Q1 2023 Brookfield Renewable Partners LP Earnings Call

May 5, 2023

So results.

Good progress advancing our development pipeline.

And success with respect to our growth initiatives.

We generated funds from operations of $275 million or <unk> 43 per unit, a 13% increase from the same period last year, representing the progression to higher run rate earnings as our investments in new generation and various commercial initiatives come online.

We also followed up on what was a very robust year for growth with a strong first quarter.

Signing transactions for almost $8 billion of equity investment alongside our institutional partners or over $1 billion net to Brookfield renewable.

Together with prior transactions these investments position us to achieve and likely outperform our $6 billion to $7 billion capital deployment target over the next five years.

This includes our landmark transaction to acquire alongside our institutional partners origins energy markets business.

Australia is largest integrated power generator and energy retailer.

With this transaction, we will add a strategic platform in the country to leverage our deep development expertise to invest a further $20 billion Australian dollars.

Enabling us to build out 14000 megawatts of new renewable generation and storage facilities.

This investment in clean replacement generation capacity will enable the responsible retirement of one of Australia's largest coal fired power plants and make a material difference to achieving the country's net zero goals.

The acquisition and planned de Carbonization of the business is an example of the type of investment that is necessary to meet global net zero targets.

We are excited about this transaction and the potential bearings to grow our business in a highly attractive market and generate strong risk adjusted returns for our investors.

Our success in deploying large scale capital is a testament to our track record.

As demonstrated by our ability to attract discretionary co investment from some of the largest and most sophisticated investors around the world.

This has been critical in allowing us to further diversify our business and take on large scale investments, where we see less competition.

As we have discussed in the past our access to partnership capital is a key differentiator and while beneficial in all instances it is particularly advantageous in the current market environment.

With Brookfield first global transition fund nearly fully committed we are preparing to participate in the second fund.

Based on the positive feedback received to date, we are optimistic that the second fund will both broaden the number of institutional partnerships as.

As well as provide a larger pool of capital to invest alongside <unk>.

Positioning us to continue to execute scale transactions at very attractive risk adjusted returns.

Touching briefly on the broader market and recent events over.

Over the last few months, we all witnessed significant market and interest rate volatility on the back of persistent inflationary pressures and stress across the banking system.

However, our business continues to be very resilient.

Our generation portfolio is currently 90% contracted and has a weighted average remaining contract duration of 14 years and approximately 70% of our revenues are linked to inflation.

We also operate a central low cost infrastructure with gross margins of over 70% that are well protected throughout the business cycle.

Going forward, our business plan and targets remain unchanged and we do not anticipate any meaningful operational or financial impact from recent events.

Our financial position also remains strong with almost $4 billion of available liquidity.

We have always prioritized financing our business on an investment grade basis with a focus on long duration matched currency and fixed rate debt.

As a result, we do not have any meaningful exposure to interest rate variability or any material debt maturities over the next three years.

Yeah.

On our development initiatives, we commissioned approximately 700 megawatts of capacity in the quarter completing projects in seven different countries around the world.

We are on track to commission approximately 5000 megawatts of capacity in 2023, which we expect to contribute an additional $70 million of <unk> net to Brookfield renewable.

We also progressed the other approximately 19000 megawatts of projects in our advanced stage pipeline, maintaining our targeted commissioning dates.

With that we will turn it over to Ignacio to highlight some of our recent announced investments, including a <unk>, where we increased ownership in a business, we know well Ignacio.

Ignacio over to you.

Thank you Connor and good morning, everyone.

This corner just mentioned I will go through our most recent deal activity, which is mainly taking place in India and the <unk> CLO apart from origin, which was the culprit.

But before we get into the details it would be good to provide some background and as most of you may know the investment environment for renewables in decarbonization assets remains highly compelling.

Seems like demand for clean energy from corporate increasing focus on energy security government supported electrification and decarbonization targets continue to be key trends supporting new investment.

And with this backdrop, we have made significant progress growing our business globally over the last few months.

Starting with India, we have executed two large scale transactions tripling the size of our business in the country.

