The global economy is accelerating its shift away from fossil fuels toward cleaner alternatives like renewable energy. It's benefiting Brookfield Renewable (BEP +0.57%)(BEPC +0.00%), a global leader in operating and developing renewable energy facilities. That's clear from the company's recent first-quarter report, which showed strong financial results and excellent progress on its growth strategy.
A quick look at Brookfield Renewable's first-quarter results
Brookfield Renewable generated $257 million, or $0.40 per share, of normalized funds from operations (FFO), which adjusts for foreign exchange fluctuations. That's up 33% overall and 21% on a per-share basis after accounting for recent stock sales to help fund growth. Meanwhile, its unadjusted FFO totaled $242 million, up 11.5% year over year.
The company benefited from strong results in its wind, solar, and energy transition businesses:
Data source: Brookfield Renewable. Chart by author.
Leading the way was Brookfield's wind business, where FFO soared 191%. Powering the earnings surge was the increased ownership in TerraForm Power, which the company acquired last year. It also benefited from buying another wind portfolio in the U.S.; higher revenue per megawatt-hour (MWh) sold; and stronger wind resources in Europe, Brazil, and Asia.
Brookfield's solar energy assets also generated strong results in the quarter as FFO surged 275% year over year. Again, acquisitions were the main power source, primarily driven by the increased interest in TerraForm Power. The company's energy transition business also generated excellent results as its FFO jumped more than 94%. This segment benefited from acquisitions, primarily distributed generation assets like rooftop solar.
The lone weak spot was the company's hydroelectric portfolio, where FFO slumped 23%. The primary issue was the above-average generation in North America in 2020, which made for a tough comparable quarter. A weaker Brazilian real versus the U.S. dollar also impacted results in that country. They declined by 5% when they would have increased 17% on a constant currency basis thanks to its cost-saving initiatives and higher rates on new and existing contracts.
Image source: Getty Images.
A look at what's ahead for Brookfield Renewable
Brookfield had a busy first quarter on the strategic front. Overall, the company and its partners agreed to invest $1.6 billion ($410 million net to Brookfield) across several transactions. These included:
- Shepherds Flat: Brookfield acquired an 845-megawatt (MW) wind farm in Oregon that includes one of the world's largest wind repowering projects. Once complete, it will increase the facility's power production by 25%. The deal also included a 400-MW development pipeline that Brookfield is also advancing.
- Polenergia: Brookfield acquired an interest in this European renewable energy business, which includes a 3-gigawatt (GW) offshore wind development pipeline.
- Exelon's (EXC +1.11%) distributed generation business: The company is buying a 360 MW operating portfolio of distributed generation assets that includes a more than 700 MW development pipeline. As a result, it now owns one of the leading distributed generation businesses in the country with nearly 2 GW of operating assets.
- India solar project: Brookfield acquired a 450-MW development project in India that should start up by year-end.
The company also made excellent progress on its development pipeline. It moved 6 GW of projects through the construction and advanced-stage permitting process while adding 4.5 GW of projects to its development pipeline. The company also signed 29 agreements to sell 2.3 GWh of renewable energy to corporate customers across all industries, further securing its long-term cash flows.
Finally, Brookfield continued to make progress on its capital recycling program. It agreed to sell more than $850 million of assets ($410 million net to Brookfield), including mature onshore wind portfolios in the U.S. and Ireland. These sales will return about two times its invested capital while providing it with the cash to finance its recent investments. That enabled the company to end the quarter with a top-notch balance sheet featuring $3.4 billion of available liquidity, an investment-grade credit rating, and no meaningful near-term debt maturities. That gives it ample financial flexibility to continues pursuing acquisitions and development projects.
A top-tier renewable giant
Brookfield Renewable is benefiting from the energy transition megatrend to renewables. That's enabling it to generate rapidly rising cash flow as it sells its power at higher prices and benefits from a steady stream of expansion projects and outside investment opportunities. Those catalysts should give it the power to continue producing strong total returns, making it an excellent way to invest in this long-term trend.
