Brookfield Renewable Partners L.P. (NYSE:BEP) Q1 2024 Earnings Call Transcript

Brookfield Renewable Partners L.P. (NYSE:BEP) Q1 2024 Earnings Call Transcript May 3, 2024

Brookfield Renewable Partners L.P. misses on earnings expectations. Reported EPS is $-0.23 EPS, expectations were $0.01. Brookfield Renewable Partners L.P. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to Brookfield Renewable’s First Quarter 2024 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Connor Teskey, Chief Executive Officer. Please go ahead.

Connor Teskey: Thank you, operator. Good morning, everyone, and thank you for joining us for our first quarter 2024 conference call. Before we begin, we would like to remind you that a copy of our news release, investor supplement and letter to unitholders can be found on our website. We also want 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 are 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 first quarter performance, our role as a key enabler in the growth of digitalization and AI, and our recently announced agreement with Microsoft. And then we will hand it over to Esper Nemi, Senior Vice President on our investment team, to discuss the growth opportunities we are seeing in the current market as well as our asset recycling initiatives. And then lastly, Wyatt will conclude the call by discussing our operating results and financial position. Following our prepared remarks, we look forward to taking your questions.

We had a strong start to the year, generating record funds from operations in the first quarter, benefiting from our development activities and acquisitions. Our operating business continues to grow and diversify, helping to improve the durability of our results and deliver on our distribution growth target.

As the accelerating global trends of cloud computing, digitalization and the adoption of AI continued to drive significant growth in the demand for power, we are fortunate to be a key enabler of one of the most significant growth trends in recent history. The leading global technology companies, who reported results over the past 2 weeks, all highlighted significant increases in their capital budgets to fund cloud and AI infrastructure growth.

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Q&A Session

The role that computer chips play in delivering the compute power behind AI is well understood by the market. But to execute on the number of computations that make AI such a powerful tool, you also need an immense amount of energy. The market is only starting to understand this need and power demand estimates to supply the growth in cloud computing, and the adoption of AI have grown significantly in recent months and quarters.

However, existing energy infrastructure is simply not adequate to meet the demand from AI, meaning sourcing sustainable renewable power at scale is now on the critical path to delivering the rollout of AI globally. In this regard, we recently signed a landmark renewable energy framework agreement with Microsoft, where we expect to deliver them over 10.5 gigawatts of new renewable energy capacity in the United States and Europe between 2026 and 2030. Our strategy of building a business with leading platforms across the most important power markets globally, supported by our centralized teams, provides us with a unique development and operating capabilities, whereby we are able to leverage local relationships for permitting and interconnection and our global relationships for procurement and contracting to deliver a volume of capacity that is difficult to match.

This first-of-its-kind agreement between us and Microsoft is a natural development in the long-standing and well-established relationships between one of the largest buyers of power and one of the largest renewable power developers and operators globally. The agreement supports Microsoft on a path to achieving their energy procurement needs to support the rapidly growing business in a sustainable manner, while also enhancing our position to achieve or exceed our targeted growth by identifying the key requirements for new capacity, including the location of the capacity and the time line to deliver. Through the agreement, we have identified projects that are in various stages of development that can be offered to Microsoft under a pre-agreed standard form, power purchase agreement.

With the well-defined framework that aligns the 2 parties to work together, we are confident in the potential of expanding on this agreement going forward and furthering our position as a key partner to support the growth of Microsoft’s business. This agreement already includes provisions to increase its scope to deliver additional renewable energy capacity within the U.S. and Europe and beyond to other regions, including Asia Pac, India and Latin America.

The partnership is a testament to our differentiated offering, which is characterized by our access to capital and credibility to deliver scale, clean power solutions from our extensive pipeline of advanced stage projects, which are well positioned from an interconnection and permitting perspective in many key data center markets globally.

While this partnership is a first of its kind, given the significant scale of investment required to meet the increase in energy demand, we believe we are uniquely positioned to be a key enabler of growth for the largest technology players through similar arrangements. Our access to scale capital, sizable development pipeline, which is now almost 160 gigawatts, and our ability to commission significant capacity concurrently to meet this demand, altogether differentiate us as a partner.

We are also uniquely positioned to provide a tailored solution to help address our customers’ needs. Our ability to provide scale 24/7 clean power solutions through the combination of our large portfolio of existing hydro assets, our leading nuclear business and other renewable power capacity from across the technology spectrum also distinguishes our offering. This is translating into favorable contracting opportunities.

With that, we would now like to turn the call over to Esper to discuss our robust growth pipeline as well as our asset recycling initiatives.

Esper Nemi: Thank you, Connor, and good morning, everyone. Our pipeline of attractive growth opportunities is as robust as ever, given our access to scale capital, strong operating business, and market conditions where not all counterparties are necessarily as well situated, creating a favorable environment for new investments.

In the foreseeable future, there is a need for greater amounts of capital for renewables than is available. As Connor mentioned, electricity demand is accelerating as a result of growth in digitalization, electrification and renewables, which are the lowest cost source of bulk power generation in most regions and countries now, and they’re aligned with net-zero targets, are among the most likely sources to meet this growth.

In 2023, renewable capacity additions globally grew by 50% compared to the prior year. However, renewable power developers and operators were not prepared for a higher interest rate environment or are unable to manage through supply chain challenges have seen their business models disrupted. This has created an opportunity to invest for value, where for business, which remains insulated from such headwinds, we are ideally situated at the clean energy center between capital and opportunities.

