Decarbonization is an unparalleled commercial opportunity. One estimate pegs the investment required to eliminate global carbon emissions at a staggering $150 trillion-plus over the next 30 years. That means companies focused on decarbonization can produce powerful growth for decades to come.
Multiple power sources
Brookfield Renewable has a globally diversified portfolio across multiple asset classes. The company currently generates half its cash flow from hydroelectric assets, with the rest coming from wind energy (22%), utility solar (15%), and distributed generation, storage, and other (15%).
The company's diversification gives it more ways to grow. It has an extensive pipeline of renewable energy development projects totaling 75 gigawatts (GW). That's more than three times its current operating portfolio of 21 GW. The company has 17 GW under construction and in advanced development stages, putting it on track with its goal to double its operating portfolio by 2030. With plenty more projects in the pipeline, Brookfield should be able to continue growing well into the next decade.
Development projects are only one growth driver. The company estimates that its development pipeline will help increase its funds from operations (FFO) per share at a 3% to 5% annual rate through 2025. Brookfield also sees inflation-indexed contract escalation clauses adding another 1% to 2% to its bottom line each year, with margin enhancements tacking on another 2% to 4% annually. That adds up to 6% to 11% annual organic growth. On top of that, Brookfield sees acquisitions adding up to another 9% to its FFO per share each year. That could push its overall growth rate to as much as 20% annually.
New growth drivers emerging
Renewable energy alone can power Brookfield's growth for decades to come. However, that's not stopping the company from seeking new growth drivers that could add more power in the future.
One emerging technology that Brookfield has started investing in is green hydrogen, which uses renewable energy to electrolyze water and turn it into an emissions-free fuel. Brookfield teamed up with Enbridge to develop green hydrogen resources in Quebec. Brookfield will supply renewable power from its hydroelectric plants to produce hydrogen for a plant that will make biofuels. Brookfield also partnered with hydrogen company Plug Power to supply renewable energy to its first green hydrogen plant. While estimates vary widely, hydrogen could become a $1 trillion annual market in the coming years, potentially providing Brookfield with lots of future growth.
Brookfield also recently made two carbon capture and storage (CCS) investments. It recently formed a joint venture with oil producer California Resource Corporation to develop and build CCS projects. Brookfield will initially invest $100 million to develop 5 million metric tons of carbon dioxide injection annually and 200 million metric tons of storage. Brookfield also invested in a carbon capture solutions provider with a large-scale pipeline. It will help fund that company's first project and could eventually own a majority of the business. Oil companies believe carbon capture and storage will be a $3 trillion to $5 trillion global market by 2050, suggesting Brookfield's carbon business could be a meaningful growth driver.
Brookfield also sees the potential to make direct investments in companies to help lead their transition to net zero emissions. The company offered to acquire Australian utility AGL Energy to accelerate that utility's transition to renewable energy. While AGL rejected Brookfield's bid, it sees enormous potential in energy transition investments. The company recently raised $15 billion for its first energy transition fund and wants to grow that business to $200 billion in the future.
So many ways to grow
Decarbonization is a powerful growth driver. It has Brookfield Renewable on track to grow its FFO per share by upwards of 20% annually through 2025. While renewable energy is the company's primary power source in the near-term, green hydrogen, CCS, and energy transition are emerging as potentially powerful growth drivers over the longer term. That positions the company to drive strong returns for investors in the coming decades.