Brookfield Renewable Looks to Continue to Grow Its Energy Transition Investments

Equity Analyst

Brett Castelli

Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. The company targets 12%-15% returns via a combination of organic growth and mergers and acquisitions. Brookfield utilizes a primarily contrarian approach to M&A.

Brookfield Renewable’s portfolio has historically been heavily weighted toward hydro generation, but that has changed in recent years given outsize growth in wind and solar. Hydro has decreased from approximately 80%-85% of the company five years ago to approximately 50% today. We expect hydro to continue to decline as a percentage of cash flow over time, given relatively limited growth opportunities when compared with wind and solar. Solar has increased to 15%-20% of the portfolio as of 2022 and management has outlined robust growth plans expecting it to be the largest energy source in the long term.

In addition to renewable energy assets, Brookfield Renewable expanded its investment scope in 2022 to include broader energy transition asset classes. These include novel areas such as carbon capture as well as traditional fossil fuel and nuclear power generation.

Brookfield Renewable’s geographic focus has historically been on North America and Latin America, but has also expanded in recent years to Europe and Asia. We expect the company to take a largely agnostic view toward geographies, opting to invest where the most attractive risk-adjusted returns are. However, the company has communicated it expects roughly 75% of its portfolio to be in developed markets with the remaining 25% in emerging markets over the long term, in order to manage foreign exchange risks. 

Brookfield Renewable primarily invests in assets alongside Brookfield Asset Management’s private equity funds. This approach brings the benefit of increased scale, allowing the company to pursue larger opportunities, but results in frequent acquisitions and disposals. Management seeks to add value through aggressive cost and revenue optimization. The company was historically primarily an acquirer of operating assets, but has added development capabilities in recent years.

Business Strategy & Outlook

We do not award Brookfield Renewable an economic moat. We attribute much of Brookfield’s ability to earn excess returns to its strong capital allocation track record and not an underlying moat source. 

Brookfield Renewable employs an unusual structure in which it invests in assets alongside institutional investors via Brookfield private equity funds. This results in much of Brookfield Renewable’s growth being tied to mergers and acquisitions as opposed to organic growth. 

Development of renewable energy assets can be characterized by fierce competition and thin returns above cost of capital. Potential moat sources include intangible assets via long-term contracts and scale advantages, but are reserved for a select few companies, in our view. The industry enjoyed robust returns in its early days as competition was sparse and subsidies were high. However, recent years have seen sharply increased competition and compressed returns. This is coupled with limited barriers to entry--particularly for onshore renewables such as wind and solar--where the average project size and complexity is much smaller than traditional thermal plants. 

Brookfield’s renewable legacy is centered on its hard-to-replicate hydro assets (approximately 50% of 2022 cash flow). We believe hydropower plants have attractive moat characteristics, given their long useful lives of about 100 years, relatively low operating costs, and dispatch capabilities in the case of pumped hydro. In addition, new hydro assets are extremely difficult to build given needed regulatory approvals and locational constraints, supporting an efficient scale moat source. We particularly view this as the case for Brookfield’s North American hydro portfolio, which comprises a majority of its hydro capacity and is concentrated in the Northeast United States. Hydro’s favorable characteristics are partially offset by greater year-to-year resource variability than wind or solar. 

We do not believe Brookfield’s wind segment, which was about 23% of 2022 cash flow, possesses an economic moat. The company has 5.4 gigawatts of assets globally, which we do not view as large enough scale to demonstrate a cost advantage. For comparison, narrow-moat Nextera has 20 gigawatts of wind capacity in the U.S. alone. Brookfield’s wind portfolio does benefit from intangible assets in the form of contracts with counterparties for approximately 90% of generation in 2022, declining to 80% by 2026. This level of contract coverage should ensure consistent returns for Brookfield’s wind portfolio in the near term, but falls short of garnering a narrow-moat rating, in our view.

We do not believe Brookfield’s solar and energy transition segments warrant an economic moat. Brookfield is a relatively new entrant into the solar market, where we see fewer barriers to entry relative to wind given simple construction and smaller project sizes. 

Brookfield’s reliance on M&A coupled with our expectation for hydro, its moatiest segment, to decline as a percentage of cash flow over time results in our no-moat rating.

None

Economic Moat

Brookfield Renewable Partners

Brookfield Renewable Partners LP engages in owning a portfolio of renewable power generating facilities primarily in North America, Colombia, Brazil, Europe, India, and China.. It operates through following segments: Hydroelectric, Wind, Solar, Energy Transition, and Corporate. The Energy Transition segment distributes generation, pumped storage, cogeneration, and biomass. The company was founded on June 27, 2011 and is headquartered in Hamilton, Bermuda.

