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Earnings call: Brookfield Renewable posts record Q1 results, eyes growth

EditorEmilio Ghigini
Published 06/05/2024, 09:24
© Reuters.
BEP
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Brookfield Renewable (ticker: BEP) reported a strong start to the year with record funds from operations in the first quarter, emphasizing its strategic growth in the digitalization and artificial intelligence sectors.

The company highlighted its landmark renewable energy agreement with Microsoft (NASDAQ:MSFT), which is set to deliver over 10.5 gigawatts of new renewable energy capacity across the US and Europe from 2026 to 2030.

This agreement underscores Brookfield Renewable's position as a leading global partner for major technology firms, given its access to capital and robust growth pipeline.

Key Takeaways

  • Brookfield Renewable reported record funds from operations in the first quarter.
  • The company signed a significant renewable energy agreement with Microsoft to provide over 10.5 gigawatts of new capacity in the coming years.
  • There is a strong development pipeline primarily in the US, coinciding with data center expansions.
  • Brookfield Renewable's growth is not expected to be hindered by the Biden Administration's trade actions on solar panel imports.
  • The tech sector's demand for power is positively impacting the renewable energy market.
  • Capital recycling plans are projected to yield about $1.3 billion in net proceeds this year.
  • Interest rate stabilization has not affected the company's growth and investment strategies.

Company Outlook

  • Brookfield Renewable is confident in its growth strategy, focusing on expanding its presence in the digital and AI sectors.
  • The partnership with Microsoft is seen as a differentiator in the market and may lead to similar agreements with other major buyers globally.
  • The company's capital recycling initiatives are on track, with a target of $1.3 billion in net proceeds, and may exceed expectations if market conditions remain favorable.

Bearish Highlights

  • There were no specific bearish highlights mentioned in the call.

Bullish Highlights

  • The company's strategic agreement with Microsoft is expected to drive significant growth and development activities.
  • Brookfield Renewable's approach to acquiring pipeline over the years has prepared them to capitalize on the increasing demand for renewable energy projects.

Misses

  • The summary provided does not indicate any misses or shortfalls in the company's performance or outlook.

Q&A Highlights

  • Connor Teskey discussed the Microsoft agreement in detail, noting that it will not consume a significant portion of the company's development capacity.
  • Teskey reassured that the Biden Administration's trade actions will not slow down the company's growth.
  • The company's financial position is strong, with a robust pipeline for growth and numerous opportunities for transactions in the current year.

In conclusion, Brookfield Renewable's first quarter has set a positive tone for the year with its record performance and strategic initiatives. The company's focus on aligning with the tech sector's demand for renewable energy, coupled with its strong financial position and growth prospects, positions it well for continued success in the renewable energy market. Investors and stakeholders can expect further updates following the second-quarter results.

InvestingPro Insights

Brookfield Renewable's strategic partnership with Microsoft and its record funds from operations have positioned the company as a formidable player in the renewable energy sector. As investors consider the company's potential, here are some key insights from InvestingPro:

InvestingPro Data shows a mixed financial landscape for Brookfield Renewable. The company boasts a substantial market capitalization of $12.51 billion USD, reflecting investor confidence and its sizable presence in the market. However, the P/E Ratio stands at a negative -106.95, indicating that investors are currently paying a premium for a company that is not profitable in the last twelve months as of Q1 2024. This is further emphasized by an even higher adjusted P/E Ratio for the same period at -206.08. Additionally, the company's Dividend Yield as of the last recorded date is 4.03%, showcasing its commitment to returning value to shareholders.

On the performance front, Brookfield Renewable has seen a significant return over the last week, with a 1 Week Price Total Return of 20.58%. This short-term surge could be indicative of market reactions to recent developments or strategic announcements like the Microsoft agreement.

InvestingPro Tips highlight some concerns as well as positive trends. The company has managed to raise its dividend for 9 consecutive years, which is a testament to its commitment to shareholder returns and may provide a sense of security for income-focused investors. However, there is a cautionary note with an RSI suggesting the stock is in overbought territory, which could signal a potential retraction in the near term.

For investors looking for a deeper dive into Brookfield Renewable's financials and strategic position, there are additional InvestingPro Tips available on https://www.investing.com/pro/BEP. These tips could offer further guidance on the company's ability to meet its debt obligations, its profitability outlook for the year, and its trading valuation multiples. Interested investors can access these insights and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 13 additional InvestingPro Tips listed on InvestingPro for Brookfield Renewable that could provide a more nuanced understanding of the company's financial health and market potential.

Full transcript - Brookfield Renewable Energy Partner (BEP) Q1 2024:

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.

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 (NYSE:DUK)'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?

