Brookfield Renewable Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 9 speakers on the call.

Operator

Welcome to the BEP Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Conor Teske, CEO. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us for our Q2 2023 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.

Speaker 1

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 an update on the business and our development activities. Then Jay Vivenha, A managing partner and our Chief Investment Officer will highlight the recently announced acquisition of Duke Energy Renewables. And 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.

Speaker 1

Our business performed well this quarter, Building on the strong start to the year as we have achieved 10% annual FFO per unit growth year to date. We were also successful in our development activities and growth initiatives, including our repowering activities where we have seen a strong uplift in the performance Recently repowered assets and are evaluating a growing pipeline of attractive opportunities within our portfolio. We continue to see the benefits of our geographically and technologically diverse operating platform. As we have said previously, we have purposely built our business by acquiring and developing a variety of clean energy assets In attractive power markets across the globe where we are able to sign long term PPAs with high quality off takers. In periods of volatile resource Like this past quarter, the benefits of this strategy are especially pronounced as our scale and diversity enables us to consistently deliver on our targets.

Speaker 1

On our development initiatives, we have commissioned approximately 1500 megawatts of new capacity so far this year, including the final phase of 1 of the largest ever solar projects in the Americas. And we are on track to commission almost 5,000 megawatts in 2023, which is up from 35,000 megawatts commissioned in 20 22, and 1,000 megawatts commissioned in 2021. Looking out over the next 3 years, we expect to deliver nearly 18,000 megawatts of new capacity, most of which have been materially de risked already, Meaning we generally have permitting and interconnection largely in hand and PPAs match financing and construction contracts in place. Our approach to development has always been predicated on matching costs with future cash flows, Mitigating the impact of cost escalation that many renewable power developers are experiencing in the current market and thereby Securing the economics of our projects and not exposing our business to undue risk. And with the We are well positioned to capture the increasing corporate demand for contracted renewable energy at attractive prices.

Speaker 1

As an example, we expect annual demand from large technology companies to accelerate meaningfully, Increasing by more than 3 times by the mid to latter part of this decade on the back of growth in expected generative AI computing demand. These technology companies are already the largest corporate procurers of GreenPower globally. So to put this growth into context, we could see the energy load from just one of these large global technology companies With a 100% renewable power target equal the current load demand of the entirety of the United Kingdom. We have long standing global relationships with firms facing these needs and are currently engaged with a number of them around strategic partnerships, where we are well positioned to be a trusted partner given our capability and credibility to provide large scale clean energy solutions on a global basis. Today, demand for clean energy and energy transition is much more a corporate pull than a government push.

Speaker 1

We expect this dynamic, which will continue to accelerate, help drive higher returns through the sector And we'll increasingly differentiate market participants and favor businesses like ours that have the ability to provide a wide set of Scale, green power and decarbonization solutions with the ability to execute across the development spectrum and across all major power markets. We continue to scale our business in line with the growth in the sector As shown through our growth in commission capacity, our repowering projects and through acquisition. We were successful this quarter signing transactions for almost $1,300,000,000 of equity investment alongside our institutional partners. Over the past 18 months, we have meaningfully outperformed our growth targets, closing transactions or agreeing to invest up to $21,000,000,000 or $4,000,000,000 net to Brookfield Renewable. On the back of this significant outperformance compared with our targets, We executed a bought deal in concurrent private placement raising aggregate equity proceeds to Brookfield Renewable of 650,000,000 our first equity issuance in 7 years.

Speaker 1

While we have always focused on financing our growth Via asset recycling, up financing and with a measured amount of corporate debt or preferred equity, our step change in run rate growth, which we expect to continue and our ability to acquire assets at attractive and highly accretive valuations resulted in us electing to issue equity capital to supplement these sources of financing. Going forward, We will continue to focus on execution of a self funding model and selectively use equity when we see outsized highly accretive growth opportunities. Following this offering, we have over $4,500,000,000 of available liquidity and are well positioned to continue to fund our long term growth targets through a mix of normal course funding sources. With that, we will turn the call over to Jay to highlight our Duke Energy Renewables investment and some of our recent success with repowering projects.