Earnings data Q2 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Brookfield Renewable Partners LP engages in the ownership of a portfolio of renewable power and sustainable solution assets. It operates through the following segments: Hydroelectric, Wind, Utility-Scale Solar, Distributed Energy and Sustainable Solutions, and Corporate. The Distributed Energy and Sustainable Solutions segment includes distributed generation, pumped storage, renewable natural gas, carbon capture and storage, recycling, and cogeneration and biomass. The company was founded on June 27, 2011 and is headquartered in Hamilton, Bermuda.

Algonquin Power & Utilities

Atlantica Sustainable Infrastructure

Brookfield Asset Management

Clearway Energy

Global X MLP & Energy Infrastructure ETF

NextEra Energy

Global X Renewable Energy Producers ETF

TotalEnergies SE

Renewable energy stocks have sold off recently over concerns about how higher interest rates will affect their profitability. But the four renewable power producers we highlight in the article have structured their balance sheets well and have plenty of liquidity and optionality. We compare and contrast the four renewables stocks and view them all as being good buying opportunities today, to varying degrees.

Buy The Dip: 2 'Strong Buy' Renewable Energy Stocks

Brookfield Renewable is in an excellent position to capitalize on the renewable energy megatrend. The company has already locked in a healthy growth rate for the next several years.

1 Magnificent Dividend Stock You Can Confidently Buy and Hold Forever

Crown Castle International

Enterprise Products Partners

Brookfield Renewable's growth is practically a slam dunk. Crown Castle is poised to benefit from increased 5G adoption.

3 No-Brainer Dividend Stocks to Buy in June

ConocoPhillips

Chevron

Electric vehicle (EV) stocks are not the investment solution we expected. Finding a single power provider that is a good investment has been a problem, but there is a good solution. Investors seem to shift their focus from one energy source to another.

Profiting From Green Energy - But Not EVs

Constellation Energy Corp

Marathon Digital Holdings

nCino, Inc.

Keep an eye on companies that have witnessed solid earnings acceleration as of now, such as nCino (NCNO), Constellation Energy (CEG), Brookfield Renewable Partners (BEP) and Marathon Digital (MARA).

4 Stocks to Watch Now for Superb Earnings Acceleration

I've covered BEP before and was quite bullish on the company. But recently I discovered just how much upside the fund gives up in fees to Brookfield. I take a deep dive into Brookfield fee structure, discuss management incentives and present my playbook for the company.

Brookfield Renewable: Stay Away As Brookfield Is Channeling Fees To The Top

Ares Capital

Ares Capital could be the best ultra-high-yield dividend stock on the market. Brookfield Renewable offers an attractive dividend, plus exceptional growth prospects.

Buying These 3 High-Yield Dividend Stocks Could Be Brilliant Moves

Array Technologies

Canadian Solar

Enphase Energy

First Solar

Hannon Armstrong Sustainable Infrastructure Capital

SolarEdge Technologies

Like it or not, higher interest rates hurt renewable energy developers and component producers.

Why The Fed Will Hurt Renewable Energy Stocks

Apple

AbbVie

AGNC Investment

AGNC Investment Corp - FXDFR PRF PERPETUAL USD 25 - Ser D 1/1000th int

AGNC Investment Corp. Deposit Shs Repr 1/1000th Cum Conv Red Pfd Registered Shs Series C

Allianz SE

Antero Midstream Partners

Apple Hospitality REIT

Apollo Commercial Real Estate Finance

Broadcom

Boeing

Alibaba

Bank of America

BASF SE

B&G Foods

Bank of Montreal

Bayerische Motoren Werke AG

Bank of Nova Scotia

Markets are racing higher as the earnings season turned out much better than expected. Sector rotation into tech stocks has led to a surge in big-tech with Nvidia clearly leading the pack.

My Dividend Stock Portfolio: New April Dividend Record - 99 Holdings With 21 Buys

Brookfield Renewable is up 22% year-to-date, breaking with the broader market downtrend to outperform its peers. The renewable energy giant currently offers a 4.3% distribution rate to its unitholders.

Brookfield Renewable: A Green Energy Giant With A 4.3% Yield

Brookfield Renewable is poised for tremendous growth. Enterprise Products Partners' ultra-high dividend is rock-solid.

3 No-Brainer Dividend Stocks to Buy With $1,000 Right Now

Activision Blizzard

Brookfield Infrastructure

BlackRock

Canadian Natural Resources

Disney

Fortis

Gentex

Home Depot

Magna International

Microsoft

Royal Bank of Canada

Starbucks

SPDR S&P 500 ETF Trust

Toronto-Dominion Bank

Each month and each quarter doesn't necessarily bring a comparable level of excitement. The best thing to do with your portfolio is often not to do anything. That's what I did last month, and this is what I will do for most of 2023.

