Q4 2023 Brookfield Renewable Corp Earnings Call
Okay.
Yeah.
Good day, and thank you for standing by welcome to the Brookfield Renewables fourth quarter 2023 earnings call.
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I would now like to hand, the conference over to your host today Connor Tusky Chief Executive Officer. Please go ahead.
Thank you.
Operator, good morning.
Everyone and thank you for joining us for our fourth quarter 2023 conference call.
Before we begin we'd 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 for more information you're encouraged to review our regulatory filings available on SEDAR Edgar and on our website.
On today's call, we will provide a review of our 2023 performance and an update on the business and our growth initiatives before handing it over to Stephen Gallagher CEO.
Brookfield renewable U S, who will discuss how we are enabling the growth of the largest and fastest growing companies around the world and what that means for our business.
And then lastly, why it will conclude the call by discussing our operating results and financial position.
As always following our remarks, we look forward to taking your questions.
2023 was a record year for our business on many metrics.
Generated record funds from operations benefiting from organic growth and acquisitions.
We deployed a record amount of capital into attractive and accretive opportunities across all our key markets.
And we developed more capacity than we ever have before all while strengthening our balance sheet.
We have established ourselves as a global clean energy Supermajor evolving from a pure play renewable energy producer to a preeminent platform for renewable power and decarbonization solutions with scale and the breadth of capabilities and relationships that set us apart from our peers.
In a year, where we saw rising interest rates and supply chain challenges facing the sector, we were able to execute across our business plan.
Most notably our disciplined approach to development, which focuses on removing risks upfront meant that our development activity remains robust delivering a record year and preserving our returns.
At a time when some market participants are headwinds.
We also saw the benefit of our prudent approach to financing our business, which combined with the strength of our balance sheet durability of our cash flows and diverse sources of scale capital ensured that we were able to continue to pursue growth at a time when some could not and there was less competition.
We deployed or agreed to deploy 9 billion of capital alongside our partners.
Highlighted by our acquisitions of Westinghouse to revert energy the remaining 50% interest in <unk>, which we did not own banks renewables and investments in clean Max and Nevada in India.
And while our proposed acquisition of origin energy did not receive the required level of shareholder support we are confident in achieving our target deployment of $7 billion to $8 billion over the next five years and growing our cash flows and distributions in line with our targets.
Since the initial announcement of the origin transaction, we've received inbounds from businesses around the world, who are seeking a partner with significant capital and deep operating expertise to accelerate their transition goals and enhance the value of their businesses.
With respect to our development, we continue to scale up our capabilities and delivered almost 5000 megawatts of new capacity in the past year.
From 3500 megawatts in 2022.
And we also pulled forward the rest of our pipeline.
Our advanced stage pipeline is materially derisked with over 25% of the next three years plan capacity already under construction.
An additional over 20% with revenues and then puts fully contracted and then the incremental over 30% in the final stages of securing ppas and construction contracts.
Between our Derisked highly visible development pipeline.
The growth opportunities, we are seeing in the market.
And our organic growth levers, we are confident in achieving our 10% plus <unk> per unit growth in 2024 and beyond.
With that we are pleased to announce an over 5% increase to our annual distributions to $1 42 per unit. This.
This is the 13th consecutive year of at least 5% annual distribution growth dating back to 2011, when Brookfield renewable with publicly listed.
Now, we will turn it over to Stephen to discuss how we are enabling the growth of the global technology companies and what that means for our business.
Okay.
Thank you Conor and good morning, everyone.
The position of the technology Mega caps as the largest and fastest growing businesses in the world.
<unk> to solidify.
Since 2020, the cloud computing segment of these companies.
Grown by over 30% per annum.
Representing our highest growth segments and generating the highest margins.
Increasing demand for cloud computing from digitalization and the adoption of AI enabled tools.
Our driving these companies to continue to invest heavily in their capabilities and capacity.
And two on two other key ingredients needed to deliver these products are computing power and energy.
Over the last 12 months the race to increase computing power has been illustrated by the increase in demand for certain inputs.
Such as computer chips.
However, we believe most investors have yet to grasp the importance of a secure energy source and enabling the delivery of the data center and computing power growth.
The largest cloud computing businesses run on clean power is.
These companies have committed to 100% clean energy targets and have grown the consumption by approximately 50% per annum over the last couple of years.
Making them the largest buyers of green power globally.
I know the highly power intensive nature of AI.
Is acting as a multiplier on energy demand.
Which is increase increasingly becoming a key bottleneck for growth of cloud computing.
For example.
The integration of AI.
Users up to 10 times more power when integrated into a typical search process.
On renewable power as the cheapest form of bulk electricity production is the solution.
This growing electricity demand.
Furthermore, at the scale and energy intensive phase of data centers increases Dave.
Eight facilities put pressure on the global electricity grids.
As a result, certain regulators are no requiring data center developers to provide a power solution in order to receive their data center permits.