Speaker 2

Thank you, Conor, and good morning, everyone. As Conor mentioned earlier, we're continuing to scale our business in line with the growing demand for Green Power through development and Acquisition initiatives, including repowerings. This quarter, for approximately $1,000,000,000 in equity, we agreed to acquire Duke Energy Renewables, A fully integrated developer and operator of renewable power assets in the U. S. With 5,900 Megawatts of operating and under construction assets and a 6,100 Megawatt Development Pipeline.

Speaker 2

With the closing of the Duke acquisition, we will have 14,000 Megawatts of operating and 76 1,000 megawatts of development capacity in the U. S. Across all major renewable technologies, making us one of the largest clean energy providers in the country and making it our largest market globally. With this acquisition, where the purchase price is to be paid over 2 equal installments With 50% in closing and 50% 18 months post closing, we're adding a scale operating renewable platform that is 90% contracted, Generating strong going in cash flows, which are immediately accretive with significant upside from potential operating and commercial synergies and repowering and development projects. With the incorporation of this portfolio in our business, we see potential to add value in several ways.

Speaker 2

The first is by leveraging our global procurement capabilities and operating expertise to take costs out of the business. We expect to be able to Reduced corporate G and A costs and realized meaningful savings across the wind and solar fleet given our operating experience. These cost savings were not factored into our purchase price multiple, We are well positioned to execute these initiatives given our experience acquiring and integrating assets. We also see potential to increase the revenue profile of merchant and hub contracted assets through our power marketing capabilities and by signing new PPAs for uncontracted assets, leveraging our relationships with large buyers of Green Power. Given the potential benefit from investment in production tax credits, Duke's portfolio also has significant repowering potential.

Speaker 2

We see the opportunity to repower at least 1.5 gigawatts of wind assets over the next several years, given advancements in technology, The age of these assets and the strong wind resource at project locations. And we believe with our recent experience in U. S. Repowerings, We are uniquely capable of executing on these projects. This quarter, we advanced the repowering of our 200 Megawatt Bishop Hill Wind Farm, Illinois, which we expect to complete in 2024 and will increase generation by approximately 15%.

Speaker 2

This is following other successful repowering projects we completed, including the 1st wind repowering project in the State of New York, which boosted generation across those assets by nearly 30% And the repowering of our Sheppard Flat wind assets, the largest repowering projects in the world, but we have seen excellent results thus far. Duke's assets are located in some of the best resource locations in the U. S, and therefore, the benefit from enhancing the productivity and extending the asset life is especially attractive. Finally, while we ascribe minimal value to the development pipeline when we underwrote this deal, there remains significant potential to advance these projects. The development portfolio has a large amount of secured interconnection and land, which will be built over time at good returns.

Speaker 2

Our financial strength, credibility as a counterparty and capacity to review, underwrite and execute a scale investment quickly It was integral to reaching an agreement with Duke. A key competitive advantage we have is our capabilities around executing large deals Given our expansive team of dedicated investment professionals and access to scale partner capital, we also benefited as we were able to gain around the integration of the business and our ability to carve out a large renewable power platform spread across multiple markets in the U. S. We believe our purchase price represents attractive risk adjusted returns. And in this market, we believe we will see more opportunities There is a growing group of sellers looking to monetize for various reasons And limited buyers who have the scale and ability to acquire and integrate these businesses, we look at all deals that come to market and expect to remain active.

Speaker 2

With that, I'll turn it over to Wyatt to discuss our operating results and financial position.

Speaker 3

Thank you, Jay. As Connor spoke to in his earlier remarks, we continued to build on our strong start to the year in the Q2. Operating results reflect robust realized pricing, the benefits of our organic development and contributions from acquisitions and repowerings. We generated FFO of $312,000,000 or $0.91 per unit so far this year, which is a 10% increase compared to prior year. Our business continues to demonstrate the benefits of operating across diverse technologies and geographies with strong resources in one region or asset class helping to offset weaker resources than others.

Speaker 3

Our North American hydro assets were impacted by a drier than normal June. However, we have seen significant precipitation in July, Meaning reservoirs across our fleet are in good shape, setting us up well to capture strong summer pricing this quarter. We had solid performance in our Wind and Solar segment, benefiting from our inflation linked long duration contracts at favorable prices, which helped to offset an adjustment to the regulated price earned by our Spanish assets. The adjustment will reduce the revenue generated by these assets this year, but has a very positive impact on cash flows in the future, resulting in a slightly net positive overall impact to our returns given their regulated nature. As Conor mentioned, our balance sheet is in an excellent position And our available liquidity remains robust at over $4,500,000,000 providing significant flexibility to fund growth and be opportunistic.

