For as long as there's been man-made electricity, there's been renewable energy. Hydroelectric dams were the first major power-generating assets to illuminate American cities in the late 1800s. Fast-forward over 100 years to the present day and hydropower is still the top renewable energy source in the United States.

That century-spanning reliability has helped Brookfield Renewable Partners LP (NYSE:BEP) become one of the world's leading renewable energy companies, although the business's reliance on hydropower has done more harm than good this past year. The stock has fallen 20% since the beginning of 2018 thanks in part to a poor year-over-year showing for its hydroelectric power segment.

However, the headline numbers don't come close to telling the whole story. Investors who dig a little deeper will be more forgiving -- and likely see the renewable energy stock's slide as a great buying opportunity.

Paper art of balloons carrying dollar signs.

Image source: Getty Images.

Weak dam output, with an asterisk 

A casual glance at the operating performance of Brookfield Renewable Partners through the first nine months of 2018 might elicit a feeling of disappointment. The business saw funds from operations (FFO) -- a profitability metric -- for its North American hydroelectricity assets fall 16.5% compared to the year-ago period. While the portfolio spans three continents and four types of renewable energy assets, American and Canadian hydropower contributed 58% of total revenue and 88% of total FFO through the first nine months of 2017. So a double-digit decline has had a sizable impact on the overall business. 

But it's not as bad as it seems. That's because 2017 was a banner year for North American hydropower thanks to unusually high volumes of water runoff. According to the U.S. Energy Information Administration, the United States averaged 264 terawatt-hours of annual electricity generation from hydroelectric dams in the five years ending in 2016. That jumped nearly 14% to 300 terawatt-hours in 2017. 

As might be expected, hydroelectric output is reverting to the mean in 2018 (although it's still on pace to exceed the five-year average from 2012 to 2016), which explains why the year-over-year comparisons to 2017 appear so weak for Brookfield Renewable Partners. The company can't control water runoff, but it can control investments in promising new growth opportunities to diversify its asset base -- and it's knocking that out of the park.

A wind turbine.

Image source: Getty Images.

Renewable energy 2.0

Hydropower is an important source of clean electricity, but industrialized nations simply don't build new dams anymore. That's why in 2019 -- and maybe even this year -- wind power will eclipse hydropower as the top renewable energy source in the United States. Wind power is on the rise in Europe and South America as well, and Brookfield Energy Partners has been busy preparing.

Through the first nine months of 2018 the company's wind portfolio increased electricity output and FFO generated 78% and 39%, respectively, compared to the year-ago period. The company's solar portfolio is turning in a great first year as well with 569 gigawatt-hours (GWh) to date. Taken together, the emergence of new renewables is helping to paint a pretty clear picture of the future at Brookfield Renewable Partners for investors.

Metric

First 9 Months 2018

First 9 Months 2017

Change (YOY)

Hydroelectric generation

14,817 GWh

16,130 GWh

(8.2%)

Wind generation

2,908 GWh

1,683 GWh

72.8%

Solar generation

569 GWh

N/A

N/A

Total generation

18,701 GWh

18,078 GWh

3.4%

Hydroelectric FFO

$493 million

$539 million

(8.5%)

Wind FFO

$100 million

$72 million

39%

Solar FFO

$57 million

N/A

N/A

Storage and other FFO

$23 million

$7 million

228%

Total FFO

$470 million

$438 million

7.3%

Data source: Brookfield Renewable Partners. YOY = year over year.

The table above makes it clear: Wind and solar assets are becoming increasingly important in the company's generation mix and to the bottom line. The renewable duo provided 18.6% of the portfolio's electricity generation in the first nine months of 2018, up from just 9.3% in the year-ago period (also affected from a strong year for hydropower). When new energy storage assets are thrown into the mix, the trio added $101 million in FFO in that span and helped to more than offset declines in hydropower.

The shift is just getting started. Brookfield Renewable Partners expects to raise an additional $350 million in net proceeds by the end of the year from the sale of equity in certain Canadian hydropower assets. That will add to $500 million in net proceeds received year to date, and will be reinvested in new wind, solar, and storage assets capable of generating higher rates of return. That's all part of a long-term plan to plow up to $800 million per year into portfolio expansion.

A woman sitting in a chair with a light bulb above her head.

Image source: Getty Images.

If the business continues to deliver on that promise, then it should be able to deliver on two others. Brookfield Renewable Partners aims to generate total returns (stock gains plus distributions) of at least 12% per year while growing its distribution at least 5% per year. Growing contributions from its relatively limited base of wind and solar this year show that might not be such a reach.

A great buying opportunity for long-term investors

Brookfield Renewable Partners stock has slipped 20% in 2018 due in part to weak year-over-year performance from its portfolio-leading hydropower assets. However, the fact that 2017 was an unusually wet year skews the comparison. More importantly, the company's strong performance from quickly growing wind and solar assets is more than picking up the slack while providing a glimpse of the future. Management's long-term plans for growth, and a 6.9 % distribution yield for investors, hint this great business is a buy at current prices.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.