June 8, 2022
Brookfield Renewable Partners L.P.
Highlights from the RBC Global Energy, Power and Infrastructure Conference
Our view: We hosted a breakout session with Wyatt Hartley (Chief Financial Officer). We believe the most important takeaway from our session is that Brookfield Renewable is well positioned to capitalize on the growing renewable opportunity set, targeting to deploy $1.0-1.2 billion in equity capital per year with targeted returns of 12-15%. Further, Brookfield Renewable has a strong track record of deploying capital at attractive returns, particularly during times of market dislocation. We reiterate our Sector Perform rating.
Key highlights from our session
Growth outlook is the strongest it has ever been. Management indicated that the growth outlook and opportunities are the strongest they have ever seen, and the company is uniquely positioned as one of the largest global clean energy developers and operators. The biggest driver for growth is the significant amount of capital required to meet global decarbonization objectives. Historically the company primarily grew through M&A, but has increased its development activities in recent years. Capital deployment continues to be driven by opportunities with the best risk adjusted returns, and management expects the trend towards a higher investment in developments to continue.
Largely insulated from inflationary pressures. Inflation is typically a headwind for renewable developers, but we believe it could be incrementally positive to BEP. With respect to the operating assets, 70% of contracts have some form of inflation indexation, leading to higher revenues while the cost structure is largely fixed. Regarding advanced projects under development, management locks in the project costs (procures equipment and signs fixed EPC contracts) close to the time PPAs are signed, limiting the variability in project economics. Finally, for earlier- stage projects, PPA prices are increasing to reflect higher project costs. Management estimates that PPA prices have increased 20-25% since the beginning of the year, while corporate PPA demand continues to rise.
Dipping toes in some emerging technologies. With respect to emerging technologies, the company does not like to take any meaningful technology risk, but has made some select investments in green hydrogen and carbon capture and storage. The investments either have a long-term contract, or are structured to limit downside exposure (e.g., convertible debt). Management sees significant potential in these technologies, but is waiting for the technologies to mature before investing in scale.