It's going to cost a staggering amount of money to battle climate change. Estimates suggest we need to invest an eye-popping $150 trillion by 2050 to decarbonize energy systems and the global economy. That represents a massive opportunity for Brookfield Renewable (BEP -4.68%) (BEPC -3.82%) to leverage its access to capital and expertise to help companies decarbonize their operations.
Many companies are already partnering with Brookfield to help them achieve their climate goals. Meanwhile, Brookfield is actively targeting others that would benefit from its expertise. It recently unveiled its first target by offering to privatize Australian power company AGL Energy (AGL -0.65%). Here's why Brookfield wants to take control and help companies like AGL Energy clean up their emissions profiles.
Going public with its offer to accelerate AGL's clean up
Brookfield Renewable is teaming up with GROK Ventures (controlled by Mike Cannon-Brookes, a billionaire climate activist who co-founded software company Atlassian) to take AGL Energy private. They offered 7.5 Australian dollars ($5.41) per share, valuing AGL's equity at A$5 billion ($3.6 billion). That's a roughly 5% premium to AGL's closing price as of Friday. However, it's a fraction of the energy company's former peak, as it has shed 75% of its value over the last five years.
Brookfield and its partners want to take AGL Energy private to execute a plan to decarbonize the company. They intend to invest A$20 billion ($14.5 billion) to build out at least eight gigawatts (GW) of clean energy and storage assets, replacing its existing seven-GW coal power generation portfolio. The plan would transform AGL from one of Australia's worst carbon emitters -- it accounts for 8% of the country's emissions, more than every car currently on the road in the country -- to a vertically integrated energy company with net zero emissions by 2035.
That's significantly faster than AGL's current plan. The company unveiled its new strategy last year, which would see it split into two entities: One focused on power generation and the other on energy retail. That plan would see the two companies slowly transition toward cleaner energy, with an aim to achieve net-zero by around 2050.
While AGL has rejected Brookfield's offer, saying the price is too low, Brookfield and GROK plan to continue negotiating. In commenting on the rejection, Cannon-Brookes said their initial offer was "only the starting gun." They want to continue explaining the value of their offer to AGL shareholders in hopes of securing a deal.
Accelerating the transition
Brookfield Renewable believes that the funding required to replace AGL's coal plants with renewables is more than what it can get through the public markets. That's why it wants to take the company private to leverage its access to capital. That capital would come from the Brookfield Global Transition Fund I, the world's largest fund focused on accelerating the economy's transition to net zero emissions. Brookfield Renewable is the largest investor in this $12 billion fund raised by its parent, Brookfield Asset Management (BN 2.00%).
In addition to having the funding to help accelerate AGL's transition, Brookfield has the expertise and scale to help it efficiently build out the clean energy needed to replace its legacy coal operations. The company operates 21 GW of renewable energy assets worldwide and has a 62 GW development pipeline. Its experience operating and developing renewable energy assets enables it to help other companies build out renewable energy capacity. Meanwhile, its global scale gives it purchasing power, helping drive down costs and improve investment returns.
Brookfield's expertise has it increasingly becoming the partner of choice for companies seeking to achieve their climate goals. For example, last year, it signed a strategic collaboration agreement with tech giant Amazon (AMZN) to develop new renewable energy projects. That agreement will help support Amazon in achieving its climate goals and help transition the global energy industry to cleaner energy sources. It also invested alongside Apple's (AAPL 0.15%) China Renewable Energy Fund to acquire a portfolio of wind energy assets in that country. The fund, raised by Apple and its suppliers, is helping advance the transition to net zero emissions in China.
Leading the charge
Brookfield Renewable wants to take a more active role in leading the energy transition to renewable power. That drove it to become the largest investor in the Brookfield Global Transition Fund, which it wants to use to accelerate AGL Energy's transition from a leading carbon emitter to a net zero company. While AGL has rejected its initial offer, Brookfield plans to continue negotiating.
Meanwhile, it should have plenty of opportunities to help other companies accelerate their decarbonization plans in the future, given the enormous amount of capital needed to achieve net zero on a global basis. That ability to lead such a crucial mission makes Brookfield stand out as a top investment for the long term.