First we entered an agreement with Nevada are leaving renewable platform with over 11000 megawatts of operating and development assets to provide a structure U S. Dollar financing solution that gives us significant downside protection as well as equity like upside.

In addition to <unk>, we also agreed to acquire a 55% stake in clean Max.

Another leading renewal platform also based in India. We saw in the Haas Gigawatts of operating and development pipeline and a plan to build over two gigawatts over the next five years.

With these two acquisitions, our operating and development platform in the country will stand at approximately 21000 megawatts.

To provide some context around our growth strategy in India similar to Brookfield broader approach to new geographies. We have now been on the ground in the country for more than five years on the renewable side and have gone through a strong learning curve by prudently, making smaller scale investments.

<unk> provided us with strong insights into the market dynamics, reaching a point in which we're now ready to scale our business in the country in a transformational way by tripling its size through these two transactions.

Moving away from India. We also entered into an agreement to acquire the 50% stake in <unk> that we did not already own too.

To refresh everyone. We made our original investment back in 2019, acquiring 50% of the business and this past month, we agreed to acquire the remaining 50% of the company with a plan to syndicate about a third of the overall ownership to call investors.

This was a situation where we could put capital to work in a business, we know better than anyone else given our existing physician and double down on what we.

It was already been a very successful investment that continues to have a strong outlook.

What attracted US originally <unk> was studied with a fully integrated solar development platform with a global presence in key solar markets, where we saw significant growth potential.

The business also has one of the strongest management teams out there and excellent capabilities around contracting and procurement.

Therefore, our <unk> investment is a great example of an opportunity where we were able to take a very strong standalone platform for all the reasons I, just mentioned and add significant value through our ownership.

These value creation has taken place since acquiring ex celio by successfully implementing our initial business plan.

It was mainly focused on delivering on growth returning equity through asset recycling and adjusting the capital structure to create a self funding business model.

But I'd like to particularly focus on the asset rotation strategy of CLO, where in the last three years, we've generated over $1 billion of equity proceeds from asset sales. This is more than doubling the invested capital in those projects that we sold.

The proceeds from these sales.

<unk> has been used to return almost half of our initial investment and also reinvested into new construction and future develop them development.

Growing the development pipeline from 5000 megawatts of entering back in 2019 to over 12000 megawatts to date.

We believe this has also been important to prove the value that <unk> is able to create through development or in other words that the business can not only grow at a fast space, but do it at strong returns on capital.

Finally going forward, we expect <unk> to continue benefiting from robust industry tailwind and its leadership position in most of the markets where the business expression.

To further enhance its profitable growth base, while maintaining its self funded business model.

With that I'll turn it over to white to discuss our operating results and financial position. Thank you very much.

Yes.

Thank you Ignacio.

As Conor mentioned in his earlier remarks, we had a strong start to the year.

Operating results reflect robust hydro generation across our portfolio.

Excuse me strong year on year realized power pricing.

Hi, asset availability and contributions from growth.

We generated <unk> of $275 million or <unk> 43 per unit.

An increase of 13% compared to the same period last year.

Our business continues to exhibit strong cash flow resiliency, given the diversified asset base and the ability to capture higher power prices, both through inflation linked power purchase agreements and a robust energy price environment for our hydro assets.

Across our hydro fleet reservoirs are generally at or above long term averages physician in the portfolio well for the remainder of the year.

Our balance sheet is in excellent position and our available liquidity.

Liquidity remains robust at almost $4 billion providing.

Providing significant flexibility to fund growth and be opportunistic in the current environment.

We also remain protected from higher interest rates with 90% of our borrowings being project level nonrecourse debt with an average remaining term of 12 years, and only 3% exposure to floating rate debt.

And while overall market liquidity may be challenged lend.

Lender appetite for high grade issuers, especially for those supporting renewables are de carbonization initiatives.

Maine's strong as demonstrated by our recently completed issuance of $400 million Canadian dollars of 10 year corporate bonds, which were three times oversubscribed.

We are also advancing nonrecourse financing initiatives and our asset asset recycling programs, which will generate additional capital to fund our growth.

