Business Context and Reporting Period
Brookfield Renewable Corporation filed its annual Form 20-F for the fiscal year ended December 31, 2023. The filing is prepared under IFRS as issued by the IASB, with amounts generally presented in U.S. dollars and millions unless otherwise noted. BEPC owns and operates renewable power and sustainable solutions assets across North America, South America and Europe. Its portfolio totaled approximately 19,161 MW of installed capacity at year-end.
The filing includes fourth-quarter information. Fourth-quarter results are unaudited, while the annual consolidated financial statements are audited by Ernst & Young LLP.
Financial Performance and Key Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $3,967 million | $3,778 million | +5.0% |
| Net income | $308 million | $1,850 million | Down $1,542 million |
| Operating cash flow | $1,603 million | $1,284 million | +24.8% |
| Capital expenditures | $1,028 million | $847 million | +21.4% |
| Non-recourse borrowings | $16,072 million | $13,715 million | +17.2% |
| Total assets | $49,421 million | $43,288 million | +14.2% |
| Funds From Operations | $716 million | $612 million | +17.0% |
Consolidated revenue increased primarily from portfolio growth, higher realized prices and inflation escalation. Direct operating costs rose to $1,466 million from $1,174 million, reflecting acquired and commissioned facilities and higher power purchases in Colombia. Interest expense increased to $1,258 million from $1,032 million, while depreciation increased to $1,342 million from $1,179 million.
Proportionate operating performance improved: generation increased to 18,324 GWh from 18,062 GWh, revenue increased to $1,654 million from $1,584 million, Adjusted EBITDA increased to $1,187 million from $1,089 million, and Funds From Operations increased to $716 million from $612 million. Proportionate Adjusted EBITDA margin was approximately 72%, and proportionate FFO margin was approximately 43%. These are non-IFRS measures and are not directly comparable across issuers.
By segment, 2023 proportionate FFO was $504 million for hydroelectric, $108 million for wind, $94 million for utility-scale solar, $80 million for distributed energy and sustainable solutions, and negative $70 million for corporate. Hydroelectric FFO was flat year over year, while wind and distributed energy improved; solar FFO declined.
Fourth-Quarter 2023
| Metric | Q4 2023 | Q4 2022 |
|---|---|---|
| Revenue | $1,066 million | $956 million |
| Net income (loss) | $(502) million | $1,078 million |
| Proportionate generation | 4,420 GWh | 4,467 GWh |
| Proportionate Adjusted EBITDA | $259 million | $251 million |
| Proportionate FFO | $168 million | $139 million |
The fourth-quarter net loss was primarily affected by a $816 million remeasurement loss reversal benefit associated with BEPC exchangeable and class B shares, along with other non-recurring items. Underlying proportionate Adjusted EBITDA and FFO increased year over year despite lower total generation.
Liquidity, Debt and Capital Resources
- Available group liquidity was approximately $4.1 billion at December 31, 2023, comprising cash, committed corporate facilities and available subsidiary facilities.
- Cash and cash equivalents were $627 million, with an additional $202 million of restricted cash.
- Proportionate non-recourse debt was $6.2 billion, with a weighted-average interest rate of 6.6% and an average term of nine years. Consolidated non-recourse borrowings were $16.1 billion.
- Consolidated debt-to-total capitalization was 37%, compared with 34% in 2022. Management stated that it does not anticipate material refinancing issues through 2028, although refinancing remains dependent on market conditions.
- Letters of credit outstanding increased to $1.135 billion from $994 million.
- Management targets a distribution payout ratio of approximately 70% of FFO and targets annual distribution growth of 5% to 9%. The annual distribution was increased 5% to $1.42 per BEP unit and BEPC exchangeable share beginning with the March 2024 payment.
Material Changes and Unusual Items
- Brookfield Renewable and institutional partners acquired a U.S. renewable developer and operator in October 2023 for approximately $1.08 billion, including 5,900 MW of operating and under-construction assets and a 6,100 MW development pipeline. BEPC’s net share was approximately $308 million.
- The group acquired 136 MW and 60 MW Brazilian wind portfolios during 2023.
