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This High-Yielding Renewable Energy Company's Earnings Aren't Feeling a Pandemic Impact

By Matthew DiLallo - May 6, 2020 at 3:32PM

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Brookfield Renewable Partners is handling the current market turmoil with ease.

With the COVID-19 outbreak shutting down large swaths of the global economy, electricity demand has tumbled. Renewable energy, however, has been largely immune to this impact because of contractual obligations and other factors. As a result, major renewable energy producers like Brookfield Renewable Partners (BEP 1.15%) haven't felt much impact from the current global recession, which was clear from its first-quarter earnings report on May 6.

A look at Brookfield Renewable Partners' first-quarter results

Metric

Q1 2020

Q1 2019

Change (YOY)

Actual generation

7,164 GWh

7,246 GWh

(1.1%)

Funds from operations (FFO)

$217 million

$227 million

(4.4%)

Normalized FFO

$212 million

$201 million

5.5%

Normalized FFO per unit

$0.68

$0.65

4.6%

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

Brookfield Renewable's power generation dipped a bit during the quarter due in part to some asset sales and weaker resources in some of its wind and hydro operations. Because of those factors, and foreign currency fluctuations, its funds from operations slipped year-over-year. However, after adjusting for foreign exchange, normalized FFO rose by about 5% thanks to solid results across its portfolio:

Brookfield Renewable's earnings by segment in the first quarter of 2020 and 2019.

Data source: Brookfield Renewable Partners. Chart by the author.

Brookfield's hydro operations grew its FFO by 2%. The biggest contributor was its North American business, which benefited from above-average resource levels and improved power prices thanks to inflation-indexed rate increases. That helped offset the sale of a stake in some of its Canadian assets and weakness in Brazil and Colombia due to foreign exchange fluctuations. Without the currency issues, FFO in those two regions would have been up 21% and 8%, respectively, due to strong generation in Brazil and higher rates and cost reductions in Colombia.

FFO from Brookfield's wind business declined by 10% year over year. The main weight came from its European operations, where FFO declined from $17 million to $11 million because of the sale of its Northern Ireland and Portuguese assets. It partially offset this loss by acquiring wind assets in India and China.

Finally, FFO in the solar, storage, and other business dipped slightly. While the company benefited from the acquisition of X-Elio and its investment in TerraForm Power (TERP) -- which recently acquired some solar assets -- the sale of Brookfield's non-core solar assets in Thailand offset those positives.

Solar panels and a wind tower with the sun setting in the background.

Image source: Getty Images.

A look at what's ahead for Brookfield Renewable Partners

One of the highlights during the quarter was that Brookfield agreed to acquire the TerraForm Power shares that it doesn't already own. The merger will simplify its structure, diversify its holdings, and strengthen its business in North America and Europe. It will also allow Brookfield to create Brookfield Renewable Corporation, which will provide investors with an alternative way to invest in the company.

Brookfield also remains on track to invest between $700 million and $800 million into development projects and other acquisitions this year. It has 831 MW of projects currently under construction that will provide it with $21 million of annualized FFO when they come online over the next few years. It has several solar projects on track to start up this year, including those developed by X-Elio. Meanwhile, the company has a healthy pipeline of acquisition opportunities.

Brookfield has ample liquidity to finance this growth as it ended the first quarter with more than $3 billion of cash and available credit. It bolstered that number during the period by selling its solar assets in Thailand and completing several refinancing transactions.  

With the company's underlying operations performing well, and its growth initiatives continuing to deliver results, Brookfield remains on track with its long-term outlook. That strategy would see the company grow its FFO at a 9% to 16% annual rate through 2024, which would provide it with enough power to increase its distribution by 5% to 9% per year.

An excellent income stock for the long haul

Brookfield generated solid results during the first quarter because its business remains mostly immune to issues in the global economy. As a result, its more than 4%-yielding dividend will easily survive this downturn. Meanwhile, the company continues to make progress on its growth plan, which should power healthy FFO and dividend growth for the next several years. That makes it an excellent stock for dividend-focused investors.

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Stocks Mentioned

Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
BEP
$35.20 (1.15%) $0.40
TerraForm Power Stock Quote
TerraForm Power
TERP

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