Speaker 3

Following our first equity issuance in 7 years, we are well positioned to deliver on our growth targets, Utilizing our normal sources of funding and our advancing non recourse financing initiatives and our asset recycling program. Thus far this year, we have generated over $600,000,000 of proceeds from our asset recycling program, achieving our dual goals of generating Strong risk adjusted returns on our invested capital and helping fund our growth internally through the de risking and sale of assets. As an example, this quarter we signed the sale of our operating renewable portfolio in Uruguay, generating a 20% return and over 2 times our capital during our 6 years of investment in the country. Despite a tighter market for capital, We continue to see strong demand for high quality renewable assets given accelerating corporate demand and increasing focus on energy security and government supported electrification and decarbonization targets. We also remain in an excellent position to be patient across our processes Given our strong balance sheet, unique access to partner capital and scale operating business that delivers consistent cash from operations.

Speaker 3

In closing, we remain focused on delivering 12% to 15% long term total returns for our investors. To do this, we will continue to leverage our differentiated growth capabilities, advancing our significantly derisked pipeline of projects, Being opportunistic in the current market and investing in our operations to add value. On behalf of the Board and management, We thank all our unitholders and shareholders for the ongoing support. We are excited about Brookfield Renewables' future and look forward to updating you on our progress throughout remainder of the year. That concludes our formal remarks for today's call.

Speaker 3

Thank you for joining us this morning. And with that, I'll pass it back to our operator for questions.

Operator

Our first question comes from the line of Sean Steuart with TD Securities. Sean, your line is now open.

Speaker 4

Thank you. Good morning. Couple of questions. Interested in your thoughts on continued asset recycling plans. You've advanced a lot so far this year.

Speaker 4

It feels like this is more a buyer's market. Conor, can you speak to, I guess midterm intentions with respect to asset recycling and technologies or regions that maybe offer Better valuation terms on a relative basis?

Speaker 1

Sean, thank you. What we would say we are seeing in the market is, given a higher level of uncertainty around financing for a number of players, You certainly are seeing situations where it is a buyer's market. And I think an example of that would be something like Duke Energy Renewables. However, that certainly is not the whole story and there is still overwhelming demand For derisked high quality renewables assets. And I think this really goes to our strategy.

Speaker 1

We want to be investing where there is uncertainty and And can attract lower cost of capital buyers. And we're seeing opportunities to do both. And we bought Duke's this last quarter And we sold Europe Way at what we think is a very attractive valuation. And we see both those trends continuing going forward. We do have a very robust capital recycling program Throughout the remainder of 2023 and into 2024.

Speaker 1

But to put some color around that, I would say the key focus of that asset recycling program is very, primarily concentrated on wind and solar assets In the Americas and Europe, that's certainly where we're seeing the greatest amount of demand.

Speaker 4

Okay. That's useful context. Thanks for that. Question on Westinghouse. You're sticking with the second half Closing for that transaction.

Speaker 4

Do you have any comments on the U. K. Regulator Process here and any other context on other approvals that will be needed to get that one across the line?

Speaker 1

The only context we would provide is this is all very normal course. We needed Upwards of 35 different regulatory approvals as it pertain to the Westinghouse Transaction, we have received almost all of them at this point, there are a few outstanding that we are working through in the normal course. And I would say none of this is unexpected or unusual. And we are simply going through the typical process for a transaction of this nature. Your question highlights an exciting point for our business.

Speaker 1

We have Four relatively scaled transactions that have been signed that are working through to closing being the remaining fifty acquisition of Exelio, Duke Energy Renewables, Westinghouse and Origin, I would say we probably expect those to close and give or take that order, with the first three coming this year And the origin coming early next year, if not sooner. And that gives our business a lot of growth trajectory for the next several quarters.

Speaker 4

Okay. Thanks very much, Connor. I will get back in the queue.

Operator

Our next question comes from the line of Rupert Merer with National Bank Financial.

Speaker 5

Hi. Good morning, everyone. Connor, you mentioned the potential for strategic partnerships with large customers for renewable power. With an attractive PPA market,

Speaker 4

do you

Speaker 5

see any potential to optimize your revenues in your North American hydro portfolio And evolve away from Head Strategy.