- The group and institutional partners completed the acquisition of Westinghouse with Cameco in November 2023 for approximately $4.37 billion, with approximately $442 million net to Brookfield Renewable and a 51% aggregate interest held with institutional partners.
- Other income included a $370 million gain from acquisition accounting where the fair value of net assets acquired exceeded consideration transferred, a $72 million gain on disposition of non-core assets, and $22 million of regulatory and contract settlement gains.
- BEPC’s exchangeable and class B share liability was remeasured to $4.721 billion at year-end, producing a $106 million loss in 2023, compared with a $1.8 billion gain in 2022. This significantly affected reported net income but not underlying operating cash generation.
- Institutional partners sold interests in a 378 MW U.S. hydroelectric portfolio and the group sold a 95 MW Uruguay wind portfolio. BEPC retained an interest in the U.S. hydroelectric portfolio and did not receive proceeds from that sale.
- BEPC issued 7.43 million exchangeable shares for gross proceeds of approximately $251 million and did not repurchase shares during 2023. A normal-course issuer bid permits repurchases of up to approximately 8.98 million shares through December 2024.
Guidance, Outlook and Risk Factors
Management expects growth from contracted and inflation-linked cash flows, recently commissioned projects, acquisitions, capital recycling and its development pipeline. Brookfield Renewable targets long-term total returns of 12% to 15% on renewable assets and seeks to develop an additional 21,000 MW of clean energy capacity by 2030. The group reported approximately 5,000 MW of new clean energy capacity developed in 2023 and approximately 8,000 MW developed since setting that target.
Approximately 90% of 2023 generation was contracted on a proportionate basis under long-term fixed-price contracts. For 2024, contracted generation was approximately 88% in North America and Europe excluding Brazil and Colombia, 93% in Brazil, and 70% in Colombia.
Key risks include hydrology, wind and solar resource variability; climate-related extreme weather; electricity price volatility and merchant exposure; contract renewals and counterparty credit; transmission and interconnection constraints; permitting and concession renewals; construction delays and cost inflation; supply-chain restrictions affecting renewable equipment; cybersecurity; foreign exchange and interest rates; leverage and refinancing; regulatory and tax changes; political and emerging-market risks; environmental, health and safety liabilities; and risks associated with nuclear services through Westinghouse.
Brookfield’s control and external management structure creates additional risks. Brookfield and its affiliates held approximately 81.2% of BEPC’s voting interest, while BEPC is dependent on Brookfield personnel and the Master Services Agreement. Potential conflicts include allocation of investment opportunities, affiliated services, related-party financing, co-investments, insurance and transactions with other Brookfield accounts.
Management and Ernst & Young concluded that internal control over financial reporting was effective as of December 31, 2023. However, controls over 2023 acquisitions representing approximately 9% of consolidated assets, 10% of net assets and 3% of revenue were excluded from management’s assessment and the auditor’s internal control audit.
Most Important Facts to Verify
- Reconcile IFRS net income with FFO and Adjusted EBITDA, particularly the impact of the $370 million acquisition-accounting gain and the $106 million exchangeable-share remeasurement loss.
- Review the preliminary purchase-price allocation for the U.S. renewable portfolio, including fair values of property, derivatives, provisions, tax liabilities, debt and goodwill.
- Assess refinancing needs, interest-rate exposure, the 37% debt-to-total-capitalization ratio, and the $6.2 billion of proportionate non-recourse debt.
- Evaluate the sustainability of the targeted 5% to 9% annual distribution growth and the approximately 70% FFO payout ratio.
- Review the $865 million of capital commitments, $1.135 billion of letters of credit and guarantees of partnership and affiliate obligations.
- Assess valuation sensitivity: a 25-basis-point increase in discount rates was estimated to reduce power-generating asset fair value by approximately $1.45 billion, while a 5% decline in future energy prices was estimated to reduce it by approximately $1.55 billion.
- Review the economic and governance implications of the BEPC exchangeable share structure, including Brookfield’s voting control, redemption rights, exchange mechanics and Rights Agreement protections.
- Examine Westinghouse integration, nuclear-industry exposure and the extent to which future results depend on new transition technologies and development projects.