This does put access to power on the critical path to growth for these technology companies.
This is leading our partners to engage in commercial conversation earlier in the process to develop solutions with us.
Which has the dual benefit of <unk>.
With Derisking the technology companies power needs.
Also our development pipeline.
It is widely estimated that global electricity consumption from data centers will increase to approximately 10% of total electricity demand by 2030.
Up from approximately 2% today.
To put this in context this means that to satisfy the needs of data centers alone.
Which doesn't factor in the penetration of Evs are broader electrification.
Additional generation capacity will be required equivalent to the size of the current U S grid.
For the better part of a decade, we have been positioning our business to capitalize on these trends.
Combined with our early focus on corporate power marketing capabilities.
It has allowed us to serve the needs of the largest and fastest growing buyers of green power.
The global technology companies have been among the largest carpet customers all of our businesses now for years.
As we have differentiated ourselves with our scale and credibility delivering new energy projects on time to enable that growth.
Our ability to deliver 24, seven clean power solutions.
And across geographies positions, our business to continue to be a major beneficiary of this robust demand growth.
Further our ability to provide unique and tailored solutions at scale allows us to avoid competition and drive better returns in the bilateral markets.
We have signed contracts to provide over six to eight terawatt hours of power over the past two years to these large technology companies.
The amount, we expect to increase dramatically in the coming years.
As a result going forward, we expect the vast majority of our new renewable power development will be contracted to carpet customers where.
While we are seeing strong demand from our differentiated offerings.
At attractive contract terms.
Currently we have approximately 22 terawatt hours per year of generation contracted two copper customers.
Representing approximately 30% of our total contract volumes.
Over double the volumes contracted to these types of customers five years ago.
Based on our existing development pipeline, we expect contracted generation to corporate customers to double again by 2020 as to approximately 44 terawatt hours per year.
5% of the <unk>.
Our contracted volumes.
With that I will pass it onto ways to discuss our operating results and financial position.
Okay.
Thank you Steven and good morning, everyone.
Our operations continued to perform well this quarter benefiting from the diversification of our fleet and strong all in power prices.
We delivered solid results in the fourth quarter was <unk> 38 up 9% year over year and on a full year basis, we delivered record <unk> at $1 $1 billion or $1 67 per unit, a 7% increase over the prior year.
While our results fell slightly below our target of 10% plus <unk> per unit growth for the year largely due to later than expected transaction closings during the fourth quarter, we remain well positioned to achieve our goal going into 2024 and beyond.
We are already seeing the benefits of our growth activities, which were back end weighted this year as we commissioned nearly half of our almost 5000 megawatts of new capacity in the fourth quarter.
We are also seeing strong cash flows from the closing of the previously mentioned major acquisitions that took place in the final three months of the year and are expected to contribute over $100 million in incremental annual <unk>.
We also expect to receive an uplift as our fleet reverts to long term average generation, particularly from our hydro assets, where we often see cyclicality.
During the year, we continued to execute on our growth initiatives as counter highlighted.
Simultaneously strengthening our balance sheet.
We executed on almost $15 billion of nonrecourse financings generating almost $500 million enough financing proceeds to Brookfield renewable.
We were also successful with our capital recycling program, which we continue to scale with our development growth generating an $800 million of proceeds over the past 12 months representing over three times our invested capital.
We take a disciplined and practical approach to asset rotation looking to sell assets when they are in demand and attractive valuations at or above our internal assessments, regardless of technology our geography.
This approach has served us well and generated returns above our underwriting targets for investors.
During the second half of the year, we saw a disconnect between the price of our shares in the public markets and the underlying value of our business and took that opportunity to repurchase 2 million units under our normal course issuer bid.
Looking forward, we will continue to allocate capital based on where we're seeing the best risk adjusted returns and remain confident we will continue to create meaningful value for our investors going forward.
In closing, we remain focused on delivering 12% to 50% long term total returns for our investors, while remaining disciplined allocators of capital and leveraging our deep funding sources and operational capabilities to enhance 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're excited about Brookfield renewable future and look forward to updating you on our progress throughout 2024.
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, if you'd like to ask a question at this time. Please 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 good morning.
Two questions on the corporate PPA environment.
Can you give us perspective on price terms, how that's trended I know theres, an upward trend, but specific to the contracts here <unk>.
Youre, signing how that trend for pricing has evolved.
How that pension relates to contract duration, I know theres been a general trend towards longer term contracts.
How does that interplay with the price terms you can you can attain right now.
Good morning, Sean.
For the question so maybe it will come out.
In a slightly different way, but will answer your question head on.
What we are seeing as a result of Sig.
<unk> increases in.
The new electricity demand this is being driven by.
The data center demand this is being driven by increased penetration of Evs. This is being driven by.
Electrification of industrial processes is right now there is far more corporate offtake demand than there are ready to build projects that in key locations. There is simply a.
