Solar energy is currently a small piece of the revenue pie for Brookfield Renewable (NYSE:BEP). While the renewable energy company is one of the global leaders in capacity, hydroelectric generates the bulk of its power and cash flow at 66% of the total. Wind is a distant second at 27% and solar relatively minor at 7%.
However, solar energy will become an increasingly meaningful cash flow generator for Brookfield Renewable in the future thanks to several recent transactions focused on development. Solar also will be an important source for powering dividend growth.
Betting big on Brazilian solar
Brookfield unveiled its most recent transaction in late July when it agreed to acquire a 1,200-megawatt (MW) advanced solar development project in Brazil. It's one of the largest solar development projects in the world. The company expects to invest $200 million to complete the project, which is on track to start-up in 2023. The current developer has already sold 75% of its contracted capacity under long-term, inflation-linked power purchase agreements, meaning Brookfield should generate fairly steady cash flow once it's operational. However, Brookfield aims to get that number up closer to 100% by completion to further stabilize its cash flow.
That deal follows two previous ones the company signed at the end of last year to acquire 14 solar development projects in Brazil. Overall, the company and its partners spent $120 million to add 428 MW of total capacity. One of those projects, the 278 MW Newen facility, is on track to start up by the third quarter of next year, when it will begin contributing cash flow.
Twin solar joint ventures to help power dividend growth
Brookfield has also added a large pipeline of solar development projects via two joint ventures it has secured in recent years. In early 2018, its parent, Brookfield Asset Management (NYSE:BAM), formed a 50-50 joint venture with leading global logistics company GLP to develop distributed solar energy projects on logistics and commercial rooftops in China. At the time, the companies expected to install 300 MW of rooftop solar projects in the first three years as part of a broader 1-gigawatt development pipeline. That joint venture will complete 58 MW of projects this year, which will contribute cash flow to Brookfield Renewable.
Meanwhile, Brookfield Renewable formed a 50-50 joint venture with private equity giant KKR (NYSE:KKR) last year to acquire global renewable project developer X-Elio. That company had 273 MW of operating solar capacity, 1,413 MW under construction, and 4,800 MW in its development pipeline across several major markets, including the U.S., Mexico, Chile, and Japan. X-Elio expects to commission 230 MW of North American projects, 135 MW in Spain, and 14 MW in Japan this year, which will provide some incremental cash flow to Brookfield.
Solar-powered dividend growth
Brookfield Renewable estimates that it can grow its 3.5%-yielding dividend by 5% to 9% per year for at least the next five years. Powering that outlook is a combination of organic growth drivers, including the expectation that development projects will deliver 3% to 5% annual earnings growth. While it has a diversified pipeline of hydro, wind, solar, and storage projects, solar is becoming an increasingly important growth driver for the company thanks to its recent string of development-focused acquisitions. With so many projects secured, there's increasing confidence in Brookfield's dividend growth outlook, making it an enticing stock for investors who want a steadily rising income stream power by the sun.