We continue to see strong demand for renewable energy assets globally, and we are seeing strong interest across our capital recycling processes.

In this regard so far this year, we have generated over $300 million are almost $200 million net to Brookfield renewable of proceeds from these from our asset recycling program returning more than double our invested capital.

We are also advancing numerous capital recycling opportunities, which include <unk> deals signed year to date could generate up to $4 billion or approximately $1 5 billion net to Brookfield renewable.

In closing, we remain focused on delivering 12% to 15% long term total returns for our investors.

To do this we will continue to be disciplined allocators of capital by leveraging our deep funding sources and operational capabilities to enhance value and derisk our business.

On behalf of the board and management, we thank all of our unit holders and shareholders for the ongoing support.

We are excited about Brookfield renewable future and look forward to updating you on our progress throughout the year.

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.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of.

Sean Stewart with TD Securities.

Thank you and good morning, everyone.

Couple of questions.

Let's start with India.

Connor or Ignacio.

You've talked a lot about that countries the growth target for a long time and we're encouraged to see you.

Deploying capital more quickly now.

Can you speak to how the dynamics in that market have evolved to the point that youre more comfortable putting capital to work there.

And can you give us an idea of where the returns in India compare.

Two other markets youre targeting for growth.

Perfect. Thanks, Sean.

Youre, absolutely right and Ignacio touched upon this a little bit we entered the India market in 2017 and since entering the market five years ago, we've really.

Enhanced and broadened our capabilities on the ground there and we've done a number of what we would call a fairly modest bolt on transactions.

But to be clear over the last five years I would say, we we've reviewed almost every major transaction.

Has taken place in that market and we've always just been very selective about finding opportunities that have the right value entry point.

And for a number of reasons, we're seeing an influx of those right now.

And.

I do think that our expanded capabilities in the region and our ability to be a partner at scale to some of the growing platforms is really what is differentiating us at this point because in terms of what is really defining that market. Its two things one there are incredible.

<unk> Buildout ambitions.

And then secondly, we're in other markets around the world.

We see our business driven primarily by corporate historically, a lot of renewables in India have been sold through government auctions and increasingly now in India, we're seeing more of our commercial and industrial contracting market develop and that really plays to our strength. In for example that is were clean Max is one of the leaders.

The Indian market and why we're so excited to be partnered with that platform.

In terms of returns.

We do look for a return premium given it is a growing and developing market.

And we do take into account.

The cost of hedging the currency back to U S dollars and therefore, when we look in local currency of returns, we're certainly targeting things probably closer to the high teens.

And when that comes back to U S dollars.

Till kind of mid to high teens.

Okay, Thanks for that detail.

My second question is on the asset recycling program. It sounds like a lot of the initiatives are expected to close.

In the near term.

We have a sense of some of them like Shepherd flat, but can you give us a sense of what the regional or technology focuses for.

Our asset recycling and <unk>.

You've touched on some really compelling returns for assets you sold of late but.

Any target returns on those asset sales that are coming in next few quarters that you can give us some context on.

Certainly so so we'll answer that in two parts I would say.

Broadly, we have a fairly robust pipeline of asset recycling initiatives.

At this point, it's comprised largely of wind and solar assets and I would say.

This is probably coincidence more than anything else, but the.

Regions, where we're most active on the asset recycling side or the Americas, North and South America and.

In terms of.

The returns.

We're still seeing very very robust demand, particularly for high quality de risked.

Wind and solar assets and.

Sure.

This might be a funny analogy to make but.

<unk>.

When interest rates went down.

And you look back maybe 12 or 15 months ago and interest rates are very very low.

Im going to be illustrative here, let's assume you are selling at seven.

7% return interest rates have gone up materially maybe 150 to 200 basis points, we're not seeing the absolute return on the assets that we are selling widened by the same amount maybe at 50 basis points wider but thats not going to have a material impact on our business and the written.

Turns that we can generate developing assets at a higher return and then selling down to a lower cost of capital buyer.

We actually draw very similar parallel to the real estate world.

When interest rates go down cap rates don't compressed by the same amount and when interest rates go up cap rates don't rise by the same amount, it's a muted impact and that's certainly what we're seeing in our asset sale processes as well.