Sometimes, Investing Isn't Exciting - April Dividend Income Report

Maxeon Solar Technologies

Plug Power

Shoals Technologies Group

Orsted AS

Vestas Wind Systems A/S

Renewable energy is expected to generate almost all of the world's electricity growth between now and 2025, an analysis of data from the International Energy Agency indicates. Moreover, by that year, renewables are on track to become the world's largest source of electricity.

7 Top Renewable Energy Companies to Invest in for Long-Term Growth

Century Aluminum

Catalyst Pharmaceuticals

MakeMyTrip

Warby Parker

Notable companies to have witnessed earnings acceleration as of now are Catalyst Pharmaceuticals (CPRX), Warby Parker (WRBY), MakeMyTrip (MMYT), Brookfield Renewable Partners (BEP) & Century Aluminum (CENX).

5 Stocks to Keep a Tab on for Solid Earnings Acceleration

Renewable energy is a powerful long-term megatrend. Brookfield Renewable and NextEra Energy are leaders in the field.

Investing $1,000 Into These Dividend Stocks Could Yield a Big Payoff By 2030

Enbridge

Chevron gives you a chance to benefit if energy prices rise, but it also has the financial strength to survive if they don't (while still paying its dividend). Enbridge should have no problem continuing to grow its high-yielding dividend.

Investing $1,000 in These Energy Stocks Would Be a Brilliant Move Right Now

Brookfield Renewable reported funds from operations grew 13% year over year. The company aims to grow distributions by 5% to 9% annually.

Why Brookfield Renewable Shares Jumped Friday

Although the revenue and EPS for Brookfield Renewable (BEP) give a sense of how its business performed in the quarter ended March 2023, it might be worth considering how some key metrics compare with Wall Street estimates and the year-ago numbers.

Here's What Key Metrics Tell Us About Brookfield Renewable (BEP) Q1 Earnings

Brookfield Renewable Partners L.P. (NYSE:BEP ) Q1 2023 Earnings Conference Call May 5, 2023 8:30 AM ET Company Participants Bruce Flatt - Chief Executive Officer Connor Teskey - President of Brookfield Asset Management, CEO of Renewable Power & Transition Ignacio Paz-Ares Aldanondo - Managing Director and Head, European Investment Team Wyatt Hartley - Chief Financial Officer Julian Thomas - Managing Director and Head, Strategic Initiatives Mark Carney - Chair of Brookfield Asset Management, Head of Transition Investing Conference Call Participants Robert Hope - Scotiabank Rupert Merer - National Bank Financial Andrew Kuske - Credit Suisse Operator Good day and thank you for standing by.

Brookfield Renewable Partners L.P. (BEP) Q1 2023 Earnings Call Transcript

All amounts in U.S. dollars unless otherwise indicated BROOKFIELD, News, May 05, 2023 (GLOBE NEWSWIRE) -- Brookfield Renewable Partners L.P. (TSX: BEP.UN; NYSE: BEP) (“Brookfield Renewable Partners”, "BEP") today reported financial results for the three months ended March 31, 2023.

Brookfield Renewable Announces Strong First Quarter Results

Brookfield Renewable (BEP) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Is a Surprise Coming for Brookfield Renewable (BEP) This Earnings Season?

Eli Lilly

McDonald's

Brookfield Renewable should benefit from near-certain growth in the demand for renewable energy. Eli Lilly has multiple new products that are poised to generate impressive sales growth.

3 Supercharged Dividend Stocks to Buy if There's a Stock Market Sell-Off

Brookfield Renewable's (BEP) first-quarter earnings are likely to have benefited from the contribution of clean assets spread across four continents.

What's in Store for Brookfield Renewable (BEP) in Q1 Earnings?

Sunrun

The move toward decarbonization and the global transition to renewable energy sources is accelerating. According to the International Energy Agency (IEA), renewable power sources will surpass coal to become the world's biggest source of electricity generation by early 2025.

3 Stocks to Buy as the World Moves Toward Decarbonization

Outset Medical

Trade Desk

Brookfield Renewable could deliver explosive growth thanks to the increased demand for renewable energy. Outset Medical is barely scratching the surface of its huge opportunity in dialysis.

Want $1 Million in Retirement? Invest $250,000 in These 3 Stocks and Wait a Decade.

News for Brookfield Renewable Partners Stock (BEP)