Business context and reporting period
Brookfield Renewable Corporation filed an annual Form 20-F for the fiscal year ended December 31, 2022. The company is a Canadian corporation reporting under IFRS, with renewable power and sustainable solutions operations primarily in North America, South America and Europe. Its portfolio included approximately 12,857 MW of installed hydroelectric, wind, utility-scale solar, distributed energy and sustainable solutions capacity at year-end.
The BEPC exchangeable shares are intended to provide an economic return equivalent to one Brookfield Renewable Partners L.P. unit and are listed on the NYSE and TSX. Brookfield and the partnership collectively held approximately 81.5% of BEPC's voting interest.
Financial performance and key metrics
| US$ millions, except percentages and operating data | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | 3,778 | 3,367 | +12.2% |
| Net income | 1,850 | 930 | +920 |
| Net income attributable to the partnership | 1,503 | 946 | +557 |
| Adjusted EBITDA, proportionate | 1,089 | 1,006 | +8.3% |
| Funds From Operations, proportionate | 612 | 554 | +10.5% |
| Operating cash flow after working capital and related-party changes | 1,284 | 395 | +889 |
| Capital expenditures | 847 | 1,354 | -37.4% |
| Non-recourse borrowings | 13,715 | 13,512 | +203 |
| Cash and cash equivalents | 642 | 525 | +117 |
Consolidated net income margin was approximately 49%, but this was materially affected by a $1.8 billion gain from remeasurement of BEPC exchangeable and class B shares. Proportionate Adjusted EBITDA margin was approximately 69% of proportionate revenue, and proportionate FFO margin was approximately 39%; both are non-IFRS measures and are not directly comparable with all issuers.
- Proportionate generation increased to 18,062 GWh from 17,606 GWh. Hydroelectric generation increased to 14,567 GWh, while wind generation declined to 1,872 GWh from 2,180 GWh.
- Proportionate FFO increased in hydroelectric operations to $504 million from $472 million, utility-scale solar to $114 million from $85 million, and distributed energy and sustainable solutions to $64 million from $59 million. Wind FFO declined to $101 million from $129 million.
- Interest expense increased to $1.032 billion from $900 million, primarily because of portfolio growth and accelerated financing initiatives in Colombia.
- Property, plant and equipment at fair value was $37.8 billion, including a $2.6 billion annual revaluation gain recognized primarily in other comprehensive income. The filing identifies valuation assumptions as a critical audit matter.
- Available group-wide liquidity was $3.695 billion, comprising cash, authorized credit facilities and available subsidiary facilities. Proportionate non-recourse debt was $4.903 billion, with a weighted-average interest rate of 6.1% and a weighted-average term of nine years.
- The consolidated debt-to-total-capitalization ratio was 34%, compared with 35% in 2021. Letters of credit outstanding increased to $994 million from $698 million.
Fourth-quarter results
| US$ millions, except generation | Q4 2022 | Q4 2021 | Change |
|---|---|---|---|
| Revenue | 956 | 905 | +5.6% |
| Net income | 1,078 | 180 | +898 |
| Net income attributable to the partnership | 953 | 130 | +823 |
| Proportionate Adjusted EBITDA | 251 | 229 | +9.6% |
| Proportionate FFO | 139 | 137 | +1.5% |
| Proportionate generation | 4,467 GWh | 4,279 GWh | +4.4% |
Fourth-quarter net income included a $1.026 billion gain from remeasurement of BEPC exchangeable and class B shares, so reported profit significantly exceeded underlying operating cash performance.
Material changes versus the prior comparable period
- Revenue benefited from higher power prices, inflation indexation, recontracting initiatives, stronger hydrology and newly acquired or commissioned facilities. Foreign exchange translation reduced revenue by approximately $125 million.
- Direct operating costs declined by $11 million despite portfolio growth, reflecting cost savings, asset sales and foreign exchange effects.