That's useful context, thanks, very much guys.

Okay.

Our next question comes from the line of Robert Hope with Scotiabank.

Good morning.

First question just on the commentary that you can meet your fixed to $7 billion investment target over the next five years is this driven by successes so far or the line of sight on the pipeline or is it even the size of the global transition front.

For the Mexico transition fund.

I would say, it's the first two.

Robert.

Obviously the pace since we set that target at our Investor Day last year has been very robust in the comment we made at Investor day.

We think holds true today, which is our ability to outperform that target is going to be dependent I think the words, we used almost regrettably is on how many large chunky transactions can we do and if you look over the past.

Six months.

We've seen Westinghouse get announced we've seen origin get announced those are the types of large chunky transactions that can certainly push us above our run rate in terms of target. So it's definitely predicated on the transactions we've done to date, but as we look at the pipeline going forward.

We have a lot of confidence that we can continue to keep executing on some of those large chunky transactions and therefore.

<unk> confident that we'll outperform that target that we set.

Alright, Thanks for that and then just maybe as a follow up on that pipeline.

Any geographies.

<unk> technologies or kind of spin offs that are our most attractive can you add a little bit of color, where you're seeing the greatest opportunities.

Certainly.

Maybe we'll answer the question.

A slightly different way there is certainly a dynamic.

In terms of where we're seeing the pipeline shift and.

In the last few years.

We've been very proud of our activity. We're thrilled about the investments we've made in investing in a lot of high quality developers ones in the United States that.

We're going to benefit tremendously from IRA businesses like <unk> in.

In Europe .

But over the last few years, where we haven't seen as much growth capital deployed is either into operating assets or into public companies.

And I think origin is an example of the latter changing.

And I think we expect that to continue we are seeing more opportunities in.

In the public markets today.

Potential public to privates and then for the first time in a few years, we're beginning to see a number of very attractive opportunities to buy operating assets at very value.

Very attractive value entry point, so I would say that's probably the biggest dynamic in terms of what we're seeing change in our pipeline.

I appreciate the color. Thank you.

Our next question comes from Rupert <unk> with National Bank.

Hey, good morning, everyone. A couple of follow up questions here first with with your investment into the Indian market can.

Can you give us an update on your thoughts about global diversification and your appetite for investing into developing markets how much of your portfolio could that makeup.

Yes, it's a great question Rupert.

I would say two.

Two things one our.

Our target balance Hasnt changed.

For years, we've said, we like to be approximately three quarters in developed markets and no more than probably a quarter in developing markets. If you actually look at our business today.

And if we look at.

At our pipeline given the scale of some of the transactions. We've done recently and the fact that our large scale deals tend to be in developed markets, we're actually probably closer to 80% now in developed markets and 20% in developing markets and that's not because we don't do lots of deals in our core developing market.

We do and we'll continue to do is just very simply that the largest deals we do tend to be in developed markets and that that overweight those when we look at our global diversification. So.

I think historically, we've said 75 that remains true but on balance today, we're actually closer to 80.

Okay, Great and then on the pace of investments and looking at some of these large chunky deals.

The the next energy transition fund that you raise could be quite large and we have seen the participation of burp in deals come down where do you see that participation heading in the future is there any risk that that.

Sorry.

Scale of the amount of capital that you have to invest crowd out the the public participation.

No I wouldn't say so what.

Perhaps the easiest way to frame that is.

Very similar to the first transition fund, we expect that to be the single largest LP in the second global transition plan.

And.

That's consistent with Brookfield approach across all of its flagships and then similarly, when we do do.

These large deals that will continue to be an active participant in the co invest in those deals.

And what I would say is.

In those large deals.

It's great having those co invest partners and even if that means that.

On a look through basis bats.

Economic ownership might be less than say 25.

That's fine Brookfield still controls the investment.

And really what it allows us to do is it allows us to target those larger transactions, where we see less competition and very attractive risk adjusted returns, but it also allows us to diversify our business increasingly as we do more and different types of those transactions around the world. So we view it as incredibly beneficial too.

