Brookfield Renewable Corporation — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021, with fourth-quarter information for the three months ended December 31, 2021. Financial statements are audited and prepared under IFRS in U.S. dollars. BEPC operates primarily through renewable power assets in North America, Europe, Brazil and Colombia and is externally managed by Brookfield affiliates.
Business Context and Reporting Period
- Portfolio capacity was approximately 12,766 MW at year-end, including hydroelectric, wind, solar and energy-transition assets.
- The portfolio generated 17,606 GWh on a proportionate basis in 2021, compared with 15,578 GWh in 2020.
- Approximately 81% of proportionate generation was contracted over the following five years; approximately 90% of 2022 generation was contracted.
- BEPC exchangeable shares are intended to provide an economic return equivalent to one Brookfield Renewable Partners LP unit and are listed on the NYSE and TSX under “BEPC.”
Key Financial Metrics
| US$ millions, except percentages and generation | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | 3,367 | 3,087 | +9% |
| Net income (loss) | 930 | (2,819) | Improved by 3,749 |
| Operating cash flow before working capital and related-party changes | 1,046 | 1,011 | +3% |
| Operating cash flow after working capital and related-party changes | 395 | 992 | (60%) |
| Funds From Operations | 554 | 402 | +38% |
| Adjusted EBITDA | 1,006 | 751 | +34% |
| Capital expenditures | 1,354 | 373 | +263% |
| Non-recourse borrowings | 13,512 | 12,822 | +5% |
| Available group liquidity | 4,069 | 3,270 | +24% |
Margins: Based on consolidated revenue, net income margin was approximately 27.6% in 2021 versus a negative margin in 2020, while Adjusted EBITDA margin was approximately 29.9% versus 24.3%. These comparisons are affected by a significant 2021 remeasurement gain on BEPC exchangeable and class B shares.
Fourth Quarter 2021
| US$ millions, except generation | Q4 2021 | Q4 2020 | Change |
|---|---|---|---|
| Revenue | 905 | 746 | +21% |
| Net income (loss) | 180 | (1,632) | Improved by 1,812 |
| Proportionate generation | 4,279 GWh | 3,971 GWh | +8% |
| Proportionate Adjusted EBITDA | 229 | 215 | +7% |
| Proportionate Funds From Operations | 137 | 85 | +61% |
Material Changes Versus the Prior Comparable Period
- Revenue increased by $280 million, driven by energy-marketing initiatives, inflation-linked pricing, recontracting, higher merchant power prices, acquired and commissioned assets, and a $52 million benefit from higher Texas wind prices during the winter storm. Lower hydroelectric generation partly offset these gains.
- Adjusted EBITDA increased by $255 million and FFO increased by $152 million, supported by stronger pricing and growth in wind, solar and energy-transition assets, including the increased ownership of TerraForm Power.
- Net income benefited from a $1.267 billion gain from the remeasurement of BEPC exchangeable and class B shares, compared with a $2.561 billion loss in 2020. This accounting item was driven by the change in the BEP unit price and is not an operating cash flow.
- Property, plant and equipment increased to $37.9 billion from $36.1 billion, including a $3.9 billion revaluation gain, $1.3 billion of investment and the effects of asset sales, depreciation and foreign exchange.
- Operating cash flow after working-capital changes declined because working capital used $627 million, largely reflecting increases in trade receivables and accrued liabilities.
- The company completed the sale of a 391 MW U.S. wind portfolio for approximately $392 million of total consideration and invested heavily in development, including Brazilian solar projects.
- In 2021, Brookfield Renewable acquired a 150 MW Colombian hydro portfolio for $424 million at the group level and TerraForm Power acquired a 12 MW Spanish solar project for approximately $91 million.
- North American energy-marketing capabilities were fully internalized into BEPC effective April 1, 2021.
Liquidity, Debt and Capital Resources
- Consolidated non-recourse borrowings were $13.5 billion, with a weighted-average interest rate of approximately 4.5% and a weighted-average term of approximately nine years.