Speaker 1

Rupert, thank you for the question. It's a great question. Maybe just taking a step back, this is something that we have been saying for a little while now, but It's really coming to light in the current environment. The demand for energy transition and decarbonization, There's a narrative out there that this is being driven by governments. We could not disagree.

Speaker 1

This is being driven by corporates And it is being driven by the largest most profit seeking corporations around the world. Those are the ones with a seemingly insatiable demand for Green Power and other decarbonization solutions. And because these are the businesses that are not only the largest but are growing the fastest, They are going to continue to drive enhanced demand for green power solutions. And while the bulk of that is going to

Speaker 6

be driven

Speaker 1

through PPAs tied to newbuild wind and solar projects. When we have conversations with these counterparties, our ability to offer them solutions across different green energy asset classes is one of the things that really differentiates us. And you mentioned our hydros, our ability to offer Contracting Solutions 20 fourseven power mixing wind and solar with hydro is something that really differentiates for these leading corporates that not only want green power, but want uninterrupted all day green power. So The bulk of it is going to be PPAs to wind and solar, but we're seeing it across all of our asset classes including hydro. The tailwinds are pretty broad based here.

Speaker 5

So could we expect to see some PPAs on those hydros as well in the next few years?

Speaker 1

PPAs are other long term contracts. We're relatively indifferent as to the form of those contracts. But I think we could tell you with confidence given the more constructive pricing environment we're seeing today relative to let's say 12 to 48 months ago, this is certainly an environment where we will look to contract Those assets out on a medium or long term basis and walk in some of these benefits for many years to come.

Speaker 5

Great. Thanks. And then as a follow-up to the conversation you had with Sean on M and A market. So It's a buyer's market. You see more demand for wind and solar in the Americas and Europe from competitors.

Speaker 5

Has that shifted your view on Where you can get the best returns today and M and A, I know we see you have been buying assets in North America, but is there going to be a, Say higher return opportunity outside of North America and Europe?

Speaker 1

I wouldn't say that. We're always cautious in painting the market in one way. Everything is a buyer's market or everything is a seller's market. What is unique about this market is relative to, let's say 18 months ago, Capital is, a little higher cost and a little more uncertain for many market participants. And that's obviously going to affect different people different ways, but it can create very attractive buying opportunities for us Literally anywhere in the world or across any asset class subject to the discrete Dynamics of the counterparty on the other side.

Speaker 1

So, when we look at things like the European market right now, We do have a pretty robust pipeline and expect to be active there in the back half of the year seeing very, very attractive risk adjusted returns. Well, at the same time, we also might sell assets in the European market, where we think we're going to get a really good outcome as well. So What I would say we're seeing in the market is the slight increases in uncertainty around funding and The slight increases in uncertainty around things like supply chains that are difficult for some market participants to manage through just Create a more diversified set of opportunities, which means that you can be buying and selling Both had attractive outcomes in the same markets at the same time. And it really is discrete to the counterparty on the other side. Quite frankly, we love these market dynamics.

Speaker 1

It allows us to be playing positively in both directions.

Speaker 5

Great. Thanks for color. I'll leave it there.

Operator

Our next question comes from the line of Robert Hope with Scotiabank.

Speaker 7

Good morning, everyone. I was hoping you could add some color on how you're Thinking about how your development pipeline overlays with the expected increase in demand from technology companies. Could you potentially look to augment or reorder your projects such that they are They align better with the geographies where we could see the largest increase in technology demand or kind of More broadly, how do you stack up your development pipeline versus the areas where you expect to see growth?

Speaker 1

Sure. Thanks, Rob. Perhaps taking a step back, what we are seeing in the market today is A pretty strong supply demand imbalance that if you have Economic ready to build projects near load centers, you have multiple potential offtakes for that Power. There is more demand for that power than there are ready to build projects to supply it. And therefore, One, it allows us to attract more constructive pricing and put through some of the cost increases of CapEx and interest through to the end customer and preserve our developed margin, that's point 1.

Speaker 1

And then 2, the other thing that we are doing across our portfolio is because we see such strong demand, We're doing everything in our power to pull forward projects within our development pipeline to get them pulled out of the ground faster. And I think the benefits of 1, programs like IRA and 2, the step change increase in demand is going to allow us to continue that dynamic of trying to pull forward development projects faster for The short to medium term, there's certainly enough visibility on it. In terms of the question around where Are we going to try and augment our development pipeline? We have 135,000 megawatts around the world. We're going to keep adding to that.