Supply demand imbalance.
In favor of those that have ready to build projects in key locations.
And the way this shows up in terms of pricing is the dynamic that we've been seeing for a number of years now which is we are able to pass through higher capex cost higher funding costs through too.
The off taker in the form of higher PPA prices, while preserving our development margin.
And therefore, we are able to continually services increased.
The demand and put more projects through into that increased amount of demand.
At the same development returns that we were seeing previously if not even a little bit higher today because of that really robust supply demand dynamic. So that's what we're seeing in terms of pricing it will obviously depend.
On the respective power market and things like Capex and funding costs within those respective markets, but what we are seeing because of that increased demand is the ability to preserve or even perhaps marginally enhance our development margins.
And then in terms of contract duration one thing.
We have been very uncompromising about for years now is there's been this perception that as.
As renewables over the last 10 years came off government feed in tariffs increasingly onto corporate client tracks that meant that contract durations got shorter.
Simply arent seeing that and we're seeing significant demand for long term quarter Blake contract $15 $17 $18 20 years and those are obviously very attractive to us and can be financed very attractively. If we deal with high credit quality Counterparties and Thats really the bulk of demand that we're seeing today.
Thanks for that detail and then just one follow on with respect to data centers I know at least in the U S.
The location of those data centers tend to be quite concentrated in specific regions.
How do you expect that will evolve then can you give perspective on Brookfield ability to meet demand.
In those specific areas.
Sean It's a really astute question, because you're absolutely right.
This demand well significant.
Is not equal in all places.
The power needs to be in a place where it can service that that corporate demand load, but we are seeing a number of dynamics.
First and foremost the ability to work with the counter parties, where where is there the potential to co locate new data centers near power.
Generation.
Can be built and a really strong relationships with the large corporate off takers is we can proactively work with them to identify those locations and then either through M&A or through Greenfield development prospecting, we can look to create development pipeline in those regions.
Service that demand.
The second point I would make in regards to your question here is the.
The opportunity to service this corporate demand is really today.
It's not something that we're seeing for the future. This is happening in real time. So in order to service. This corporate demand. It is not simply having the capability of the capital to do it you actually need to already have a very large pipeline of projects and this is where our strategy for the last few year.
<unk> is really coming to fruition, where we have been focused on buying premium developers with large development pipelines in core markets really to ensure that we are well positioned to meet this demand as it has accelerated and today those pipelines are very valuable because they are in the ground. They are.
Our existing they are working through their development process and they can meet that demand in the near term as opposed to simply planning for projects 385 or seven years out.
That's great detail. Thanks Connor.
Ill get back in queue.
Our next question comes from the line of Robert Hope with Scotiabank.
Good morning, everyone wanted to stick on the data center.
<unk> for today.
Hmm.
So when Youre looking at your development pipeline and the contracting strategy there like how can you maybe add a little bit.
<unk> of how it's moved away from single assets to more groups of assets to serve this demand and then when you think about the opportunity set in front of you do large developers such as yourself with large pipeline should you disproportionately.
The benefit versus the smaller developers in this well call it increasing.
Opportunity set so that in essence your market share should increase.
Sure so.
Good morning, Rob and thanks for the question.
You are right that.
<unk>.
This dynamic is going to lead to concentrations in certain regions.
Data center demand dynamic and to be clear there is without question the greatest.
Concentration of data center growth that needs power supply is in the United States.
And we are very fortunate that over half of our development pipeline.
Globally at fifth.
In the United States.
The second thing to highlight here is yes, well individual projects might be signing.
Signing contracts to support individual data centers, the corporate counterparty that backstops that contract is the corporate Holdco of these large tech companies, we have a corporate guarantee from the trillion dollar plus market cap companies around the world.
Is not a ring fenced.
Third party credit individualized to a singular data center and I think that's a really important dynamic to understand because we take great comfort that as this growing opportunity set continues to expand these are literally the best counter parties around the world.
These are not individual assets. These are the large tech companies themselves that are the counterparties.
And then to your question about scale.
<unk>.
This is going to play into the hands of the larger players, but I think the reason for that is perhaps a little bit nuanced and we would really focus on two things.
The power demand that is required.
By these large tech companies is truly remarkable sometimes it's tough to put the magnitudes in context and therefore, if you are a large technology company looking to secure your power supply you can either work with literally thousands of <unk>.
Individual small developers or you can work with a smaller number of very large developers and we are very fortunate to be in that group or even at the top of the lift when it comes to that group that can provide to meet the needs of these large technology companies at our scale.
That few others can and really move the needle.
For them in terms of deep bottlenecking their future growth.
So that would be 0.1, the other point that should not be underestimated and why we are so constructive on this market is the.
The most important thing to these counterparties is that projects are delivered.
They are delivered on time.
The developer does not walk away from the projects if they can't get the equipment or they they get knocked off schedule because of supply chain are shipping issues, and our global capabilities and our ability to push through issues using our operational.
