Corporate power purchase agreements and increasing opportunities to buy operating assets are driving Brookfield Renewable Partners LP's mergers and acquisition strategy.
In June, the firm agreed to buy Duke Energy Corp.'s unregulated, utility-scale commercial renewables business, including more than 3,400 MW of utility-scale solar, wind and battery storage across the country, in a deal with an enterprise value of about $2.8 billion. It was Brookfield's latest in a string of worldwide acquisitions.
"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," CEO Connor Teskey told investors during an Aug. 4 second-quarter earnings conference call.
Managing Partner Jehangir Vevaina added that the Duke transaction comes with an opportunity to repower at least 1.5 GW of onshore wind capacity, "given the potential benefit from investment in production tax credits," and indicates the potential for similar deals.
"We believe we will see more opportunities to acquire large operating portfolios of renewable assets," Vevania said. "There's 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."
The growing availability of those portfolios is opening up a renewed focus area for Brookfield.
"The one thing that is changing where our access to capital and our ability to be opportunistic is going to be helpful is in looking at opportunities to buy either operating assets or looking at public-to-private [deals]," Teskey said. "Those are both areas of the market where we've been a little quieter over the last two to three years, but we see them increasingly coming into the strike zone."
During the second quarter, Brookfield signed transactions for nearly $1.3 billion of equity investment and has more than $4.5 billion of available liquidity, Teskey noted.
"Insatiable" corporate demand for renewables, meanwhile, is shifting how Brookfield thinks about developing versus buying renewables projects. Development historically accounted for about 10% of the firm's M&A strategy, but Teskey said that percentage will increase due to tech companies' appetite, which Brookfield hopes to satisfy through strategic partnerships.
"Demand for clean energy and energy transition is much more a corporate pull than a government push," Teskey noted. "We expect this dynamic, which will continue to accelerate, to help drive higher returns through the sector and will 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."
Brookfield expects that demand to grow by more than three times before the end of the decade as tech giants, which are "already the largest corporate procurers of green power globally," ramp up artificial intelligence computing, Teskey said.
Brookfield Renewable Partners recorded a second-quarter net loss of $39 million, or 10 cents per LP unit, compared to a $1 million net income, or negative 3 cents per LP unit, in the prior-year period. The company reported first-quarter funds from operations of $312 million, or 48 cents per unit, up from $294 million, or 46 cents per unit, a year ago. The S&P Capital IQ consensus estimate for funds from operations was 49 cents per unit.
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