Our access to scale capital means we can execute on large opportunities where there are few viable partners and risk-adjusted returns can therefore be very attractive. Larger companies can also attract stronger management teams and have embedded growth opportunities, which when combined with our capital and capabilities, can allow us to unlock additional value creation that others cannot.

We’re excited about the opportunity to add scale businesses and platforms in attractive markets where we can compound our competitive advantages. We’re also able to leverage the expertise for global investment teams and our operating capabilities to strategically enter new markets, which enables us to look at a broader range of opportunities.

Thus far this year, we have advanced several growth initiatives that when closed would add operating capacity and near-term growth through our development pipeline, and based on our current pipeline, we are optimistic that capital deployment will accelerate throughout the rest of the year.

On asset recycling, the market for the right type of renewable power asset continues to strengthen as the outlook for interest rates have stabilized. 2023 was a very strong year for capital rotation, and we expect to continue that trend this year. Our large and growing portfolio of contracted operating assets with fixed rate, nonrecourse financing and pipeline of derisked projects are in high demand from lower cost of capital buyers, where for scaling development activities, we have a growing pool of projects to monetize and crystallize strong returns. We are fortunate to have launched a significant pipeline of asset sales into this environment, which we are advancing across technologies and geographies with the consistent characteristic being the derisked nature of the assets.

In aggregate, we are targeting to generate $3 billion of proceeds or $1.3 billion net to BEP this year at attractive returns. With that, I’ll pass it on to Wyatt to discuss our operating results and financial position.

Wyatt Hartley: Thanks, Esper, and good morning, everyone. Our operating business had a strong start to the year, delivering record funds from operations as we benefited from our diverse operating assets and contributions from our growth and development activities. We generated FFO of $296 million in the quarter, up 8% year-over-year or $0.45 per unit. These results position us well to deliver on our 10%-plus FFO per unit growth target for the year.

Our hydro assets exhibited strong cash flow resiliency, a reflection of our diversified asset base, inflation-linked power purchase agreements and ability to realize strong power prices. Our wind and solar segments benefited from our recently closed acquisitions including Dervia, formerly Duke Energy’s unregulated renewable business, and on path, our U.K. wind, solar and storage platform.

Our Distributed Energy & Storage segment benefited from recent development activities and our Sustainable Solutions segment performed well as we felt the impact from a full quarter of contributions from Westinghouse. Our financial position remains excellent with a strong balance sheet and robust liquidity, positioning us to be opportunistic through the cycle.

Over the quarter, we executed almost $6 billion in financing, taking advantage of pricing with spreads near historic lows. In January, we issued CAD 400 million of 30-year notes at 5.3%, and meaningfully extended our debt maturity profile. Later in the quarter, we issued $150 million of fixed-rate perpetual preferred equity, with proceeds being used to refinance outstanding preferred shares that were scheduled to reset in early April.

The newly issued notes are 70 basis points cheaper than the reset rate of the outstanding shares we redeemed, saving us almost $5 million over the next 5 years. We ended the quarter with $4.4 billion of available liquidity, enabling us to deploy significant capital into growth. Considering public market conditions, our strong conviction in the intrinsic value of our business and our healthy balance sheet position, we allocated capital to repurchase our units in the quarter.

In the last 9 months, we repurchased over 4 million units under our normal course issuer bid. Looking forward, we will continue to allocate capital based on where we are seeing the best risk-adjusted returns, and remain confident we will continue to create meaningful value for our investors.

In closing, we remain focused on delivering 12% to 15% long-term total return for our investors, 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 unitholders and shareholders for the ongoing support. We are excited about Brookfield Renewable’s future, and look forward to updating you on our progress throughout the year. 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.

Operator: [Operator Instructions] Our first question comes from the line of Sean Steuart with TD Cowen.

Sean Steuart: A couple of questions on the Microsoft agreement to start with. Connor, can you give us more detail on the focus between North America versus Europe for this initial 5 years? And within the U.S., specifics on target regions and how your pipeline lines up with what Microsoft is targeting for their demand growth?

Connor Teskey: Sean, thanks for the question. Certainly. So we’re thrilled about this arrangement with Microsoft. It’s incredibly beneficial in help — in how it will help us to further optimize and grow our development activities. In terms of the breakdown between Europe and the United States, the balance of it is certainly in the United States. And this just layers very logically with where you are seeing the greatest amount of data center build-out around the world. That pairs very, very well with our business. As many may know, on the call, the vast majority of our near-term development pipeline is in the United States and pairs very well with that growing demand. In terms of where within the individual regions, we’ll probably avoid the specifics.

But the comment that can be made is, it’s very well known where the largest data center markets are. These tend to be the areas where there is the most robust grid in order to support the build-out and where there is the greatest amount of development capacity in order to support that build out. So there’s no secret sauce here. This is the locations where this activity will take place are primarily in the U.S. because that’s where data centers are built mostly. And then within that, in the biggest data center markets within the United States.

Sean Steuart: Okay. One other question before I get back in the queue. The Biden Administration advancing trade action on solar panel imports from China, and it sounds like other Southeast Asian countries. Can you give us perspective on how BEP is positioned? Any possible impact on project economics as you see it going forward? How does this affect your growth plans in the technology?