<unk> ability to when they arrive ensures that we are amongst the most reliable counterparties to these large tech companies. The power will be delivered on schedule and I would say that is a completely underappreciated.
<unk>.
Benefit for a large players such as us because the worst thing for the Tech company is if the power is in there in the data center can't turn on and this is why we're finding them to be very constructive in terms of contract terms when working with large reliable counterparties such as ourselves because the most important thing to them.
Is that reliability and that the project will be delivered on time and Thats, a reputation and a capability we've been.
Reinforcing and enhancing for years now.
I appreciate that.
Maybe as a follow up and more broadly with our current markets.
How are you thinking about allocating capital in 2024 does the returns kind of skew more to the development side versus the buy side right now or how are you seeing that opportunity set.
Certainly.
Really what we've seen.
Particularly in the last call it.
Maybe four weeks of Q4 and into 2024.
Is what we've seen is a stabilization in interest rates.
2023 rates were going up and up and up and the great part about our business is it.
This is a real returns business.
Works, whether interest rates are at 3% or 4% or 5%, but everyone can appreciate that when markets are uncertain and rates seem like they are going up in perpetuity that.
That became a more tougher market for people to transact in and as we kind of turn the page into a new calendar year here.
What we have is stability in interest rates, maybe they land at three and three quarters, maybe they land at four and a half but they are they're going to be within a pretty tight range here and that is a very constructive level.
For our industry and as a result, we think this year will be very very active from a transaction perspective, both on the investment side and on the capital recycling side.
Some of the uncertainty, particularly in the latter half of 2023, probably caused the number of people that stand on the sidelines early indications in 2020 for us.
This.
<unk> uncertainty in the market people are open for business and we're seeing that in our sales processes that have launched and we're also seeing that in our engagement in terms of new growth opportunities.
In terms of where specifically we are seeing those opportunities I would say its across the spectrum and public companies still do remain a key focus of ours, even with somewhat of the relief rally in the latter part of the year, but.
But I would say.
Where interest rates are settling.
It's a pretty good level for both buying both operating assets and development assets I think we would be pretty balanced this year going forward.
Excellent. Thank you.
Our next question comes from the line of Rupert <unk> with National Bank.
Hi, good morning, everyone.
One more follow up on the data center. So the PPA as Youre looking at are they typically simple take or pay contracts or is there some element of capacity required.
Most of them are <unk>.
$17, $18 20 year take or pay inflation linked contracts.
These are these are the good ones that we want.
Some of the large technology companies are increasingly looking for $24 seven Green power solutions, and we can use our wind and solar development pair that with either hydro's are battery storage, but I would say, that's typically at a premium or with incremental upside to those call it 17% to 18% to 20.
A year take or pay inflation linked contracts.
Alright, great. Thank you and then secondly, looking at your production in the quarter. So you came in.
The 85% of LTA, we are seeing similar trends across your peer group of course, just wondering if you can comment on those recent weather patterns and what you anticipate going forward, maybe some some thoughts about your your LTA assumptions.
Perfect.
And thanks for the question and maybe let us.
Sure and shine a little bit of light here, because there is really two different dynamics happening.
Within our LTA.
One of the key differentiating factors that of Brookfield renewable.
One of the things that is really the bedrock of our business is we have that very large critical base of Baseload hydro.
And while that is very very valuable relative.
Relative to wind and solar hydrology is a slightly more variable.
Asset class in terms of resource, but there is two things I would focus on when it comes to our hydro LTA.
One we monitor it.
<unk> closely and we are constantly needing to update it for any financings or transactions that we do and therefore over any period of time, yes, there can be some variability a little below LTA a little above LTA.
But those long term averages are bang on.
Even when the resource.
Can be a little above or a little below LTA. The other thing that needs to be over layered on that dynamic is where is that resource above or below LTA.
If our hydro resources below LTA, and a very high value market versus being above LTA in.
I'll say lower value market that can have a different impact on.
Our financial results, so well that hydrology is a little bit more variable. It is very consistent over the long term and the one point, we would reference here is as our business continues to grow and diversify the importance of that hydro LTA is being increasingly diluted over time.
The second component of our LTA is a little bit more structural and it's showing up a little bit more in in our current results today for obvious reasons, which is as we buy new businesses.
One of the things, we often focus on is finding investment opportunities, where there are clear operational enhancements that we can execute in the short to medium term under our ownership.
So often when we buy new businesses they.
They do start at slightly below LTA.
As we take over those businesses from their previous ownership and then as we execute our business plans and implement those operational improvements those businesses trend up to that LTA number.
As we've gone through a period of very very rapid growth here over the last call. It 12 months to 36 months, we have more of that in our numbers today than we would've had let's say three or five years ago, but the great News is that's all identified that's all within our control and we will see those numbers.