Beth.

And I don't know if this is where you're going with your question I think one thing that's important to highlight is.

As the largest LP in those funds Beth is entitled to priority co invest just like any major LP and therefore, the amount of the economic exposure that we're taking to these investments.

At our discretion, we can target the amount of co invest that we would prefer and therefore the amount that we're choosing to invest is at our discretion and based on what we see is most attractive from a capital deployment perspective, as well as achieving that diversification objectives that we have.

For the company so.

<unk> on some of the big deals, maybe our percentage goes down a little bit, but we see very few negatives and a whole bunch of positives around that dynamic.

Very good thanks for the color.

As a reminder to ask a question that is star one one.

Our next question comes from Andrew Kuske with Credit Suisse.

Sure.

Thanks, Good morning.

I guess, a big picture question and when we look at things like origin, you've got assets in the marketplace, maybe trade at a discounted value given some of the fossil exposure.

How do you think about.

Allocating in those kinds of businesses.

And then what does that do to a composition of generation.

Up itself.

What I would say is.

We have three.

Thrilled about the origin investment it really tick three.

Three important boxes for us it's a large scale transaction. It has an incredible decarbonization impact and it's very attractive risk adjusted returns so.

If we if we can do more deals like that.

Obviously be thrilled.

But I think there's really two important things to highlight.

One is when you look through the thermal exposure.

The company is taking on by doing transactions like origin. One is it's incredibly minimal in the context of our global business and two it is incredibly short lift because our whole business plan is to build out renewables as quickly and as attractively as possible too.

Create clean low cost replacement capacity for that thermal generation fleet part of the reason why we like these investments is the key value drivers around a transaction like origin or almost no different than the key values.

Drivers around a down the fairway renewables developer if we can develop renewables at a fast pace at very.

Attractive levels, it's going to drive incredible value for us within the origin platform.

The other thing that I think is very important around our thinking when we look at these go where the emissions are deals and we've really done two of them now into energy and origin is.

We focus on transactions, where the decarbonization objectives and the financial performance are directly complementarity.

If we can decarbonize. These platforms is going to dramatically enhance value because in both inter energy and an origin, adding low cost clean renewables dramatically enhances the value and the cash flows of the broader platform. So we like these transactions where by Decarbonize.

The platform, we're actually going to dramatically.

Enhance and Derisked the cash flows.

They are great investments and ones that we're uniquely positioned to execute.

Okay I appreciate that and then maybe just continuing on that value enhancement strategies, you've got a lot of different levers to pull from a funding standpoint, whether it be copper recycling.

Just cash flows and soft co investment fund.

How do you think about the use of subsea as a currency because we saw one of the other Brookfield affiliates use their C Corp vehicle as part of a currency in a transaction I guess.

How do you think about that stacking up against all the other options you have.

Yes, certainly.

The I would say when it comes to our funding strategy. It remains what it has been in the past and the way you framed. The question was very helpful. We do have a number of levers within our existing portfolio to create a self funding business model and that's up financing of our existing assets and <unk>.

Asset recycling primarily.

But when it comes to considering other form.

Forms of funding will make two comments one when it is incredibly valuable and strategic we will.

<unk> of using equity is always on the table.

We always look back at the example of Terraform and if we see those high value and strategic opportunities, where we can use our shares to effectuate.

A transformational transaction will always consider it the other thing I would say is.

If we continue to see an exceptionally robust pipeline of very attractive high returning deals. We may look to augment our funding strategy, but that would be a good news story because of the robust pipeline of high returning accretive deals.

And that will obviously be subject to what the market gives us in the next 12 to 24 months.

Okay. That's great. Thank you.

I'm showing no further questions in queue at this time I would like to turn the call back to Connor <unk> for closing remarks.

Well. Thank you everyone for joining our call today, we continue to always appreciate your interest and support of Brookfield renewable and we look forward to updating you on our Q2 conference call in a few months.

Thanks, and have a great day.

This concludes today's conference call.

You for participating you may now disconnect.

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Q1 2023 Brookfield Renewable Partners LP Earnings Call

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