Connor Teskey: Certainly. So one of the competitive advantages and something we've been very proud of over the last several years is the performance of our centralized procurement approach. And via that group, we've been constantly diversifying our ability to procure panels from different sources that give us a lot of flexibility as we manage through what is a very fluid situation in terms of tariffs and trade actions to the United States. We've certainly done some obvious things increasing our procurement from domestic manufacturers within the U.S. and things like our investment in Avaada, which is beginning to produce solar panels itself in India, put us in a unique position where we don't see the current environment slowing our growth profile in any way.

The one additional point that I think it's important to recognize when it comes to the headlines around equipment procurement and solar panels is around the world, solar panels are -- in markets outside the United States, solar panels are cheaper today than they've been at any point in history. This really is a tale of 2 worlds, if you will. You've got the dynamics in the United States that are impacted by the trade discussions and the tariffs, in the United States, solar panel prices have come down materially in the last 12 months. But outside of the United States, solar panel prices have come down dramatically. And that is obviously very, very constructive to our broader business and the economics we can get out of our projects.

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

Rupert Merer: Can you give us a little more color on the scale of the market opportunity for power and data? And how much of your growth could come from data markets in the future. And I suppose if you look at the overall market for power, we're seeing drivers from reshoring, electrification, population growth. How much of that growth do you think can come from data?

Connor Teskey: Thanks, Rupert. Maybe let's tackle this a slightly different way. The dynamic in the market today is very simply, there is an imbalance between supply and demand. There is far more demand for incremental new build in particular, clean power than there are available projects. And that is a dynamic that we do not expect to change for years or potentially decades to run because as you say, we've had these long-standing enduring trends that were driving electricity demand whether it be energy security, whether it be the electrification of industry, transport, residential, but all of that has just been multiplied in the last 12 to 24 months with this huge incremental driver of demand, which is data centers to support AI and cloud compute.

And therefore, in terms of how much of our growth is going to go towards supporting the tech sector, I would say, a very meaningful component but our business continues to be very, very well diversified. But the nature of the current environment is that incremental demand from the techs is really lifting all boats. And one thing that we are seeing on the ground across all of our businesses is that incremental demand from the techs for whom procuring power is on the critical path to growth, those companies are getting a lot more constructive around price and terms in how they procure power.

And quite frankly, they're dragging the rest of the market with them and creating a really, really robust and constructive environment to be a renewables developer, whether you're contracting with a tech company or anyone else. So while we do expect a very large and growing portion of our business to be supplying this incremental tech demand, the point that we like to highlight is this incremental tech demand is supporting the entire sector regardless of who your counterparty is.

Rupert Merer: All right. Great. And looking at your framework agreement with Microsoft, any color you can give on the typical terms you might expect in your contracts, maybe looking at contract duration or ability to index your power price. Any color?

Connor Teskey: Yes, certainly. So the way the framework agreement works is it aligns one of the largest, if not the largest, corporate procure green power with one of the, if not the largest, producer and provider of green power. And it makes it very, very efficient for us to work together because we have essentially agreed on a framework PPA under which we can offer Microsoft projects to meet their demand going forward. The important thing we would highlight about this agreement is it's really in line with our historic development approach. We -- the final prices in these PPAs and terms in these PPAs will be negotiated between us and Microsoft to reflect the cost of construction and financing at the time, and to ensure that they are within our target returns as we have done with Microsoft over the gigawatt of transactions we've done with them in recent times. Therefore, we expect the contracts that we execute under this agreement to be very much in line with what we've done in the past, long-term contracts, 15 to 20 years plus inflation-linked at agree to prone prices that allow us to achieve our target returns.

Rupert Merer: My final question here may be a question for Microsoft. But when you're working with Microsoft to develop power solutions to support data centers, how important is the cost of power, meaning are they looking to develop data centers where power is cheap? Or do you think there are more important considerations for the location?

Connor Teskey: No doubt. That is a question for Microsoft. We wouldn't want to speak for them. But perhaps what we can share is what we are seeing in the market, which is -- and again, apologies to really be driving on, on this point. The supply-demand imbalance for power is very dramatic right now. And therefore, the accessibility to power, having comfort that the power is going to be delivered on time at scale in order to not compromise your growth trajectory, certainly seems to be the priority in the market today. And that's creating a really constructive environment for us as renewable power developers. But the important thing to recognize about the product that we do offer to Microsoft, all the technology companies, all of our broader power marketing clients is renewables are the cheapest form of bulk electricity. So even while this is a constructive market and it's allowing us to develop in a very attractive way, the power that we are offering them is long-duration power at a discount to retail rates, which is obviously supportive for their businesses.

Operator: Our next question comes from the line of Nelson Ng with Capital Markets -- RBC Capital Markets.