And up to LTA as we execute on some of the Repowering refurbishments equipment replacements that we identified in our underwriting and Thats all moving very very much on track and should increasingly play out in our financial performance going forward.
So looking at the second component in the overall shortfall to LTA how much of it was the result of curtailments, we do see.
Significant curtailment of wind power in some markets and of course, that's something that can be controlled to some degree with the addition of batteries or maybe new transmission lines is this just a significant component of the shortfall for you.
I would say no I don't.
Don't have a specific.
Figure to provide here.
But.
Without doubt the most.
Most significant components of the discount to LTA or one just resource variability.
And then secondly, those specific identified operational improvements that we are pushing through our assets curtailment of course does exist.
But I wouldn't say, it's a material draw.
Driver of our LTA results.
Well I hope that answers. Your question, yes, there is perhaps one thing I would add which is you commented on batteries and increasingly the implementation of storage that is a very strong dynamic we are seeing in our business.
In particular, the addition of batteries on an increasing proportion of the new development activity we do.
We're seeing that as a very low risk and attractive return risk adjusted return way to enhance a number of the assets that we've either recently acquired or are developing.
Great. Thank you for the color I'll leave it there.
Okay.
Our next question comes from the line of Mark Jarvi with CIBC.
Thanks, Good morning, one.
Maybe just building off your comment around interest rates stability sort of opening up the M&A markets, a little bit more how would you frame.
Interest and put a dynamics around larger.
Assets and portfolios is it the same as it was six months ago do you think the number of I guess potential interested parties has increased in the last couple of months.
But.
I would say that the.
Stabilization in interest rates, absolutely has increased the number of interested parties. There is no question about that I would say, we have really seen a fairly dramatic shift.
Here, we are the beginning of February end of January if you compare the market today versus where we were at say the end of September four months ago. It is night and day in terms of the level of activity the amount of interested parties again on both the buy side or the sell side.
Maybe the only added point of color that we.
Would make there and it ties back to our answer to one of the previous questions is.
Sure.
Really what we saw in 2023 was a number of businesses.
So our headwinds that we thought could largely be attributed to one of two things. If you took significant basis risk in your development activities.
The higher capex levels, increasing capex levels and higher funding costs really caught your short and that really disrupted or negatively impacted.
Number of developers around the world, particularly those in the offshore space that was one dynamic that was a key headwind to 2023, the other dynamic was simply.
<unk>.
Higher interest rates.
More materially impacted those businesses.
<unk>.
We're reliant on.
Unfettered access to the capital markets and very very cheap financing and businesses that had relied on that sort of funding structure.
Suffered in last year's economic environment.
Those two dynamics have seen a little bit of relief in.
The last again call it two to three months.
But we should be very clear that those dynamics haven't gone completely away.
We have not returned yet.
And I don't think we will return to the almost zero interest rates, an unlimited access to capital that was there three or four years ago. So some of those business models still don't work and we will need either capital or operating partners to get back on a stable footing. So while there is more activity in the markets I would.
Say, it's also still a relatively.
Robust investment opportunity set.
Okay. A couple of thoughts on maybe does that mean, there is an opportunity to do the Duke transaction is not as readily available at that valuation today and I guess on the <unk>.
Flip side, how does the market conditions inform I guess, the pace and the type of assets Youre considering for capital recycling into 'twenty 'twenty four.
Yes, both great questions I would say.
The comments I made standby everything.
And I would say are very very vastly applicable transactions like.
What we did on the Duke transaction or the banks transactions those were essentially bilateral deals at very significant scale, where we offered something that essentially the other participants in the market could not and well there are more people.
Active in the market today, there is still a very very large opportunity set for us to do bilateral deals where either the transaction structure, we can own the operating capabilities, we can bring or the scale. We can provide is relatively unmatched. So.
<unk>.
For many transactions is there more competition today.
Yes, but are we seeing an inability to do bilateral transactions as we have done in the past no no we are not.
And then just maybe on asset sales in terms of the pace of potential asset sales. This year versus last year do you think that accelerates.
100%, sorry, I forgot to answer the second part of your question absolutely.
And this is where we have seen.
Some really strong demand to start 2024 is there does seem to be still a lot of capital flowing into this sector and that that capital maybe took a pause for a couple of quarters.
In that more uncertain interest rate environment.
It has not taken long for that capital to come back So we would.
<unk> to be relatively active on the capital recycling.
Syed.
In 2024 and in terms of where we see that activity.
<unk>.
Same same strategy that we've always executed we will be unemotional in terms of geography asset class or or technology, and we will look for opportunities, where we can sell assets at at greater value than we see in holding them in our own portfolio in terms of.
Where some of those dollars might be I would say just given the relative.
Okay.
Dispersion of our portfolio that today is largely in North America, and Western Europe surely because of that concentration, that's probably where we'd see the greatest amount of asset recycling.
Okay.
Sneak one more in just.
<unk> <unk>.
