seeing technological improvements maybe not to the.
The pace that we were seeing five or 10 years ago, but in particular around software. We are seeing incremental improvements that are going to continue to drive production cost for wind and solar energy lower than they were kind of pre COVID-19 in the short term disruptions.
That's on wind and solar that are more mature technologies, where we get really excited as a business is really around some of the storage applications battery costs are coming down at a very rapid rate quite similar to what we saw in solar.
Five or 10 years ago.
And we're at the point, where batteries aren't quite yet cost effective on a widespread basis, but they are increasingly becoming cost effective in select markets take for example, the U K.
Where we've created our our storage development partnership in the last quarter as we see battery costs continue to come down, adding that storage to wind and solar and creating more of a hybridization effect is going to drop the level of <unk> cost of energy for that entire renewable solution.
Going forward and once again, just continue to drive increased penetration of renewables and growth in the sector. So.
While the short term supply issues.
There is good visibility of costs coming down we shouldnt lose sight of the long term trends, which is certainly driving lower.
Long term.
Production cost for clean energy.
Okay. That's.
Thats very helpful. I appreciate the thorough answer would be one one sort of follow up to that.
When you think about hopping batteries in a complementary fashion or supplementary fashion to parts of your existing portfolio.
Do you get excited about the potential for broadening out your ability to do 724 contracts.
Any more geographies.
Absolutely.
And.
That's helpful to us in a couple of ways one.
A lot of what we do on the development side and the power contracting side is trying to meet the unique requirements of our customers and increasingly we're seeing more and more demand from industrial businesses Tech businesses that absolutely require uninterrupted.
A round the clock clean energy, we've been filling that demand using our hydro in storage in select cases, but the ability to do that.
On an increased level is very attractive to both us and the clients we supply energy to and then secondly, it just makes our power more economic and Thats going to be helpful for both deploying more capital and driving returns.
Okay. That's great. Thank you very much.
Our next question comes from Frederic Bastien with Raymond James.
Good morning, guys. Just wondering on the development side are you seeing opportunities to move forward on hydro projects that might not have been as attractive.
From a return perspective, 18 months ago, perhaps even six months back.
Okay.
Thanks Fred.
The comment we would make is.
We are aware that perhaps more so than the last few years.
Some hydro projects are increasingly popping up as potential development opportunities, we do have a small amount of hydro development.
Within our portfolio, it's largely in Brazil, typically small hydro's.
Before we would pursue.
Any large scale hydro we would take a very cautious approach to this type of development.
Part of the Joy around our increased development activity in solar is simply because solar is a solar construction is a very de risked process. It's quick to build its modular it seldom requires working at height.
It can be done on an incremental basis with people starting on every park every side of a solar farm large scale hydro is an incredibly involved process and therefore, we would only consider those types of developments, one where we think we could derisk them materially and two where the returns justify it.
So there are a few more projects popping up we will certainly review them, but.
But we'll certainly take a very cautious approach to two large scale development always comparing it to the risk returns we see in other types of clean energy development.
Alright, Thats, great color and thank you for that and I. Appreciate you don't manage your business for the next quarter, but was hoping to get a bit more color on how the business performed in Q4.
The hydro assets did perform stronger from year over year perspective, but we saw a bit of a.
Some weakness at least on the <unk> side on the other.
Platform. So what were the puts and takes there.
Certainly so we'll highlight a couple of points here.
It should not go unnoticed that are 10%.
Increase in <unk> per unit came in a year, where we had I would say a frustrating amount of resource. It was certainly not not a great year from a resource perspective, but a couple of things did really shine through particularly in the latter part of the year and hopefully into Q1 as well.
One the diversity of our portfolio.
Colombia had a great year for hydrology, where Brazil had a really tough year for hydrology.
For the U S performed quite well in the second half of the year from a hydrology perspective, other parts a little bit weaker.
As we look forward into <unk>.
Next year.
There is significant upside torque to our performance if we get a more normalized level of resource, but some comments we would make.
In Colombia, we're entering the year with above LTA level of resource in our hydro's.
Secondly in.
Brazil.
Throughout much of 2021, there was historically low hydrology in Brazil, creating almost drought like conditions.
The rainy season in Brazil really starts in October and there has been tremendous amounts of precipitation and hydrology inflows and it's almost shocking, but where we're at today reservoir levels in Brazil are actually higher than they were at this point last year, so that situation, although not all.
The way back to LTA is dramatically improved versus where it was four or five months ago, and then lastly, when it comes to the United States and Canada.