Speaker 1

The point I would say is this demand is broad based on across all the major geographies around the world. So we're just going to keep working to keep our pipeline robust and strong And then work to keep pulling projects forward within that pipeline. Quite frankly, I think given the dynamics I explained, It's unlikely you're going to buy for value a ready to build project just to We contract it with a tech company. The market is more efficient than that. That's already priced in and probably wouldn't generate the returns we wanted.

Speaker 7

I appreciate that. And then maybe another broad question. How are you seeing system operators or have you seen any changes in system operators or transmission interconnection Rules, just given the significant increase in renewables about the pipeline across the globe, just kind of referencing the Alberta announcement Yesterday, whether or not we could see some system operators pause to put a more orderly investment of renewables in the system.

Speaker 1

Certainly. So we'll make 3 comments on that. The first is, there seems to be A lot of heightened interest on grid interconnection timing and how that impacts development In the last 6 or 12 or 18 months, we would respectfully suggest that Securing grid connection has been a critical component of developing renewables for the last 10 years. And therefore, while it might be getting more airtime in the news more recently, identifying Which projects have grid connection, where they sit in the grid queue has always been part of our development process and always something we take into account When buying development pipeline, it would have been almost ridiculous for renewables developer to not See some of this grid connection, congestion coming. It should have been baked into everyone's Underwriting, it's certainly been baked into ours.

Speaker 1

The second point I would make is, Every project around the world in order to get built needs lands permits grid connection. And once you have those three things, it needs Financing Offtake and Equipment and Construction EPC. We encourage anything around the world That expedites the bringing forward of any of those necessarily requirements of development to bring projects forward. So we Greatly encourage some of the things that we're seeing around the world to make interconnection processes more efficient and connect more projects Quicker, we think we will be a net beneficiary of that and someone can move quickly to take advantage of any of those changes.

Speaker 6

Thank you.

Operator

Our next question comes from the line of David Quezada with Raymond James.

Speaker 6

Thanks. Good morning, everyone. Maybe just starting with a question just related to M and A, I guess, And the commentary around that. Certainly, it feels like a good environment for you guys in terms of there being potentially some attractive targets. I'm just wondering with the 3 transactions that you've kind of got in the queue so far, do you need to see those close before you could pursue anything else?

Speaker 6

Or do you still feel like You'd be open to an attractive deal if it arose.

Speaker 1

I want to be abundantly clear. We would not wait for those transactions to close. If we saw an attractive deal today, we would do it without hesitation. Part of our motivation Around some of the significant up financing activity we've done year to date and our first equity offering is to put ourselves in a position to be opportunistic in this market. And we think that's something that has proven to play very well for us Quite recently and will continue to play well for us going forward.

Speaker 1

We see this as a very robust Market where we can do accretive transactions and maybe to be more helpful, I'll split it into 2 buckets. Given the significant demand we're seeing for corporate contracts for Green Power PPAs, We continue to see very attractive risk return dynamics in developers. So we certainly aren't going to take Our foot off the gas in terms of the growth we're pursuing in that segment because the investments we've done to date are Performing well, if not ahead of underwriting, and we think the tailwinds are going to get stronger. The one thing that is changing where our access The capital and our ability to be opportunistic is going to be helpful is in looking at opportunities to buy either operating assets We're looking at public to privates. Those are both areas of the market where we've been a little quieter over the last 2 to 3 years, But we see them increasingly coming into the strike zone.

Speaker 1

And if we see attractive opportunities, we won't hesitate to execute.

Speaker 6

That's great color. Thanks, Connor. I appreciate that. And maybe just one more for me. Any comment that you would make On what you're seeing in the supply chain, be it for solar panels or turbines or key equipment components?

Speaker 1

Yes, great question. And There's not actually an easy answer for that because I would say that the direction of different Equipment, it's quite all over the map. I would say that the solar Panel supply chain around the world is improving dramatically. Costs for solar panels are going down very significantly around the world. There is increased global capacity that has come online.

Speaker 1

This is not only Reducing prices, but it's reducing shipping and lead times. There is one caveat to that, which is in the U. S. Where some of the ongoing investigations and tariff discussions have muted some of those dynamics. But even in the U.

