Brookfield Renewable (BEPC +0.00%)(BEP -1.69%) is already one of the world's largest renewable-energy producers. With a roughly 21-gigawatt (GW) operating portfolio, it's generating enough clean energy to offset the emission from 6 million cars.
However, it's just getting started. It has another 36 GW of renewable energy assets under development, enough to power 7 million homes for one year. Meanwhile, it recently agreed to acquire leading U.S. clean power developer Urban Grid, adding another 20 GW of development projects. This deal gives Brookfield even more power to grow over the coming years.
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A powerful development platform
Brookfield Renewable and its institutional partners are paying $650 million to acquire Urban Grid. The clean power developer has 13 GW of utility-scale solar energy projects in its pipeline and 7 GW of energy storage capacity. That will triple the size of Brookfield's U.S. development pipeline to nearly 31 GW of capacity. That makes it one of the country's largest renewable energy developers.
Urban Edge currently has 2 GW of solar projects under construction or ready to build, providing Brookfield with near-term growth. In addition, it has another 4 GW of advanced-stage opportunities and an even larger pipeline of future development potential.
The deal will deepen Brookfield's development capabilities while providing strategic access to several key U.S. markets in the Mid-Atlantic, Southeast, and Midwest. It will also help accelerate its growth, establishing it as one of the country's premier renewable energy providers.
Another step in the growth acceleration strategy
The Urban Grid acquisition follows a similar pattern of recent deals by Brookfield Renewable. Over the past few years, the company has broadened its acquisition strategy to include buying development opportunities instead of solely focusing on purchasing cash-flowing operating assets.
In 2019, Brookfield Renewable purchased a 50% interest in Spanish solar energy developer X-Elio. It invested $500 million to acquire a stake in a company that had 273 MW of operating capacity, 1.413 GW of assets under construction, and another 4.8 GW of projects in the development pipeline.
Brookfield has since acquired several other development projects, setting the stage for future growth. Notable deals included its 2020 purchase of a 1.2 GW advanced stage solar energy project in Brazil, one of the largest solar development projects in the world. Meanwhile, last year Brookfield bought the 845 MW Shepard Flat wind farm in the U.S., which included one of the world's largest wind repowering investment opportunities to boost the farm's output by 25%. It also bought a stake in a Polish renewable energy company developing a large-scale offshore wind farm pipeline.
This focus on development is helping Brookfield enhance its long-term growth profile. Its growing development pipeline alone should support 3% to 5% annual funds from operations (FFO) per share growth through 2026. That will complement its other organic growth drivers. Brookfield expects inflation-escalators on its existing power contracts to boost FFO per share by 1%-2% each year. Meanwhile, higher power prices and its growing scale should enhance margins, adding 2% to 4% to the bottom line each year. Add up these three organic growth power sources, and Brookfield has increasing confidence it can deliver 10%+ annual FFO per share growth through 2025. On top of all that, the company sees continued M&A potentially providing a boost of up to 9% annually. That sets the stage for upwards of 20% annual growth.
Powerful growth ahead
Brookfield Renewable continues to add to its already extensive renewable energy development pipeline. That's great for the environment and shareholders. It's enhancing its growth prospects, increasing its ability to deliver double-digit FFO per share growth over the coming years. That should enable the company to grow its 3.8%-yielding dividend at a 5% to 9% annual rate, which should help power strong total returns over the long term.