We continue to see the benefits of diversification within our portfolio.
Some markets have certainly seen a recovery.
There are other markets that are a little slower going into Q1, but on on math I would say we're in a nice position this year compared to where we were at this point last year.
Okay. Thanks, I'll leave it there.
Our next question comes from Ben Pham with BMO capital markets.
Hi, Thanks, good morning.
The hard cut back 40 years contract I don't think I've seen any any re contracting.
Long duration and industry I'm curious.
Has that caused you to.
<unk>.
More to the pause of the <unk>.
The ration or our operating asset values in your models, a terminal value assumptions and value for our capacity value for where the hydro assets.
No it would be probably the simple answer really what this was is we saw an opportunity to lock in prices.
<unk>.
At a material premium to where we were.
Achieving.
And where we expected to achieve.
In our forecast and then secondly, do it with a high quality counterparty under a long duration contract, where we could get very attractive financing I would say our view of underlying assets has not changed.
And if anything our view of hydro's and the benefits. They can provide and this market continues to increase and we did this deal.
Taking all of that into account.
Yes.
Okay.
Maybe a question for provide that on the $1 billion up financing looks like.
A lot of that.
Wedge of the funding program that you have some surety trickiness.
Us more.
<unk> funding or is some of those which is moving around.
It's a good question Ben so liquid at Investor day, we kind of spelled out our funding plan. So if we our target over the next five years and we really do think about it.
Five year buckets is anywhere from $5 billion to $6 billion of equity capital put into growth and so we kind of three buckets to fund that one we had some additional corporate debt or preferred.
<unk> preferred equity that we routinely issue but.
But let me know ourselves there on a investment grade basis.
That bucket continues to be one we expect to to use that would make anywhere from $1 billion to $2 billion.
The additional piece was our another piece was these type of asset financing and a lot of it on the back of what we spoke about in terms of the ability to contract. Our hydro is long term and what that means in terms of financing capacity, while maintaining strong investment grade ratings.
Assets in that bucket, we had always said was anywhere from kind of two to two to $2 5 billion.
Back factored this in and so that's really just us executing on kind of that plan and the remainder kind of.
Of that bucket, we're hopeful will come from some of the re contracting opportunities that we mentioned earlier in this call and then that remaining kind of $2 billion to get to the $6 billion.
Capital needed for growth will come from our normal course asset recycling program. So this is really kind of has been factored into that funding plan. We would have laid out on investor day.
Okay got it okay. Thank you very much.
Our next question comes from Matt Taylor with Tudor Pickering Holt.
Yes. Thanks for taking my question here first of all I just wanted to start on with what's going on with your ability to self fund growth with your hydro financing this year and in years to come and just how robust your growth backlog is has become how are you.
Are you thinking about chipotle.
You typically invest where it's been on the 25% basis with all of your partners do you see any opportunity to to make that process, a little bit less complex, meaning youre able to take on bigger shares of investments or just any thoughts on the way you're investing if thats changed at all.
The fundamentals that you're seeing.
Certainly.
Good question, Matt and I'll, maybe come at it from a few different directions.
We are primary primary.
Warm of investing is still going to be continued sorry is still going to continue to be through our proportionate.
Ah patients in Brookfield private funds.
That is going to be our primary source of investing now in order to fund.
Those investments the nice thing is Wyatt said is we've essentially secured a large amount of capital to fund those essentially at 4%, which is going to be very very accretive for our growth activity for the next 12 months. The second point, we would make.
Is maybe simply around the scale of opportunities we are seeing and there are some very large opportunities in our pipeline and as we have in the past some of those exceed the scale that is appropriate for our private funds and do create co invest opportunities for Brookfield.
Renewable and to the extent those become available to us because we are pursuing large transactions, we absolutely would expect to co invest and perhaps increase our proportional activity in those investments slightly above what we do directly through the funds. So.
Our approach is not going to change, but to the extent, we do see large transactions there will be opportunities for us to co invest and we certainly hope to execute some large transactions over the next 12 months to 24 months.
And maybe I would add just because you mentioned the word complexity in the way we fund our growth, but I think look the way we think about it is we do it we structured the investments through the private funds because we believe that it's very additive to our business because it provides us a scale of capital to be able to.
To look at transactions that are really differentiated and as Conor mentioned before especially if we're going into a period, where there is disruption in capital markets.
Equities trade down and so that funding Libra as an available for others, we have a pool of capital that we.
