Brookfield Renewable (BEPC 2.46%) (BEP 1.40%) believes the global energy transition from fossil fuels to cleaner-energy sources represents a once-in-a-generation investment opportunity. That's leading the company to take significant steps toward capitalizing on it. Brookfield raised a $15 billion investment fund dedicated to that pursuit.
The company recently found another compelling opportunity to put that capital to work. It's teaming up with MidOcean Energy and other institutional partners in a bid to acquire Origin Energy (ORG 0.20%) for 18.4 billion Australian dollars ($11.8 billion). Here's why it sees Origin as a great fit for that strategy.
Partnering to accelerate the transition
Brookfield and MidOcean Energy, a liquefied natural gas (LNG) company formed by leading global private-equity firm EIG, have offered to acquire Origin Energy in an all-cash deal. Brookfield and its institutional partners would purchase Origin's energy markets business, a leading integrated generation and retail company in Australia. Meanwhile, MidOcean Energy would buy Origin's integrated gas business, which includes its 27.5% stake in Australia Pacific LNG.
Brookfield Renewable would invest through the Brookfield Global Transition Fund I, the world's largest private-equity fund dedicated to the energy transition. By acquiring control over Origin's energy markets business, Brookfield can leverage its expertise and access to capital to accelerate Origin's energy transition.
Origin had been looking for ways to speed up its energy transition, including shutting down Australia's largest coal-fired power plant. Brookfield's plan would see it invest an additional $20 billion Australian dollars ($13.1 billion) by 2030 to build the necessary renewable energy and storage capacity to make Origin a cleaner power producer.
As one of the world's largest renewable energy producers and developers, Brookfield can leverage its expertise and scale to help Origin more quickly transition to clean energy. That would also help Australia reach its emissions-reduction targets faster.
A multistrategy approach to the energy transition
Brookfield's bid for Origin Energy follows an unsuccessful offer to acquire Australia's top power producer, AGL Energy, earlier this year. Brookfield had a similar strategy for that company, as it wanted to accelerate its transition from fossil fuels to renewable energy.
However, accelerating the energy transition of utilities is only one aspect of the company's energy transition strategy. Brookfield has made several other investments via its energy transition fund.
One of the more notable transactions was its partnership with nuclear fuel supplier Cameco to acquire Westinghouse Electric. The partners are paying nearly $8 billion for the leading global nuclear service provider. Nuclear energy is seeing a renaissance as countries increasingly turn to that zero-emissions fuel source to help them meet their climate goals.
Brookfield has also made several carbon capture, sequestration, and utilization investments. It partnered with oil and gas producer California Resources Corporation (CRC 0.94%) on a carbon capture and sequestration project. That investment will help California Resources reduce the carbon emissions profile of its oil and gas output.
The company has also partnered with a modular carbon capture solutions provider to build carbon capture projects. In addition, Brookfield invested in LanzaTech, which transforms waste carbon into net-zero products like fuels, fabrics, and packaging.
These investments are only the tip of the proverbial iceberg. Brookfield closed the first of what it believes will be many funds dedicated to the energy transition. It envisions that business growing to $200 billion in the future. That would give it even more money to capitalize on decarbonization opportunities.
Brookfield sees two massive areas of opportunity: Adding clean energy to the power grid and business transformation. The latter could see the company invest in companies like Origin Energy that need help transitioning their business to lower carbon energy.
While it has initially targeted utilities, Brookfield could also help harder-to-decarbonize industries like steel, chemicals, cement, and auto. It could take those companies private to accelerate their transitions or provide them with capital to decarbonize their operations.
A massive long-term growth driver
Brookfield Renewable sees a massive opportunity in the energy transition. It's providing the company with a growing list of attractive investment opportunities, positioning it to deliver powerful growth in the coming years. Brookfield believes it could grow its cash flow per share by as much as 20% per year as it secures highly accretive acquisitions to complement rising power prices and its vast slate of development projects.
That should give the company plenty of power to deliver on its goal of growing its 4%-yielding dividend at a 5% to 9% annual rate in the coming years. It also sets Brookfield up to potentially generate strong total returns. That makes it a great stock to buy for those seeking a way to profit from this once-in-a-generation investment opportunity.