Recent sort of update there is that a positive turnaround maybe stepping into larger offshore wind investments is that still something that youre really active on it.
Kind of changed in terms of the the likelihood of making a larger play in offshore wind sometime in 'twenty report.
Sure.
Our approach to offshore wind and well quickly restate. It here we are.
The technology, it's large it's fast growing it's mature and quite frankly because of the differentiated load pattern. It can provide to onshore wind and onshore solar it is actually critical.
Too many power markets around the world what we have struggled with in the past is the investment profile or the basis risks you had to take as an investor as a developer where sometimes you add to invest hundreds of millions or billions of dollars upfront to the for the right to build out of <unk>.
<unk>, four or five or six years and in that time period and that lag market conditions could shifting go against you.
Obviously today there are a number.
At market participants, who have seen headwinds that maybe need to get out of some of their offshore wind projects.
And maybe some of those offshore wind projects are a lot closer to construction or a lot closer to coming online and therefore, there is less of that basis risk that we had an aversion to so I would say we are much more active in reviewing opportunities in the offshore space today than we would be.
Would have been a couple of years ago, but like anything we'll compare those opportunities to the risk adjusted returns, we see elsewhere and allocate to the best ones.
Understood. Thanks for the time.
Our next question will come from the line of Nelson <unk> with RBC capital markets. Great. Thanks, Good morning, everyone I had a few.
Two questions on your development pipeline. So obviously, you've highlighted a lot of opportunities in the U S.
But I was just looking at your <unk>.
Development pipeline and South America.
Pretty soon I don't think there are any.
Wind our utility scale projects in the advanced stage. There. So I was just wondering is there a lack of opportunities there or are you just mainly focused on.
Developing in North America, and Europe at the moment.
Hi.
Very good question and relatively easy to answer.
Obviously, the vast majority of our development activity traditionally in South America has been in Brazil and for the last few years, we have I would say have been very very successful in.
In developing some some large and attractive.
Projects in that market.
For those that don't know.
Power prices in Brazil, due to their very strong concentration.
Of of hydroelectric generation across the grid are very dependent on hydrology levels and if you went back.
I would say two to four two to five years ago hydrology levels across the Brazilian system were relatively low and that supported higher power prices.
That made wind and solar development very very very attractive and that's the market, where we developed many of those large projects into that have come online in 'twenty, two where 2023 or are scheduled to come online in 2024.
But what has since happened I would say in the last 18 months is hydrology has dramatically improved in Brazil, and because of that is across the system. It pushed shares power prices down and today. They are at very very low historical levels, obviously, our business in Brazil is almost 100.
Percent contracted so we are not exposed to those lower power prices, but it does make it more difficult to find new wind and solar projects that.
That can secure contracts in this price environment and still be developed at attractive levels. So this is a short term dynamic.
And solar growth in Brazil will recover and it will be very robust, but this has been driven by a relatively large shift in hydrology levels that has changed the market prices and we are simply in a period of time, where.
Development activity in that market is going to be reduced because it's simply tough to secure contracts at attractive enough levels to justify the capex.
That's really good color Conor I'm glad theyre getting more water.
Bad debt slow down development.
So the next question is.
Obviously, you have commissioned about four five gigawatts in 2003, and Thats growing to $6 six and seven six gigawatts over the next two years.
I know you have your target of roughly deploying call. It one 5 billion per.
Per year on average so.
Of that one 5 billion roughly.
Roughly what portion of that is now.
It's going to development.
Yeah sure. So I would say going into the next couple of years 'twenty four 'twenty five.
Approximately a third give or take.
<unk> is already kind of identified in organic growth opportunities that number.
Could could prove to be a little bit light, but I would say it's.
About a third.
Okay, and then just one last question.
I noticed that you are also involved in solar panel manufacturing to some degree it looks like there's about one five gigawatts and two five Gigawatts next year like are you self supplying some of your developments or is this more of a hedge on cost or how do you how do you.
At the.
Your involvement in solar panel manufacturing.
Sure so probably the easiest way to answer that question is let's talk about the exposure we have today as well as our approach going forward our exposure today to solar panel manufacturing is part of a structured a large structured investment we made in a company called.
<unk> energy in India, a lot of energy is one of the largest independent renewable power.
Owner operators and developers and that is the vast majority of the bulk of their business, but in addition to being that large scale owner and developer of renewable power. They also had two other business lines, one theyre doing some solar panel manufacturing.
Themselves.
And two they are also in the early stages of some green hydrogen production.
All of this in India. So our exposure to this space is through our BARDA, where we have made a downside protected structured investment to fund their growth across all three.
Those.
Verticals, but the vast majority of that business today is a I would say relatively down the fairway, leading renewable power developer in India.
In terms of.
So and while we do have a good relationship with Nevada, and we'd happily use some of those solar panels when they.
<unk> are up and running and producing.
Sure.
Our investment exposure it is.
I would say very very modest relative to our global procurement needs.
