Business Context and Reporting Period
Company: Brookfield Renewable Partners L.P. (BREP)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Year ended December 31, 2014
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: BREP is a Bermuda exempted limited partnership and one of the world's largest publicly-traded pure-play renewable power portfolios. It operates 204 hydroelectric stations and 28 wind facilities across North America, Latin America, and Europe, with a total installed capacity of 6,707 MW. The company is managed by Brookfield Asset Management via a Master Services Agreement.
Key Financial Metrics (Year Ended Dec 31, 2014)
| Metric | 2014 Value | 2013 Value |
|---|---|---|
| Revenues | $1,704 million | $1,706 million |
| Adjusted EBITDA (Non-IFRS) | $1,216 million | $1,208 million |
| Funds From Operations (Non-IFRS) | $560 million | $594 million |
| Adjusted Funds From Operations (Non-IFRS) | $502 million | $538 million |
| Net Income | $203 million | $215 million |
| Distributions per LP Unit | $1.55 | $1.45 |
| Long-term Debt & Credit Facilities | $7,678 million | $6,623 million |
| Debt to Total Capitalization | 40% | 41% |
| Available Liquidity | $1,002 million | $1,160 million |
Material Changes vs. Prior Period
- Revenue Stability: Total revenues remained flat at $1,704 million, despite a $46 million negative impact from lower generation at existing U.S. hydro facilities and price decreases at a Louisiana facility. This was offset by $151 million in incremental revenue from portfolio growth and strong merchant pricing.
- Generation Variance: Total actual generation was 22,548 GWh, slightly below the long-term average (LTA) of 23,296 GWh. Hydro generation was below LTA due to normalizing inflows in the U.S. and drought conditions in Brazil (mitigated by the hydrological balancing pool). Wind generation increased significantly due to new acquisitions in Ireland.
- Portfolio Expansion: The company acquired 502 MW of hydro assets in North America and a 326 MW wind portfolio in Europe during 2014. It also entered into an agreement to acquire a 488 MW multi-technology portfolio in Brazil.
- Cost Management: Direct operating costs decreased by $6 million to $524 million due to operational efficiencies. Management service costs increased by $10 million to $51 million, driven by the increase in the market value of LP Units and a new equity issuance.
- Capital Structure: Long-term debt increased by $1.05 billion to fund acquisitions and up-financing activities. The debt-to-capitalization ratio improved slightly to 40%.
Guidance, Outlook, and Risks
- Distribution Policy: BREP increased its long-term distribution growth rate target from 3-5% to 5-9% annually. The company targets a payout ratio of 60-70% of Funds From Operations. In February 2015, the quarterly distribution was increased to $0.415 per unit ($1.66 annually).
- Growth Strategy: The company plans to grow through organic development (approx. 2,000 MW pipeline) and acquisitions in core markets (North America, Latin America, Europe). It aims to capture rising power prices with its uncontracted portfolio.
- Key Risks:
- Hydrology and Weather: Revenue is sensitive to water flows and wind conditions. Brazil experienced drought conditions in late 2014, though the MRE pool mitigated financial impact.
- Contract Expirations: Approximately 17% of the Brazilian portfolio becomes uncontracted in 2015, and 23% in 2016, creating re-contracting risk.
- Related Party Transactions: Significant reliance on Brookfield Asset Management for management services and as a power purchaser (45% of 2015 contracted generation).
- Regulatory and Tax: Risks related to changes in renewable energy incentives, water rights, and potential tax law changes in operating jurisdictions (Canada, U.S., Brazil, Ireland).
Investor Verification Checklist
- Contract Profile: Verify the weighted-average remaining duration of Power Purchase Agreements (PPAs), currently stated as 18 years, and the specific terms of the 17% of Brazilian generation becoming uncontracted in 2015.
- Non-IFRS Reconciliations: Review the detailed reconciliations of Adjusted EBITDA and Funds From Operations to Net Income to understand the impact of depreciation ($548 million) versus sustaining capital expenditures ($58 million).
- Debt Maturity Ladder: Examine the principal repayment schedule, noting $286 million due in 2015 and $798 million in 2016, to assess refinancing needs.
- Related Party Fees: Confirm the calculation of the Base Management Fee ($20 million base + 1.25% of capitalization growth) and the total fees paid to Brookfield ($51 million in 2014).
- Acquisition Closing: Monitor the closing status of the 488 MW Brazil portfolio and the 123 MW Portugal wind portfolio, which were pending regulatory approval as of the filing date.