- Capital investment decreased substantially from 2021, while the company continued construction and development activities, including a 1,200 MW utility-scale solar facility in Brazil.
- In August 2022, the company and institutional partners committed up to $500 million to a California carbon capture and storage venture; $48 million had been funded by year-end and the company held an approximate 10% economic interest.
- In October 2022, Brookfield Renewable and institutional partners agreed with Cameco to acquire Westinghouse for approximately $4.5 billion, with up to $750 million expected to be invested by Brookfield Renewable. Closing was expected in the second half of 2023 and remained subject to customary conditions.
- A 378 MW U.S. hydroelectric portfolio was classified as held for sale following an agreement by institutional partners to sell a 50% interest. BEPC expected to retain its 22% interest but not receive sale proceeds, with the investment expected to become equity-accounted after closing.
- Brookfield Renewable issued C$400 million of Series 15 green bonds at a fixed rate of 5.88% and issued approximately $1.6 billion of green securities and financings across corporate and project levels during 2022.
Guidance, outlook, commentary and risks
- Management targets long-term total returns of 12% to 15% on owned renewable assets and annual distribution growth of 5% to 9%, supported by existing operations, development, acquisitions and capital recycling.
- The target distribution payout ratio is approximately 70% of FFO. The annual distribution was increased to $1.35 per BEP unit and BEPC exchangeable share, or $0.3375 quarterly, beginning with the March 2023 payment.
- Management stated that it did not anticipate material refinancing issues through 2027, although interest rates, foreign exchange, credit markets and lender requirements remain important variables.
- Approximately 87% of group generation was contracted under long-term fixed-price contracts in both 2022 and 2021. For 2023, approximately 92% of generation outside Brazil and Colombia, 90% in Brazil and 67% in Colombia was covered by short-term PPAs or financial contracts.
- Key risks include hydrology, wind and solar resource variability; climate-related extreme weather; power-price volatility and increasing uncontracted generation; PPA renewals; transmission and interconnection constraints; permitting and concession renewals; construction delays and cost overruns; equipment and supply-chain availability; counterparty credit; energy marketing; foreign exchange and interest rates; debt covenants and refinancing; and regulatory and political risks in emerging markets.
- The company is externally managed by Brookfield and has no employees other than employees of operating subsidiaries. Brookfield controls the board election process and may have conflicts in allocating investment opportunities, services, financing and expenses among Brookfield Renewable and other Brookfield accounts.
- The company and certain subsidiaries guarantee obligations of the partnership and other Brookfield-related entities. The filing states that current guarantees are not reasonably likely to have a material effect, but they expose BEPC to partnership credit risk.
- Legal proceedings arise in the ordinary course; management did not believe known matters would have a material adverse effect. The filing also reports $505 million of capital expenditure commitments and $994 million of letters of credit at year-end.
Most important facts an investor should verify
- Separate recurring operating performance from reported net income, particularly the $1.8 billion exchangeable-share remeasurement gain.
- Reconcile proportionate FFO and Adjusted EBITDA to IFRS results and review the limitations of these non-IFRS measures.
- Assess refinancing exposure, including the $1.299 billion of consolidated non-recourse borrowings scheduled for repayment in 2023 and the effect of higher interest rates.
- Review the valuation sensitivity of the $37.8 billion power-generation asset base to discount rates, future electricity prices and terminal capitalization rates.
- Monitor the Westinghouse acquisition, the California carbon capture investment, the pending U.S. hydro portfolio transaction and the Brazilian wind acquisition subject to closing conditions.
- Evaluate the sustainability of the $1.35 annual dividend against FFO, cash flow, debt service, capital expenditures and subsidiary distribution restrictions.
- Review Brookfield-related fees, guarantees, investment-allocation provisions and conflicts protocols, including the Master Services Agreement and Rights Agreement.
- Confirm generation resources, PPA coverage, power-price hedges, foreign-exchange hedges and exposure to hydrology and other weather conditions.