Decarbonization is a marathon, not a sprint. It will take decades for the global economy to switch power sources from fossil fuels to lower-carbon alternatives like renewable energy. Because of that, companies focused on investing in clean energy can deliver powerful growth for years to come.
One of the global decarbonization megatrend leaders is Brookfield Renewable (BEPC 2.75%) (BEP 2.85%). It sees an unparalleled commercial opportunity requiring more than $150 trillion of investments over the next three decades. That provides the company with enormous opportunities to expand and create value for its investors for years to come.
Image source: Getty Images.
Powerful growth ahead
Brookfield Renewable has steadily grown into a leading global renewable energy producer. The company leveraged its expertise in hydroelectric power generation to build out sizable wind and solar energy platforms.
One of its focus areas has been to acquire renewable energy developers and development projects. For example, the company recently closed the acquisition of U.S. and German utility-scale solar development businesses that have a combined pipeline of 22 gigawatts (GW) of development projects. It also recently agreed to acquire a 235-megawatt (MW) wind portfolio consisting of 155 MW in operating capacity and 80 MW of ready-to-build projects. That portfolio is part of a larger opportunity of almost 700 MW of operating and construction-ready projects that it secured exclusive rights to purchase.
As a result of deals like those and its internal development efforts, Brookfield has an enormous and growing pipeline of renewable energy development projects. The company ended the first quarter with 69 GW of projects in its development pipeline, enough to power more than 9 million homes annually. That's more than triple its current 21 GW operating portfolio.
Currently, about 15 GW of those projects are under construction or in advanced stages of development. That development pipeline, combined with the growth of its existing business, should power 6% to 11% annual growth in its funds from operations (FFO) per share through at least 2026. In addition, Brookfield sees the potential for up to 9% in additional annual FFO per share growth from acquisitions. It has already secured $340 million of investments in 2022, putting it well on track with its goal to invest $1 billion to $1.2 billion annually through 2026.
Growing optionality and upside
Brookfield has also expanded into emerging decarbonization asset classes like energy transition, hydrogen, and carbon capture and storage to drive additional growth in the coming years. For example, it recently invested in a leading North American modular carbon capture solutions provider.
Brookfield CEO Connor Teskey commented on the deal in his first-quarter letter to shareholders. He wrote: "Given the trillions of dollars required to decarbonize hard to abate industrial sectors over the coming decades, we see significant potential to grow our carbon capture footprint over time, and we believe we are well positioned to do so given our strong expertise in decarbonization and experience as an operating partner and capital provider to our global network of like-minded customers." That company has a proven and cost-effective product along with a sizable development pipeline. Brookfield's investment will help fund the buildout of the first project.
Another potential long-term upside opportunity is partnering with companies to help them decarbonize their operations. For example, Brookfield and a partner recently offered to take Australian power generation and energy retailer AGL Energy private. That would have given them control to accelerate a plan to decarbonize the company. While AGL rejected Brookfield's bid, it sees energy transition as one of the biggest investment opportunities in a lifetime. The company manages Brookfield Energy Transition Fund I, a $15 billion fund to provide capital to industrial companies and utilities to help them decarbonize. Brookfield sees the potential to grow its climate strategy investment fund platform to more than $200 billion in the coming years. That could power additional growth for the company in the decades ahead.
Powerful growth ahead
Brookfield Renewable has delivered 17% total annualized returns over the last two decades, well above the S&P 500's 7% total annualized return during that period. It should continue producing powerful total returns in the decades ahead, given the enormous investment opportunity to decarbonize the global economy. With clear near-term growth prospects and growing optionality and upside potential, it's a great stock to own for the long haul.
