While the coronavirus wreaked havoc on the global economy during the second quarter, it didn't impact Brookfield Renewable (BEP 0.78%)(BEPC +0.00%). Because of that, the renewable energy company generated strong results during the period.
A look at Brookfield Renewable's second-quarter results
|
Metric |
Q2 2020 |
Q2 2019 |
YOY Change (Decline) |
|---|---|---|---|
|
Actual generation |
6,552 GWh |
7,602 GWh |
(13.8%) |
|
Funds from operation (FFO) |
$232 million |
$230 million |
0.9% |
|
Normalized FFO |
$241 million |
$203 million |
18.7% |
|
Normalized FFO per unit |
$0.77 |
$0.65 |
18.5% |
Data source: Brookfield Renewable. YOY = year over year.
While the amount of renewable energy Brookfield generated declined during the period, the company still grew its FFO, delivering even stronger growth after normalizing for foreign exchange fluctuations. Powering its results were its wind and solar operations:
Data source: Brookfield Renewable. Chart by the author.
FFO from Brookfield's hydroelectric facilities declined by 14.6% year over year. The primary problem was drier conditions in New York State and Colombia, which impacted power generation in those regions. Foreign exchange fluctuations in the Brazilian real and Colombian peso versus the U.S. dollar also affected its results.
Wind-driven FFO surged 23% year over year. The primary power sources were cost reductions at its North American business and wind farm acquisitions in Asia. Those catalysts helped offset foreign exchange fluctuations in Brazil and the sale of some wind assets in Europe.
Solar-powered FFO rose 37% to $37 million, mainly due to acquisitions. Meanwhile, storage-related FFO rose 14.3% to $8 million as these assets helped fill in the gap between baseload demand and intermittent renewable power generation.
Image source: Getty Images.
A look at what's ahead for Brookfield Renewable
Brookfield recently completed two noteworthy transactions. First, it closed the acquisition of TerraForm Power at the end of July, creating one of the world's largest publicly traded, pure-play renewable power businesses. The deal will immediately boost FFO, simplify its corporate structure, and strengthen its business in North America and Europe.
Brookfield Renewable also created Brookfield Renewable Corporation, which it spun off to shareholders via a stock split. That entity will provide investors with greater flexibility to invest in its business via either a publicly traded partnership (Brookfield Renewable Partners) or a corporation (Brookfield Renewable Corporation). The former pays a distribution and issues a Schedule K-1 for tax purposes, while the latter pays a dividend and sends its investors a Form 1099-Div at tax time.
Meanwhile, the company and its partners agreed to invest $580 million (BEP's share is $130 million) on several new opportunities. The highlight was a $200 million investment to acquire a 1,200-megawatt solar development project in Brazil, one of the largest in the world. The company expects to close the deal by year-end and complete the project by 2023.
The renewable energy producer and its partners also agreed to sell $500 million of assets (BEP's share: $85 million). These sales are part of its capital recycling process to monetize mature assets and reinvest the proceeds into higher returning opportunities, such as the solar development in Brazil, which it sees generating an impressive 20% return on investment. This ongoing process has kept the company's balance sheet in tip-top shape. It ended the period with $3.4 billion of liquidity, giving it the flexibility to take advantage of investment opportunities as they arise.
Brookfield's strategic successes have the company well on pace to deliver on its long-term growth plan. That strategy would give it the power to grow its high-yielding dividend by 5% to 9% per year, which should help it achieve its goal of generating total annualized returns in the range of 12% to 15%.
A great renewable energy stock for the long haul
Brookfield Renewable delivered another solid quarter as its diversified business and cost savings offset drier conditions in some of its markets. More importantly, it made excellent progress on its strategic plan, which has it well set up to continue generating strong returns for investors. Because of that, it's a great renewable energy stock to buy and hold for the long haul.