Well, that's our exposure today.
Are seeing around the world a trend towards just the scaling up.
The supply chain for both renewable power and other decarbonization solutions and we could see ourselves in the future look to be an investor in the scaling up of that supply chain, but only if we can do so on a very attractive risk adjusted return base.
And with an investment profile that we are comfortable with and that essentially means we would only do it if the our investment was backstopped by long term take or pay off take contracts very similar to what we look for when we build a new solar plant or build a new wind farm.
So.
We would not rule out investing in supply chain in the future, but only if we can do so with an investment profile commensurate with what we typically target and that means they would have to be backed by long term offtake contracts.
That's great color.
Thanks Connor.
Our next question will come from the line of David <unk> with Raymond James.
Thanks, Good morning, everyone.
Maybe first one for me just on.
The comments in the release around inbounds that you've gotten inbound calls since the origin deal was announced I'm just curious if theres any.
Any color you can provide on what kind of opportunities you see there maybe in terms of the nature of those deals geographical location.
The scale of those opportunities any color on that.
For sure.
What we would say is as well.
The outcome of the origin vote was disappointing.
Going through that process in a highly public nature of it we really demonstrated one not only the business plan, we were willing to sign up for but also the operating capabilities and capital commitment we would throw behind one of those large scale.
<unk>.
Business transformation, our power transformation opportunities.
The other thing that I think was demonstrated throughout origin as well, yes. It did represent buying perhaps a different initial business than when we buy.
Pure play renewables developer what became very clear in our explanation of what we were doing there is.
Our business plan was really predicated on the exact same thing we do everywhere else around the world. It was predicated on being a leading high quality best in class renewable power developer and just doing that within a different.
Company or business construct.
I think that was very illustrative and illuminating to the market because we have received inbounds and I would say those inbounds are across North America, South America, Europe and Australia.
Since the announcement of origin.
The one point I would highlight however, David is.
These are very large and strategic.
<unk> decisions for our company to make.
It is really changing the trajectory of the business.
Large scale Capex program to transition businesses that leading businesses and their market to less carbon intensive and more de risked and more valuable business strategies, but over a multiyear period. Therefore, those types of transactions they don't happen overnight.
They involve a long term core chip period education process working with those companies before I transaction can be agreed upon or come to fruition. So while we are having a number of those conversations today I would suggest that we're.
We're excited about them, but they do tend to be longer lead time.
Deals.
Excellent. Thanks for that Garner and then maybe just one more from me.
Any any quick thoughts on south certainly sounds like.
The M&A pipeline is alive and well and.
The stabilized rate environment things have been better, but I'm just curious what you think the.
I guess uncertainty around the U S election, how could that affect things.
Year wears on maybe uncertainty around what happens with the tax credits.
Yes, certainly a great question and.
We will revert back to a point that I think it's really a <unk>.
Critical not to lose sight of and it ties to a bunch of the major themes, we've been discussing on todays call to date energy.
Driven by corporate demand far far far more than it is by government push.
And therefore.
Well politics does have a role to play it is in no way going to disrupt the rapid growth and the current trend line of investment and opportunity in those sectors.
However, I do think it is important too.
Respond to some of the rhetoric and headlines in the market today, depending on what might happen in the U S elections.
I do think Theres, two very important things to highlight one.
Under IRR today, the vast majority of IRA funds are going to Republican states. So well there may be changes to that bill under a different leadership.
Wouldn't expect it to change dramatically.
And then the second thing to highlight is.
What's fantastic about the current situation in the United States is we've seen what happens for renewables growth under both a Republican or Democratic leadership in recent years and even going back to when there was Republican leadership in the United States that was <unk>.
One of the fastest growing periods for renewable power in that country. So I think that does reiterate that while government policy can have an effect on things that trend line of corporate demand is going to set the pace in growth of this industry and government policy, it's simply going.
To put a little bit of ebb and flow around that trend line is.
Certainly not going to wildly change our approach to the market our strategy.
That's great color appreciate it I'll turn it over thank you.
Our next question comes from the line of Ben Pham with BMO.
Hi, Thank you good morning, I wanted to continue to the topic of <unk>.
Corporate M&A versus asset acquisitions and.
I'm curious when you think about corporate deals with Brookfield renewable historically or even how you think about it going forward.
What do you think the main benefits for you specifically on a corporate transaction, especially when you talk about maybe that a long drawn out.
Process for courtship.
Yes, certainly.
Ben It's a great question.
There is two or three things I would highlight in particular, it's an environment, where we can very much differentiate ourselves using our scale and operating capabilities.
<unk>.
<unk>.
<unk> corporate are essentially picking a partner to help them transition to a new business model that is going to be more sustainable and more valuable for decades to come they don't want to pick a partner who is in very very credible without best in class capabilities. So we do.
Think it is an environment, where we can do those types of deals on a bilateral basis.
