Brookfield Renewable Partners LP

Brookfield Renewable delivered funds from operations of $421 million and $0.62 per unit, acquired Aypa, a battery storage developer, and received a commitment from the U.S. Department of Energy for $17.5 billion in debt facilities to support Westinghouse reactor deployment.

Why it matters: The Aypa and Westinghouse moves both diversify into new areas of the global market's power mix. The Westinghouse project is another step of management leaning into developmental activities. We see strategic rationale for the Aypa deal. Aypa provides roughly 3 GW of highly contracted operating and under construction assets, 3.5 GW of contracted projects, and a pipeline of more than 20 GW of assets, helping meet the energy storage demand of hyperscalers and governments. The financing from the U.S. Department of Energy is progression on the planned deployment of up to 10 new Westinghouse reactors, accelerating the timeline by up to three years. Brookfield's stake in Westinghouse looks appealing, especially as more international opportunities arise.

The bottom line: We maintain our $29 (CAD 40) fair value estimate for Brookfield Renewable Partners and our $33 (CAD 46) estimate for Brookfield Renewable Corporation. We see the Department of Energy's commitment as reducing risk in the buildout of nuclear power. As a reminder, we will discontinue analyst coverage of Brookfield Renewable Partners and Brookfield Renewable Corporation on or about Aug. 17, 2026.

Coming up: Brookfield Renewable approved a plan to consolidate its structure by merging Brookfield Renewable Partners and Brookfield Renewable Corporation into a singular trading entity, Brookfield Renewable Partners Inc. Non-preferred units will be exchanged one-for-one for new shares of BEP Inc.

We are increasing our fair value estimate to $29 from $28 after updating our model for potential long-term upside associated with Westinghouse.

Our five-year forecast projects funds from operations per unit growth of 10% per year, which is in line with management's target. This growth is underpinned by organic growth, such as inflation indexation in contracts and margin enhancement, development activities, and mergers and acquisitions.

Organic growth will be driven by inflation indexation embedded in contracts and margin enhancement activities. In addition, movements in power prices can affect results, as approximately 10% of power generation is subject to merchant power prices.

Development of new projects as well as mergers and acquisitions is expected to account for the majority of Brookfield Renewable's cash flow growth. Historically, the company has been weighted toward mergers and acquisitions, but it has built out further development capabilities in recent years.

We do not believe Brookfield Renewable has an economic moat. We attribute much of Brookfield's ability to earn excess returns to its strong capital allocation record and not an underlying moat source.

Brookfield Renewable employs an unusual structure in which it invests in assets alongside institutional investors via Brookfield private equity funds. This results in much of Brookfield Renewable's growth being tied to mergers and acquisitions as opposed to organic growth.

Development of renewable energy assets can be characterized by fierce competition and thin returns above cost of capital. Potential moat sources include intangible assets via long-term contracts and scale advantages but are reserved for a select few companies, in our view. The industry enjoyed robust returns in its early days as competition was sparse and subsidies were high. However, recent years have seen sharply increased competition and compressed returns. This is coupled with limited barriers to entry—particularly for onshore renewables such as wind and solar—where the average project size and complexity is much smaller than traditional thermal plants.

Brookfield's renewable legacy is centered on its hard-to-replicate hydro assets (approximately one third of 2024 cash flow). We believe hydropower plants have attractive moat characteristics, given their long useful lives of about 100 years, relatively low operating costs, and dispatch capabilities in the case of pumped hydro.

In addition, new hydro assets are extremely difficult to build given needed regulatory approvals and locational constraints, supporting an efficient scale moat source. We particularly view this as the case for Brookfield's North American hydro portfolio, which constitutes a majority of its hydro capacity and is concentrated in the Northeast United States. Hydro’s favorable characteristics are partially offset by greater year-to-year resource variability than wind or solar.

We do not believe Brookfield's wind segment possesses an economic moat. The company's scale in this technology is smaller than peers, such as NextEra Energy. Brookfield's wind portfolio does benefit from intangible assets in the form of contracts with counterparties for approximately 90% of generation in 2024, declining to 80% by 2028. This level of contract coverage should ensure consistent returns for Brookfield's wind portfolio in the near term but falls short of garnering a narrow moat rating, in our view.

We do not believe Brookfield's solar and energy transition segments warrant an economic moat. Brookfield is a relatively new entrant to the solar market, where we see fewer barriers to entry relative to wind given simple construction and smaller project sizes.

Brookfield's reliance on M&A coupled with our expectation for hydro, its moatiest segment, to decline as a percentage of cash flow over time results in our no-moat rating.

Brookfield Renewable is well positioned for the global renewable energy buildout, given its diversification.

Brookfield Renewable's strong capital allocation record has generated returns generally above those of peers.

An investment-grade balance sheet ensures Brookfield Renewable a cost of capital competitive with peers.

Brookfield Renewable is exposed to emerging-market foreign-exchange risk, which generally constitutes 25%-30% of the company's cash flow.

The large amount of capital looking to invest in renewable projects increases competition for projects, compressing returns.

Brookfield Renewable's complex corporate structure creates the potential for corporate governance risks.