Brookfield Renewable Partners L.P.
Investor Day: Increasing targeted equity deployment to capitalize on large opportunity set
Our view: At the Investor Day, management delivered a consistent message on growth (10%+ FFO/unit and 5-9% distribution growth annually), targeting premium returns (12-15%) on capital deployed, and also highlighting the significant level of investment opportunities needed to achieve global decarbonization targets. Management increased their targeted annual equity deployment to $1.0-1.2 billion, which was previously increased to $0.8-1.0 billion from $0.8 billion at their September 2020 Investor Day. We continue to view BEP as a core holding in the renewable energy space.
Key points:
Large decarbonization opportunity set drives higher capital deployment target. Management highlighted that various sources have estimated that the investment required to support the decarbonization of the energy system over the next 30 years totals $3.5-5.0 trillion annually. Brookfield Renewable (BEP) has been developing renewable energy projects globally for decades, and has more recently started to provide decarbonization solutions to various corporations. Management increased their targeted annual equity deployment to $1.0-1.2 billion (from $0.8-1.0 billion), and have deployed $7 billion over the past ten years at an accelerating pace.
Leveraging in-house expertise to generate premium returns.
Management will continue to leverage their in-house development, operational, and financial expertise to drive a targeted 12-15% levered after-tax return on capital deployed. Given the low interest rate environment and heightened competition, particularly in North America and Western Europe, we believe the 12-15% return is a healthy premium over what many financial investors and smaller developers can achieve.
Development activities ramp-up and broaden to include green hydrogen.
Over the past several years, BEP has increased its focus on development activities, growing its development pipeline ten-fold to 31 GW in 2021 (mainly solar, onshore and offshore wind, and hydro), up from 3 GW in 2015 (onshore wind and hydro). Approximately 8 GW are secured, and will be put into service over the next three years (contributes ~3% annual FFO/unit growth). One noticeable addition to the development pipeline is 0.2 GW of green hydrogen that may eventually increase to ~2-3 GW as management is in discussions with various parties.
Maintaining self funding model and growth forecast. BEP currently has a BBB+ credit rating and $3.3 billion of available liquidity. Management plans to fund ~$6 billion of equity deployment over the next five years without the need to issue common equity. The company will use a combination of asset sales, preferred units, corporate and asset-level debt, and retained cash flows (see Exhibit 4 for details). Management also reiterated their guidance of 10%+ FFO/unit annual growth over the next five years, consisting of 6-11% organic growth and up to 9% from M&A, supporting annual distribution growth of 5-9% (unchanged).