Brookfield Renewable Partners Non Voting Units BEP

RBC

[retiredcf]

March 28, 2022

Brookfield Renewable Partners L.P. C$300 million investment into CCS

Our View: We believe the $300 million investment arrangement with Entropy into carbon capture and storage (CCS) developments is consistent with Brookfield Renewable's (BEP) focus on providing energy transition solutions for industrial and commercial customers, and CCS expands BEP's suite of product offerings. In addition, we believe CCS provides another avenue for BEP to deploy capital at presumedly attractive returns.

First impression:

C$300 million investment agreement into CCS. Entropy Inc., a subsidiary of Advantage Energy Ltd. (TSX: AAV - covered by RBC Dominion Securities Inc. analyst Michael Harvey), announced a C$300 million investment agreement with BEP to scale up deployment of Entropy's CCS technology globally. The investment will be made through the Brookfield Global Transition Fund I (BEP has a 25% participation in the fund or C$75 million net investment). If successful, we believe the C$300 million commitment could lead to additional investments into CCS.

Funding near-term CCS projects. The C$300 million will be invested in a hybrid security, and amount will be drawn down to fund CCS projects that reach Final Investment Decision (FID) as certain predetermined return thresholds are met. The projects include the Glacier Phase 1 and 2 CCS developments. Entropy's management expects the Glacier Phase 1 project will come on-stream in Q2/22 at a cost of ~C$27 million. Entropy has a CCS development pipeline with signed MOUs representing 3 million MT of CO2 per year and ~C$1.5 billion of potential investment.

Expanding BEP's suite of energy transition product offerings. Over the past several years, BEP has been increasing its focus on providing energy transition solutions (e.g., 24/7 renewable electricity supply, rooftop solar, utility scale renewable projects, and energy efficiency and management services) to various industrial and commercial customers. We believe that BEP's investment into CCS will expand the company's product offerings, making BEP a one-stop-shop for energy transition solutions.

CCS economically viable at $40/MT. Entropy has acquired and developed numerous innovations that have driven CCS costs down to the point where post-combustion projects (including capture, transport and storage) are economically viable at carbon pricing of $40/tonne. Entropy's management expects the Brookfield investment, together with the anticipated CCS Investment Tax Credit (previously announced by the Government of Canada to be enacted during 2022), will provide all anticipated near-term capital funding needs with no additional capital required from Advantage to achieve Entropy's growth plan.