- Proportionate non-recourse debt was $5.3 billion, with a weighted-average interest rate of 4.2% and a weighted-average term of 12 years.
- Consolidated debt-to-total capitalization was 35% at year-end, compared with 36% in 2020.
- Cash and cash equivalents were $410 million, with an additional $197 million of restricted cash.
- Available group liquidity was $4.1 billion, including cash, committed credit facilities and available subsidiary facilities.
- 2021 financing activities generated $678 million of net cash, including $1.49 billion of net proceeds from non-recourse financings. Distributions to the partnership and participating non-controlling interests totaled $675 million.
- Letters of credit outstanding were $698 million. Two subsidiaries also guarantee specified debt, preferred securities and credit obligations of Brookfield Renewable Partners and related entities.
Guidance, Outlook and Management Commentary
- Management targets long-term total returns of 12% to 15% on renewable assets and expects annual distribution growth of approximately 5% to 9%.
- The distribution payout target is approximately 70% of FFO. A 5% increase raised the annual BEP unit and BEPC share distribution to $1.28, or $0.32 quarterly, beginning with the March 2022 payment.
- Growth is expected from inflation-linked contracts, operating improvements, development of an approximately 62,000 MW pipeline, acquisitions, asset recycling and energy-transition investments.
- Management stated that it did not anticipate material difficulty refinancing borrowings through 2026, while acknowledging dependence on capital-market conditions and interest rates.
- As of year-end, $392 million of capital expenditure commitments were outstanding, substantially payable within one year. Additional commitments included prospective wind and solar development acquisitions in Brazil and Colombia.
Risks, Contingencies and Unusual Items
- Generation and cash flow remain exposed to hydrology, wind, solar irradiance, severe weather and climate-change effects.
- Uncontracted generation, wholesale power-price volatility, expiring PPAs, counterparty credit risk and changes to Brazil’s hydrological balancing mechanism could affect results.
- Major risks include equipment failure, dam safety, transmission and interconnection constraints, permitting and concession renewals, construction delays, supply-chain disruption, inflation, foreign exchange and interest-rate movements.
- Brookfield controls approximately 81.5% of BEPC voting rights and provides management services. The company has limited ability to terminate the Master Services Agreement and faces extensive related-party and allocation conflicts.
- BEPC is a holding company dependent on distributions from operating subsidiaries. Debt covenants may restrict subsidiary distributions, and BEPC guarantees certain partnership obligations.
- The Texas winter storm caused an $80 million direct operating-cost impact at the consolidated group level, partly offset by $52 million of revenue; management stated that the company’s share of the net loss was not material.
- TerraForm Power settled historical litigation for approximately $50 million less than the court award, inclusive of accrued interest, and is pursuing recovery proceedings. The outcome is uncertain.
- Property, plant and equipment valuations are highly sensitive to discount rates, electricity prices, terminal values, generation assumptions and operating costs. A 25-basis-point increase in discount rates would reduce estimated fair value by approximately $1.44 billion.
- Management and Ernst & Young reported effective internal control over financial reporting and unqualified audit opinions.
Investor Verification Checklist
- Reconcile IFRS net income with FFO and Adjusted EBITDA, particularly the $1.267 billion share-remeasurement gain.
- Review the sustainability of FFO, the approximately 70% payout target and the ability to fund distributions after capital expenditures and debt service.
- Examine the valuation assumptions and sensitivity disclosures for the $37.9 billion property, plant and equipment balance.
- Verify debt maturities, floating-rate exposure, covenant headroom and refinancing assumptions through 2026.
- Assess working-capital volatility and the collectability of receivables and related-party balances.
- Review the terms and financial implications of Brookfield management fees, guarantees, voting control, related-party transactions and conflicts protocols.
- Monitor PPA expirations, contracted generation percentages, merchant exposure and regional power-price assumptions.
- Follow the TerraForm Power litigation recovery effort, outstanding letters of credit, capital commitments and pending development acquisitions.
- For BEPC shareholders, verify exchange, redemption, voting, dividend-equivalence and potential tax consequences, including the ability of BEPC or BEP to deliver cash rather than LP units.