Microsoft (MSFT -0.49%) has signed a first-of-its-kind global framework agreement to accelerate renewable energy capacity expansion. The five-year deal will help support the development of over 10.5 gigawatts (GW) of new renewable energy capacity. That's a staggering eight times larger than the biggest corporate power-purchase agreement (PPA) ever signed.
The tech titan signed this agreement with Brookfield Asset Management and its affiliate Brookfield Renewable (BEPC -1.23%) (BEP -0.14%). It significantly expands their long-standing relationship with Microsoft. The deal, reportedly supporting more than $10 billion of future developments, will meaningfully enhance and extend Brookfield Renewable's long-term growth outlook.
A supercharged agreement
The global renewable energy framework agreement provides a visible pathway for Brookfield to build and deliver over 10.5 GW of new renewable energy capacity in the U.S. and Europe between 2026 and 2030. That will help support Microsoft's goal of reaching 100% zero-carbon energy purchases by 2030.
It significantly enhances the companies' relationship. Microsoft currently has PPAs covering nearly 1 GW of renewable energy from Brookfield.
The deal will provide Microsoft with access to a pipeline of new renewable energy capacity to support the growing demand for its cloud services. In addition to wind and solar, the agreement will focus on new and impactful carbon-free energy generation technologies. The tech giant needs more electricity to support power-hungry data centers that are required to capitalize on growing digitalization and the increased adoption of artificial intelligence (AI). AI applications require significant computing power that, in turn, demands massively more electricity.
While the agreement initially focuses on building capacity in the U.S. and Europe, Microsoft can increase the scope to Asia-Pacific, India, and Latin America. The deal incentivizes Brookfield to build a large portfolio of renewable energy projects.
A powerful growth driver
Brookfield Renewable is the perfect partner for Microsoft. Few companies can match its global scale and development capabilities. It has one of the world's largest operating portfolios with 33 GW of capacity across several technologies (hydro, wind, solar, and storage) and geographies (North and South America, Europe, and Asia Pacific).
On top of that, it has a leading development pipeline with a staggering 155.4 GW of projects in various stages. Brookfield also boasts a portfolio of sustainable solutions, including nuclear services, renewable natural gas, and carbon capture and storage.
The Microsoft deal could enable Brookfield to more rapidly advance projects in its development pipeline. The agreement could also open the door to additional growth opportunities for Brookfield in the future. Its broader focus beyond wind and solar could accelerate the development of new carbon-free generation technologies.
Brookfield Renewable expects to grow its funds from operations (FFO) by more than 10% per share annually through 2028. Its development pipeline is a major power source, likely supplying 3% to 5% FFO per-share growth each year. The Microsoft deal could enable Brookfield Renewable to deliver higher-end growth from its development pipeline starting in 2026 while extending its growth outlook to 2030.
The agreement should enhance Brookfield's ability to grow its dividend in the future. The company expects to increase its already attractive payout (currently yielding over 6%) by 5% to 9% annually over the long term. It has delivered 6% compound annual dividend growth over the last two decades and could grow the payout toward the upper end of its yearly target range in the coming years, partly powered by the Microsoft deal.
A win-win-win partnership
Microsoft's massive renewable energy purchase agreement with Brookfield will help power the company's rapidly growing cloud business with clean energy. That will help accelerate the energy transition to cleaner power, which is great for the environment.
On top of that, the deal will help accelerate Brookfield's growth, which could pay big dividends for its shareholders in the coming years. Brookfield Renewable's combination of income and growth could power strong total returns for its investors, making it a top renewable energy stock to buy.