Speaker 1

S, we've seen panel prices Decline quite significantly year to date. So that's solar panels. In wind, the wind OEM market, I would say it's challenging right now. We are seeing some shortages Across the global supply chain, similar to what we saw in solar maybe 2 years ago. And again, I think this market plays to those who are well equipped to use their scale and their operating expertise to manage through those dynamics As wind equipment procurement is getting more expensive and lead times, I would say, are not shrinking.

Speaker 1

And then the last one then that I would highlight, which is very top of mind to us and something that we are taking into account In all of our development underwriting and business plans is transformers. Transformers are increasingly becoming one of the longer lead time items. That's fine. You just need to bake that into your underwriting and that's what we've done in all our development plans we have.

Speaker 6

Excellent. Appreciate that Connor. I'll turn it over.

Operator

Our next question comes from the line of Andrew Kuske with Credit Suisse.

Speaker 8

Thanks. Good morning. I guess the question focuses on the building versus buying. And historically, you've done a lot of buying, maybe less building, but in fairness, you have built. Have the conditions really changed?

Speaker 8

And then I think this came in the prepared remarks of the 18 gigs, I think, over the next 3 years you plan on building. Are you really on a step function change on the building side versus the buying, but still looking opportunistically to buy?

Speaker 1

Great question. The way I would position it is we have historically Looking back, we were probably about 90% operating, 10% development. And we are seeing increasing opportunities to secure very attractive risk adjusted returns on the development side. They could see that percentage increase, but to be clear, it's not going to become the majority of our business. I would say even if we are seeing a significant increase In our development activities, the vast majority of our recurring cash flows and profits Probably north of 80% is going to continue to come from operating assets.

Speaker 1

That being said, we appreciate you highlighting it. We are seeing very significant growth in our development activities, 1,000 Megawatts in 2021, 3,500 Megawatts in 2022, 5,000 Megawatts this year, 18,000 Megawatts over the next 3 years. I think that's a level of activity that we're very comfortable with, Given the growth of our business and the number of development portfolio companies we've acquired over the last 3 or 5 years, So development is becoming an increasing portion of our business, but I would say our operating portfolio is still going to be the bulk of our business

Speaker 8

Appreciate that. And then maybe just dovetailing with those comments. The return profile you've talked about the 12% to 15% on a longer term basis remains unchanged. But is there maybe a greater tilt to that? Like Going in might be more modest, but then in the back end, it's more robust or just any thoughts you have on additional color you can provide?

Speaker 1

Yes, it's a great question. I the 12% to 15%, I'd say we feel very comfortable with it. We still on a blended basis absolutely expect To be in that range, the only thing I would almost want to convey is, I think at certain points in time when markets were really robust, we would have said long term contracted Operating assets are maybe 10 to 12 and construction assets are 12 to 15 and development assets are high teens returns. But in the market that we're seeing today where you can be very opportunistic, I would say we're seeing opportunities to buy operating contracted renewables In that 12% to 15% range, which obviously is a fantastic risk adjusted return. So Given the opportunity set that we are in, maybe I'd answer your question by saying, I don't think the spectrum is changing, but I think maybe the floor is rising.

Speaker 8

Okay. I appreciate the color. Thank you.

Operator

Our next question comes from Najee Baidun with IA Capital markets.

Speaker 6

Hi, good morning. I just wanted to go back to the sort of corporate Power market dynamics. I think you're saying in your letter that there are potentially higher returns in some of the corporate backed projects or contracts. Can you maybe talk about sort of the trade offs between corporate versus government contracts and how you see that evolving over time?

Speaker 1

Hi, Najee. I might take an extra minute just to go from a higher level to explain how we've always pursued this. If you really go back maybe 6 or 7 years, we took the view that We really wanted to build the best in class corporate power marketing capability within Brookfield Renewable. And In doing so, what we wanted to avoid is running around the world chasing government tariffs that Could in fact get removed with a change in government or a change in policy. And we always felt that the corporate demand dynamics Would be increasing in terms of the momentum and would be a lot more enduring over time.

Speaker 1

And we largely think that has played out. With the benefit of hindsight, candidly, we were probably a half step too early. We tried to build that corporate power capability probably 2 years before the market was ready. But what that has led to now 4 or 5 years later Is we really do truly have one of the best corporate power marketing capabilities globally. And the way we see The demand for green power procurement around the world is the trend line is unequivocally being driven by corporates.