One our liquidity best Standalone liquidity, but that significant dry powder from sovereign wealth funds and other institutional capital that we invest alongside of.
It was available to be deployed very quickly is a huge differentiator and so the structure well maybe could be viewed as more complexity. It really is very additive to our business model and Thats why we do it.
Great. Thanks for the comments from both of you and then if I can just finish on your <unk> share growth guidance.
It's been in the 6% to 11% range, but you printed a 10% in 2021 and then you expect 10 plus.
CAGR over here over the next couple of years.
So I'm just wondering if that's still the right range, especially because the way you framed it as M&A is additive, but I mean, the benefits of the urban grid acquisition.
Our clear and you've made them clear today. So do you still see that range is the right range given how are your backlog on the organic side and then what opportunity youre seeing on the M&A side.
Yeah.
Great question Matt.
We're not going to adjust our guidance here today, but we'll stay very consistent around the message we've given in the past, which is due to a number of.
<unk>.
Things that are happening in the market right now a much more constructive pricing environment than we've seen in the last couple of years.
Inflation in our contract base continued margin enhancement and then a lot of that organic growth coming through over the next few years, we see a path to high single digit <unk> per unit growth simply using organic growth initiatives within the business.
And then from there if we do continue to execute on M&A as we expect we will that would be additive what has changed in our business positively changed in our business is the amount of that per unit <unk> per share growth that we can.
Deliver simply with organic growth initiatives is much higher than it's been in the past and thats largely because of the dollars. We have already invested in the ground in development that is only going to start <unk> and hitting our <unk>.
Either in this past year and next year so.
We'll continue with our historic guidance, but the the the.
Fundamentals of it remained unchanged if not improved since we made that comment a few months ago.
Great. Thanks for the commentary Kona.
That's it for me.
Our next question comes from Matthew <unk> with IAG capital.
Hi, Good morning, just a quick question on partnerships, let me last year you.
Youre going to be working with Amazon on utility scale projects globally, and we're working with training on distributed generation in the U S and now you announced the sole agreement.
Can you just give us a bit more details on how these partnerships are going and then secondly, where you see opportunities of gaps to execute on more strategic agreements.
Certainly and we will probably put those in two different buckets.
The first one with with Amazon, It's simply a strategic collaboration where we look to build out.
Clean energy projects to support their growth around the world and Theyre, increasing clean energy.
Demand.
We're also looking at other clean energy solutions for them and collaborating on that as well.
That partnership that collaboration continues to go very very well we're excited about the projects, we're working on together and we see the potential for it to scale going forward.
The other two partnerships you mentioned.
Shoals and train those really.
Our partnerships largely aligned with our distributed generation business and why we're excited about those and why on the back of trained we've also done the <unk> partnership is.
In those situations, we are providing on site clean energy.
As a solution for a customer.
And there is one way to grow that business, which is providing more clean energy to that customer, but there's also other ways to create revenue within that relationship which is offering more products and that might be.
Energy efficiency building equipment like train offers or that might be things like EV charging solutions.
<unk>.
As as what tools offered and therefore, what we are looking to do with our partners is create a decarbonization as a service product offering that can address any of the de carbonization needs of that customer and enhance that relationship fits that.
We can expand it going forward.
Our selves Shoals train we all cover the same customer set this is mutually beneficial for both the three of us and our customers who are getting a better product offering.
That's great. Thank you for the color.
Second part of the question where else do you think there are opportunities for these types of agreements.
Other types of partners or by geographies.
Certainly so sorry for missing that.
Sure.
Part of the excitement of the Amazon strategic collaboration was we felt that we were one of the few counterparties that could service them on truly a global basis, we're seeing increased demand by the largest procurer of green power for multi regional or global solutions.
So we expect to see more.
Partnerships or collaborations like that one and then within our DG business.
I would say we have a very full suite of de carbonization solutions today, but the market is very rapidly evolving and therefore, if we see new products that are of interest to our customers and we can partner with leaders in the space to once again improve our product offering and enhance that customer relationship we may look to.
Do it across other de carbonization solutions as well.
Where we sit today I would say, we're much more likely to do more of the broader regional.
Green power solutions.
Our product offering on.
<unk> is already best in class.
Nothing there that we feel we're missing in the current environment.
Okay got it very helpful. Thank you.
That concludes today's question and answer session I would like to turn the call back to Conor Husky for closing remarks.
Great well, we'd like to thank you all for taking the time today and appreciate your interest and your continued support and we look forward to updating you with our Q1 results in a few months have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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