Brookfield Renewable (BEP 3.26%)(BEPC +0.00%) has evolved over the years. It's gone from a hydroelectric-focused company to operating one of the world's largest and most diversified renewable energy operations. That progression will likely continue over the next decade as the company benefits from the rapid acceleration of the energy transition to cleaner alternative sources.
Here's a look at where the company seems headed over the next 10 years.
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Where Brookfield Renewable is today
Brookfield Renewable currently operates more than 5,300 generating facilities capable of producing roughly 20 gigawatts (GW) of energy across North and South America, Europe, and Asia. That's enough to supply the electricity needs of 5 million homes for a year. While hydro is still its largest power source at 64% of its annual cash flow, it gets 27% of its earnings from onshore wind assets and another 9% from solar energy.
Where Brookfield Renewable is going over the next decade
Brookfield has spent the past several years building a massive backlog of renewable energy development projects. As a result, the company ended last year with nearly 23 GW of development projects across solar, wind, hydro, and energy storage in every major market it operates. These developments should power its growth for the next several years.
What's worth noting is that, while Brookfield has a diversified project backlog, more than half of the developments in its pipeline are solar energy projects. That's by design, as the company has focused on acquiring solar energy developments over the past year because costs have been dropping so dramatically that it's becoming increasingly economical.
Brookfield sees such a bright future in solar energy that the company wrote in last year's second-quarter shareholder letter that "we believe it is possible that in ten years from now the majority of the production capacity of Brookfield Renewable will be solar capacity." The company noted that "it is not that we do not believe in wind or hydro but the growth in solar and the ability for us to develop and earn strong risk-adjusted returns should enable us to grow our solar operations at a far greater pace."
While solar energy appears as if it will be Brookfield's primary power source over the next decade, the company will likely continue investing in expanding each of its existing renewable energy platforms and adding new ones as they emerge. For example, the company recently acquired a stake in Polenergia, a renewable energy business in Europe. One of the draws was that the investment represented an opportunity to enter the offshore wind sector in Europe through a 3 GW development pipeline that Brookfield expects to build over the next five to seven years with an experienced wind developer.
Meanwhile, the company is also helping support the development of emerging emissions-free fuel sources like green hydrogen. Brookfield will supply hydrogen company Plug Power with renewable energy to support its first green hydrogen plant in North America. The company is also working with Canadian energy infrastructure giant Enbridge on a green hydrogen project that will use that emissions-free fuel to replace natural gas in one of Enbridge's gas distribution utilities.
Green hydrogen could be a massive market opportunity for Brookfield. The company could benefit by selling renewable energy to power these projects and leverage its expertise to develop green hydrogen-production plants if they're economical.
It all adds up to a bright future
Brookfield has created a tremendous amount of shareholder value over the past two decades as it's benefited from the slow transition to cleaner power sources. It's well-positioned to continue creating shareholder value with that pivot accelerating, especially as it focuses on high-return solar energy projects. Add in the upside from the expansion of new platforms like offshore wind and green hydrogen, and Brookfield could continue generating market-beating total returns over the next decade.
