A Canadian company that started by installing electrical lights in Brazil in the 1890s has become a global renewable energy powerhouse.
Brookfield Renewable Energy Partners LP (BEP.UN) owns and operates one of the world’s largest portfolios of renewable energy generating capacity. It produces electricity from hydroelectric and wind facilities in North America, Latin America and Europe with the ability to provide electricity to four million homes.
Since the economic crisis in 2008, Brookfield has focused on hydro.
“We believe (hydro) is the best asset … Our business today is hydro focused, 80%,” Chief Executive Officer Scahin Shah said at the investor day presentation on Oct. 8. “We’re very focused in building operating scale globally.”
Zev Korman, senior vice president Investor Relations says the company will continue to focus on hydro for the future.
“Awareness of the sector has grown significantly and renewables have become an important asset class in their own right. We’re excited by the ability to develop, acquire and integrate new projects and operating assets. Most notably, we see continued opportunity to grow in hydroelectricity which is an expertise that truly differentiates us in the sector,” Korman said in an email.
Hydro electricity production costs are low and the equipment has a long lifespan, making hydro the most profitable form of electricity production. It’s also consistent, reliable and a renewable source of clean power, with a 70 per cent profit margin. According to the company’s 2014 annual report, hydro is “highly stable and generates predictable cash flows.”
Growth in West Virginia
Recently, Brookfield has agreed to acquire two hydro stations in West Virginia, costing US$860 million. The sale is expected to close in the first quarter of 2016. These hydro stations are on the same river as another of its operations, Safe Harbor – where the New River meets the Kanawha River, meaning it will be an easy process for Brookfield Renewable to take control of these stations as well.
The two hydro stations are just one of the recent acquisitions. It’s also acquiring hydro on the Susquehanna River in Pennsylvania and two plants in Brazil.
“We continue to find tremendous opportunities to put money to work in hydro space and what it’s allowed us to do during this period of low prices is effectively buy hydro assets at about 50 per cent of replacement cost,” Shah said in the presentation.
The company has $20 billion in assets and aims for 5-9 per cent annual dividend return to shareholders. Last week, Brookfield issued an additional seven million preferred shares on the Toronto Stock Exchange at $25 per share.
It reported $337 million in revenue for the third quarter.
David Noseworthy, a CICB World Markets analyst, expects Brookfield will continue to acquire hydro generation capacity.
The Investment Strategy Group’s Monthly World Markets Report for November writes: “Mr. Noseworthy believes the most promising of these (acquisitions) is the Colombian government’s 57 per cent stake in the Colombian utility Isagen, …which owns six Colombian hydro-electric facilities and is developing several renewable power projects there.” Noseworthy notes Brookfield is a core holding in the Canadian independent power producer space.
Responding to climate change
As responding to climate change takes on greater international momentum, the demand for renewable energy is on the rise. Brookfield plans to invest $500-$600 million annually in hydro to build its investment in the sector.
In the next five years, Shah says he’d like to expand to another continent.
“The model that we’re trying to drive for all of our operators is quite simple: have very strong operational and power marketing expertise. We want to be able to flow power to the highest value markets. We want to be able to manage our assets which creates further barriers to entry for others who can’t. And we want to have multi-technology platforms. We’ve done a great job building a hydro business. It will always be our core but we want to have it in every continent,” he said at the presentation.
But Brookfield isn’t just about hydro electricity. It owns 37 wind facilities in six countries and it is “being very patient with solar.”
In Canada, Brookfield produces 1,800 megawatts from it’s 36 renewable energy facilities, enough to power half a million homes every year.