Speaker 1

Not only are the largest and fastest growing corporates around the world driving that momentum, but we're increasingly seeing a broader number of corporates looking to So if corporate demand is setting the trend line, what we would say is government policy It's determining the ebb and flow around that trend line. And the nice thing we have right now is both are going in our favor. Corporate demand is accelerating very intensely and government policy is just an additional tailwind Through programs like IRA and similar programs we're seeing around the world. The reason why so if that's where we see long term demand, the reason why we think This is very, very good for returns is 2 things. 1, Building renewables and developing renewables into long term corporate offtakes It's a bit more involved of a process.

Speaker 1

You need more in house capabilities, but therefore can generate higher returns. That's it's a lot More difficult, but more rewarding to build into corporate PPAs than it was to build into a government feed in tariff system that you may have seen 3 or 5 years ago. And then secondly, corporate demand, we would say is much more resilient. It tends to be long term in nature. This is being driven by the 5, 10 or 15 year strategic visions of these companies As opposed to the 4 or 5 year government cycles of an elected party.

Speaker 1

And therefore, we see This shift to a corporate pull as opposed to a government push is very positive for our industry

Speaker 6

I guess, you're seeing sort of a better trade off with corporations and governments because just to build on that, like historically, Some of the puts and takes were that with sort of government backed contracts, you would have sort of a higher Counterparty, higher credit quality counterparty, longer term contracts, but you're saying maybe some of that now flow into the corporate market and because of that complexity That you mentioned maybe potentially better returns.

Speaker 1

Yes. And I would say that who are our biggest customers around the world, These are the largest, highest quality, strongest credit party sorry, strongest Credit counterparty entities that you could have, some of these institutions have higher ratings than some of the government Backed contracts around the world. So I wouldn't we would be very quick to suggest We haven't given anything away in terms of credit counterparty risk.

Speaker 6

That's very helpful. Just Couple of other follow-up questions. On the new transition fund, just wondering if you can just talk about sort of what are some of the target opportunities that you think The 2nd transition fund could be pursuing and if similarly to the first one, you'd maybe be leaning more towards Newer forms of decarbonization, be it transition investing or carbon capture, etcetera?

Speaker 1

Certainly. So Brookfield Asset Management launched fundraising for its 2nd global transition fund in Q2. I would say that as expected the reception has been very, very positive and the strategy is resonating Very well with investors and what it does for Brookfield Renewable is it continues to give us that large scale So we see BGTF II as a huge benefit to beth going forward. In terms of what the fund will target, 100% consistent with what BGTF-one targeted. When we looked at BGTF-one, The biggest component of that fund was clean energy renewables developers.

Speaker 1

The 2nd biggest component of that fund was power Transformation, building out renewables within existing utilities. And the 3rd biggest component of that fund was investments in other clean energy technologies like nuclear. Really it was only about 20% of the fund that was in new decarbonization solutions, and I would say that that's probably a similar balance that we expect going forward.

Speaker 6

Okay. That's great. And maybe just one last quick question. Similar to sort of the Duke transaction, we're seeing a number of utilities also looking to maybe Simplify the structures and separate some assets. I guess this would play very well into Your capabilities on the M and A side, are you sort of looking at more of these, say, more complex deals in the Americas?

Speaker 1

Absolutely. I would say one of the benefits of our platform today is Given our scale and in particular our growth over the last 2 or 3 years, we're very fortunate where We'd like to think that we see almost every opportunity in the market. And from that position are able to Focus our time and resources on the ones where we see the best risk adjusted returns and ones where we see We are able to bring something differentiated that allows us to be successful and generate A return above what perhaps other market participants could achieve. So I would say There is a dynamic around the world today where there are some sellers who for a variety of reasons are looking to get off high quality assets. We're looking at a number of those and we'll look to execute the ones that we're most well positioned on.

Speaker 5

Thank you.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Conor Teske for closing remarks.

Speaker 1

Thank you, everyone for joining today's Call and for your ongoing interest and support in Brookfield Renewable. We look forward to speaking to everyone at our Investor Day on September 21

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Earnings Conference Call
Brookfield Renewable Q2 2023
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