And really be differentiated and therefore, hopefully target some very attractive.
Returns on our capital the other thing.
That is important to highlight is.
<unk>.
Not dissimilar to what we've seen in other call it power transformation or business transformation opportunities is there is an underappreciated benefit in some of those deals those are often large and leading corporate in many of the markets that they operate in and as a result, there is <unk>.
Often some very attractive embedded infrastructure within those businesses that we can utilize to make.
Make the invested capital in renewables buildout or other transition initiatives, either more de risked or done at higher returns. Because these businesses are often leading and have been built up over years and decades. The underlying infrastructure is sometimes an underappreciated benefit of some of those transactions.
Interesting.
And then maybe my second and last one the distribution on slide.
5%.
Quite solid.
This environment.
That make it seem like this.
This question around is it does not.
It wasn't strong, but I'm curious more.
That 5% how do you how do we think about that relative to your 10% growth rate plus.
And your guidance of 5% to 9% how do you how do you reconcile that.
Yeah, absolutely. So we remain very committed to our.
Increasing our distribution within that 5% to 9% annual increase range that we.
Pat in the market for years, now and our decision around where we set within that range is always dictated by where can we drive the best returns for our capital and because we are simply seeing so much growth and have seen so much growth in our industry and in our sector.
And quite frankly within our company specifically, both our organic pipeline and our M&A pipeline, we have been at the low end of that range and Thats simply because we are seeing such attractive opportunities to deploy that capital.
Very accretively into growth.
Obviously, we are a long way away from making those decisions for years to come but that trend has been quite consistent for a number of years now and no doubt.
Played a big role in where we set the distribution increase this year.
Okay understood. Thank you.
Our next.
Question comes from the line of Joe Nussbaum with BNP Paribas.
Hi, John.
John from BNP.
How do you think about contracted versus spot power prices going forward as the percent moves into the 80% and 70.
Did you see decreases or increases in realized pricing and how it hedges play a role.
Yes, certainly so our business is.
Outside of some of the hydro facilities, we own in north in essentially the United States and Colombia is essentially 100% contracted business.
And we.
We continue to believe that the risk adjusted returns you can get by fully contracting out our wind and solar pipelines all of our new development. The attractive financing you can get against those.
Those contract and the stability it provides to our growth and our earnings is the most attractive thing we can do and therefore, we remain committed to not building on spec only building when we've secured that that long term contracted revenue offtake.
But to your question our contract profile I would say almost always looks the way that it does today, a little bit higher in the near term and then kind of fading down call. It 10 percentage points over the next five years and what that is is largely just are.
Hydro portfolio that does have some modest component of merchant, we do that to protect against the variability of the resource and very simply some of those contracts are rolling off over the next two or three years, but we would simply look to re contract them at that point and I would say being at.
Essentially 90% contracted for the current year.
In kind of tailing off 10 percentage points from there over a five year forecast I would say that profiles largely going to stay the same and just keep rolling forward as time passes if anything it might go a little bit up because.
On the power price environment today is far more constructive than it's been over the last three to five years. So we might enter into more long term contracts on that hydro portfolio, but otherwise I would stay that say that that profile is largely going to stay the same even as time passes and rolls forward.
Got it okay. Okay that makes a lot of sense and I guess, just one up.
Financing you completed $500 million in 2023, I think it was $800 million was the most recent expectation is due to the LTA performing performance versus <unk>, how should we think about that through 2024 or is it just lumpy.
Perhaps I'll start and then maybe why you can jump in if I've missed anything.
I would say it certainly wasn't anything to do with.
LTA performance.
Didn't even come into the discussion what we are always looking to do is use.
Excess leverage capacity within our portfolio as a means to raise liquidity at very attractive rates that we can then reinvest into growth in a very accretive manner and we will look to do that on an opportunistic basis at all times going forward. A great example of that was how we tapped.
The MTN market just in January.
Securing 30 year term debt at very attractive rates. When there was an attractive opening in that market. So I would say there is nothing specific around the timing of those up financings, but why it I'll hand to you if there's anything to add.
Yes, most of US look the financing environment for the majority of where we're looking to do those that financing.
On a hydro asset the financing environment.
It continues to be robust it is probably even more robust.
Rates have normalized and so really this was just a factor of timing and climate around our our funding needs. What have you that that capacity that we had previously mentioned that additional $300 million continues to be there and it was just around us managing.
Our sources and uses based on our growth pipeline what have you. So it was really just a factor of timing.
And as I mentioned the.
The capacity is there and in fact, the environment has gone better than we would have made.
I would estimate around $800 million.
Very helpful. Thanks again.
That's all the time, we have for Q&A today, I would like to turn the call back to <unk> for closing remarks.
Thank you everyone for.
Joining this quarter's call.
We appreciate your interest and support of Brookfield renewable and we look forward to updating you with our Q1 results in a couple of months. Thank you and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
Yeah.
Okay.