Nelson Ng: Congrats on the Microsoft agreement. So no surprise one further question on the Microsoft arrangement. So I was just wondering whether the Microsoft transaction takes up a lot of your current development capacity in the U.S. over that 5-year period? And whether there's room for, let's say, another framework agreement with another offtaker in the U.S.

Connor Teskey: So I'll maybe come at that in reverse order. Absolutely, we could do other framework agreements or multiple other framework agreements, given the capacity we have and the pipeline we've assembled. I think it's important to understand the strategy that we have been pursuing, which is we have been acquiring and building a portfolio of leading renewable power developers with attractive pipelines in major core markets around the world because we had confidence that given our relationships with the large offtakers of power, we would be able to contract and build out those pipelines. And therefore, as we sit today, while we are thrilled about this agreement with Microsoft, we fully expect to not only expand this agreement but do other similar arrangements with other major buyers around the world.

And maybe just to give some directional numbers around this, we are currently -- have a run rate of producing 7,000 to 8,000 megawatts of new generation capacity from organic development within our current business. Those numbers will naturally grow as our existing businesses get built out over time. And obviously, we are a growth company, we are going to consistently add other developers and other pipeline as we move through the remainder of this decade. It's very conceivable that by the period of '26 to '30, we will be producing well over 10 gigawatts a year, if not more. And therefore, while our arrangement with Microsoft takes -- derisks a good portion of that, it still is expected to only be a minority within our broader portfolio.

Nelson Ng: That's great color. So do you see this type of framework agreement as potentially being a template for, I guess, further project developments going forward?

Connor Teskey: Perhaps the way we'd answer that is, we have a lot of arrangements with different customers and those arrangements are always tailored to meet the needs of that specific customer. And while this agreement with Microsoft is certainly unique in its scale, we have lots of existing partnerships without our -- throughout our business, and we will continue to do other partnerships going forward, where this one is precedent setting and we do think will trigger other similar types agreements in its scale. But what we would expect is they all look a little bit different because one of the unique things that we can bring is not simply the scale, but the ability to tailor the energy solutions to meet that specific clients' needs. And therefore, these broad framework agreements, I would say, tend to be fit for purpose depending on who the counterparty is.

Nelson Ng: Okay. Great. And then just shifting gears a bit on the capital recycling side. You mentioned that you're expecting net proceeds to Brookfield Renewable of about $1.3 billion this year. Are you seeing some of that pent-up demand from last year kind of shift into this year? And then also, is it safe to assume that most of that capital recycling would happen in North America or maybe other parts like Asia Pacific? I know that you're -- you have a lot of, I think, solar projects and a few wind projects going on in the Asia Pacific region.

Connor Teskey: Sure. So maybe to take a step back and this wasn't your specific question. But one thing that we often get asked is, is this a better market for investing or a better market for capital recycling? And more so than probably any point in recent history, we would say right now the market is heavily, heavily bifurcated, and we think it is a very, very good market for both. And therefore, we are seeing very, very attractive opportunities to deploy capital at scale at attractive returns. But on the same time, we are also seeing a very robust bid for high-quality derisked assets. Now tying that back to your question, is some of this perhaps a little bit of pent-up demand from last year? Maybe. But we really think that the key drivers of it is there is still a broad institutional bias to adding more exposure to this space.

And with the stabilization of interest rates, there is still significant access to capital in this industry, and that is creating a very, very robust bid from both strategics and financials. In terms of where we are seeing opportunities for capital recycling, it is very broad-based. We are seeing opportunities in Asia Pac, as you mentioned. We are seeing opportunities in North America. The one that I would highlight that you didn't mention is we're also seeing significant opportunities for capital recycling in Europe.

Operator: Our next question comes from the line of Mark Jarvi with CIBC.

Mark Jarvi: So just staying on the asset sales, that $1.3 billion net to BEP, how much line of sight do you have on that? How would you put your conviction level on hitting that number? Is there an opportunity to exceed that number this year?

Connor Teskey: Mark, we feel very good about that number. We started the year by launching a few fairly meaningful sales processes that at this point are well advanced and are seeing strong traction. So in terms of hitting the number we've guided to, I would say we have a very, very high degree of comfort. And if we continue to see that robust bid for high-quality derisked assets, as we mentioned on the previous question, I think we would just continue to add to that pipeline of capital recycling because that is where our business can really hum. When we're able to sell high-quality derisked assets at a lower cost of capital and reinvest that capital into very attractive higher returning investments, that drives really great returns for our business. So if we continue to see the market play out as we're seeing it today, we'll certainly look to add to that pipeline throughout the year.

