Brookfield Renewable Partners L.P. (NYSE:BEP) Q4 2023 Earnings Call Transcript

Brookfield Renewable Partners L.P. (NYSE:BEP) Q4 2023 Earnings Call Transcript February 2, 2024

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 the Brookfield Renewable ‘s Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host 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 fourth quarter 2023 conference call. Before we begin, we would like to remind you that a copy of our news release, investor supplement and letter to unit holders can be found on our website. We would also like 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 2023 performance and an update on the business and our growth initiatives before handing it over to Stephen Gallagher, CEO of Brookfield Renewable US, who will discuss how we are enabling the growth of the largest and fastest growing companies around the world and what that means for our business.

And then lastly, Wyatt will conclude the call by discussing our operating results and financial position. As always, following our remarks, we look forward to taking your questions. 2023 was a record year for our business on many metrics. We generated record funds from operations benefiting from organic growth and acquisitions. We deployed a record amount of capital into attractive and accretive opportunities across all our key markets. And we developed more capacity than we ever have before, all while strengthening our balance sheet. We have established ourselves as a global clean energy super major, evolving from a pure-play renewable energy producer to a preeminent platform for renewable power and de-carbonization solutions, with scale and the breadth of capabilities and relationships that set us apart from our peers.

In a year, where we saw rising interest rates and supply chain challenges facing the sector, we were able to execute across our business plan. Most notably, our disciplined approach to development, which focuses on removing risks up front, meant that our development activities remained robust, delivering a record year and preserving our returns, all at a time when some market participants saw headwinds. We also saw the benefit of our prudent approach to financing our business, which combined with the strength of our balance sheet, durability of our cash flows, and diverse sources of scale capital, ensured that we were able to continue to pursue growth at a time when some could not and there was less competition. We deployed or agreed to deploy 9 billion of capital alongside our partners highlighted by our acquisitions of Westinghouse, Deriva Energy, the remaining 50% interest in X-Elio, which we did not own banks renewables and investments in CleanMax and Avaada in India.

And while our proposed acquisition of Origin Energy did not receive the required level of shareholder support, we are confident in achieving our target deployment of $7 to $8 billion over the next five years and growing our cash flows and distributions in line with our targets. Since the initial announcement of the Origin transaction, we have received inbounds from businesses around the world who are seeking a partner with significant capital and deep operating expertise to accelerate their transition goals and enhance the value of their businesses. With respect to our development, we continue to scale up our capabilities and delivered almost 5,000 megawatts of new capacity in the past year, up from 3,500 megawatts in 2022, and we also pulled forward the rest of our pipeline.

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Q&A Session

Our advanced stage pipeline is materially de-risked with over 25% of the next three years’ planned capacity already under construction, an additional over 20% with revenues and inputs fully contracted, and an incremental over 30% in the final stages of securing PPAs and construction contracts. Between our de-risked, highly visible development pipeline, the growth opportunities we are seeing in the market, and our organic growth levers we are confident in achieving are 10% plus FFO per unit growth in 2024 and beyond. With that, we are pleased to announce an over 5% increase to our annual distribution to $1.42 per unit. This is the 13th consecutive year of at least 5% annual distribution growth dating back to 2011 when Brookfield Renewable was publicly listed.

Now we will turn it over to Stephen to discuss how we are enabling the growth of the global technology companies and what that means for our business.

Stephen Gallagher: Thank you, Connor, and good morning, everyone. With the significant growth in demand for data globally, the position of the technology mega-caps as the largest and fastest growing businesses in the world continues to solidify. Since 2020, the cloud computing segments of these companies have grown by over 30% per annum, representing their highest growth segments and generating their highest margins. Increasing demand for cloud computing from digitalization and the adoption of AI-enabled tools are driving these companies to continue to invest heavily in their capabilities and capacity. And two of the key ingredients needed to deliver these products are computing power and energy. Over the last 12 months, the race to increase computing power has been illustrated by the increase in demand for certain inputs, such as computer chips.

However, we believe most investors have yet to grasp the importance of a secure energy source in enabling the delivery of the data center and computing power growth. The largest cloud computing businesses run on clean power. These companies have committed to 100% clean energy targets and have grown their consumption by approximately 50% per annum over the last couple of years, making them the largest buyers of green power globally. And now, the highly power-intensive nature of AI is acting as a multiplier on energy demand, which is increasingly becoming a key bottleneck for growth of cloud computing. For example, the integration of AI uses up to 10 times more power when integrated into a typical search process. And renewable power, the cheapest form of bulk electricity production, is the solution to this growing electricity demand.

Furthermore, as the scale and energy intensifies of data centers increases, these facilities put pressure on the global electricity grids. As a result, certain regulators are now requiring data center developers to provide a power solution in order to receive their data center permits. This has put access to power on the critical path to growth for these technology companies. This is leading our partners to engage in commercial conversations earlier in the process to develop solutions with us, which is the dual benefit of both de-risking the technology company’s power needs and also our development pipeline. It is widely estimated that global electricity consumption from data centers will increase to approximately 10% of total electricity demand by 2030, up from approximately 2% today.

To put this in context, this means that to satisfy the needs of data centers alone, which doesn’t factor in the penetration of EVs or broader electrification, additional generation capacity will be required equivalent to the size of the current US grid. For the better part of a decade, we have been positioning our business to capitalize on these trends. By building a leading global development platform, combined with our early focus on corporate power marketing capabilities, this has allowed us to serve the needs of the largest and fastest growing buyers of green power. The global technology companies have been among the largest corporate customers of our businesses now for years. As we have differentiated ourselves with our scale and credibility, delivering new energy projects on time to enable their growth.

Our ability to deliver 24/7 clean power solutions at scale and across geographies positions our business to continue to be a major beneficiary of this robust demand growth. Further, our ability to provide unique and tailored solutions at scale allows us to avoid competition and drive better returns in the bilateral markets. We have signed contracts to provide over 60 terawatt hours of power over the past two years to these large technology companies, an amount we expect to increase dramatically in the coming years. As a result, going forward, we expect a vast majority of our new renewable power development will be contracted to corporate customers where we are seeing strong demand from our differentiated offerings at attractive contract terms.

Currently we have approximately 22 terawatt hours per year of generation contracted to corporate customers, representing approximately 30% of our total contract volumes, over double the volumes contracted to these types of customers 5 years ago. Based on our existing development pipeline, we expect contracted generation to corporate customers to double again by 2028, to approximately 44 terawatt hours per year, or 45% of our contracted volumes. With that, I will pass it on to Wyatt to discuss our operating results and financial position.

Wyatt Hartley: Thank you, Stephen, and good morning, everyone. Our operations continue to perform well this quarter, benefiting from the diversification of our fleet and strong all-in power prices. We delivered solid results in the fourth quarter with FFO of $0.38 up 9% year-over-year, and on a full year basis, we delivered record FFO at $1.1 billion or $1.67 per unit, a 7% increase over the prior year. While our results fell slightly below our target of 10% plus FFO per unit growth for the year, largely due to later than expected transaction closings during the fourth quarter, we remain well positioned to achieve our goal going into 2024 and beyond. We are already seeing the benefits of our growth activities, which were back-end weighted this year as we commissioned nearly half of our almost 5,000 megawatts of new capacity in the fourth quarter.