Mark Jarvi: Just coming back to your comment about normalization and stabilization of interest rates, we did see a move back up in the 10 years. Did that slow any processes down? Or does that actually just push some sellers to have to transact just given where their own balance sheets are right now?

Connor Teskey: Certainly. So maybe the way I would position it is in 2023, and I'm clearly being a little bit illustrative here, interest rates went from 2% to 4% to 6%, and there was a concern they'd go even higher than that. Now interest rates have stabilized in a very constructive level. If they end up 50 basis points higher or 50 basis points lower, it is still a very constructive environment for investing and transacting. So we wouldn't expect the recent movement in interest rates to derail our plans for the year. What we would say is on the investing side, we are seeing some opportunities in the market where that move in interest rates from 0% to 2% to, let's say, 4% to 5%, there are some market participants whose capital structures or growth strategies were not well prepared for that move in interest rates, and that is one of the things that's driving opportunities for us to deploy capital at really attractive returns in this environment.

Mark Jarvi: Understood. And then just lastly on the framework agreement with Microsoft and, obviously, you had a relationship with Amazon (NASDAQ:AMZN) and you think about big buyers from the tech side of things, how does that factor into sort of your M&A pursuits, whether it's operating assets, you might be able to recontract or repowering or development pipelines. Has anything changed? Or have you seen this coming and that's already kind of factored into how you've been pursuing your acquisitions, both on development side and operating side?

Connor Teskey: So we very much appreciate the way you frame that question because if anything, perhaps what the agreement with Microsoft, given it's somewhat public nature does is it kind of demonstrates why we've been doing what we've been doing, which is very constructively and thoughtfully acquiring high-quality pipeline in critical markets around the world. So we absolutely will continue to do that going forward. And the demand that we are seeing gives us incredible conviction to continue to lean into that strategy. What the demand we are seeing and what the agreement with Microsoft does is it does really derisk a meaningful component of our development activities for the remainder of the decade.

And it also allows us to move with a lot of conviction to expand and develop in areas and geographies that match where we are seeing demand from our portfolio of customers. And when you have such strong visibility on tens or multiple tens of gigawatts of offtake, it really allows you to move with more confidence in things like putting shovels in the ground and getting development permits, it allows you to lean into, looking to source equipment, looking to source financing because you know that demand is going to be there. So we simply see this as a first step in accelerating into the strategy that we've been executing on for a number of years now.

Operator: Our next question is from the line of Jessica Hoyle with Scotiabank.

Jessica Hoyle: So just to start thinking about the Microsoft deal and dealing with large tech companies, is how narrow is the competition to provide these types of renewable packages just given they are across multiple geographies and are quite large?

Connor Teskey: Thanks, Jessica. The arrangement we have been able and are fortunate to be partnered with Microsoft on and similar with some of our other very large customers, is there is a very significant differentiation. In order to be a credible partner of scale, one, you need the capital and the amount of capital to support these types of partnerships is very limited to a small number of participants in the marketplace today. So we would certainly see that as a major limiting factor and one that differentiates us. But the other important things that we would highlight is you need the operating capabilities. This is bringing on multiple projects across multiple geographies concurrently. And therefore, you need that best-in-class development and construction capability.

And then the last point is, even if you are large and have the capital and have the capabilities, you actually need the assets, you need the pipeline. And this is where our approach of acquiring pipeline over the last 2 or 4 or 5 years is really coming to fruition because we have the projects and the assets to meet this growing demand already. This is a very real opportunity today and really lends itself to those that have that pipeline already, not those who are going to start developing it today in order to deliver it several years from now.

Jessica Hoyle: That's helpful. And then you talked a little bit on this, but maybe can you talk a little bit more about the opportunity set out there just in terms of buy versus build. There seem to be a lot of packages out there. So I just want to get your overall thoughts on these dynamics in the market.

Connor Teskey: Great. The -- back to the comment that we think it is a bifurcated market where you can be both a very active buyer and a very active capital recycler, we do expect there to be a lot of transactions this year for the same reasons. Banks are lending. Again, the institutional bid is back, the strategic bid is back, and there is certainly a lot of capital available in the space. Given the very robust pipeline that Esper highlighted, we mean this with absolutely no sensationalization, our pipeline for growth is probably larger today than it's been at any point in history. And as a result of the scale of that pipeline, it is quite diversified. It is across both operating assets and development opportunities really across all markets around the world that we're active in.

Operator: I'm currently showing no further questions at this time. I'd like to hand the call back over to Connor Teskey for closing remarks.

Connor Teskey: Great. Well, thank you, everyone, for joining us on today's call. As always, we greatly appreciate your interest and support of Brookfield Renewable and we look forward to giving you an update following our Q2 results. Thank you, and have a great day.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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