Brookfield Renewable Partners L.P. Limited Partnership Units

Good day, ladies and gentlemen, and welcome to the BEP First Quarter 2019 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchdown telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sachin Chah, Chief Executive Officer. Sir, you may begin.

Thank you, Operator. Good morning, everyone, and thank you for joining us for our first quarter 2019 conference call. Before I begin, I'd like to remind you that a copy of our news release, investor supplement, and letter to unit holders can be found on our website. I also want to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks, and our future results may differ materially. For more information, you're encouraged to review our regulatory filings available on CDAR Edgar and on our website we continue to advance our key priorities for the business our long-term objective remains focused on generating 12 to 15 percent total returns on a per unit basis our approach over the last 20 years has consistently been to acquire high-quality assets and businesses surface value over time through operational improvements while maintaining a low risk profile underpinned by an investment grade balance sheet and strong access to capital more recently we've reached a scale in the business where we can add asset sales as an alternative source of low-cost funding, which can be redeployed accretively into our acquisition and development program. The first quarter of 2019 was strong, as we generated FFO per unit of 73 cents, representing an 18% increase over the prior year. We agreed to invest approximately $630 million of capital, or $160 million net to BEPS, across two transactions, one in Canada and one in India, all at returns commensurate with our long-term targets. We also commissioned a 19-megawatt hydro facility in Brazil and advanced an additional 134 megawatts of hydro, wind, storage, and rooftop solar construction projects globally. We raised over $400 million of proceeds through asset sales and the issuance of preferred share units, and ended the quarter with $2.3 billion of available liquidity. Finally, we continue to reduce our FFO payout ratio, which is now trending below 90% on an annualized basis. As most of you know, in March 2019, we agreed to invest $750 million into TransAlta Corporation, the largest power producer in Alberta, Canada. The investment will occur in two tranches. $350 million was funded yesterday, and $400 million will be funded in October 2020. The investment provides us with the option to convert into an interest in TransAlta's 800-megawatt portfolio of high-quality hydroelectric assets in Alberta between the years 2025 and 2028 based on a multiple of 13 times the average annual EBITDA over the prior three years before conversion. As part of the transaction, we also agreed to increase our ownership in TransAlta's common shares from approximately 5% today to over 9%. The TransAlta investment was the culmination of a multi-year relationship and establishes a strong partnership with the company to help advance its growth strategy as it transitions to a low-carbon energy future. In India, we've been discussing opportunities over the last number of years and generally have remained patient as valuations remain high. Today, we announced a relatively small transaction where we agreed to invest in two wind farms totaling 210 megawatts in India for $70 million or $18 million net to BEP, bringing our total portfolio in that country to just over 500 megawatts. These assets were recently constructed with a track record of strong operating performance and are fully contracted under a long-term 25-year power purchase agreement with a creditworthy utility. Looking ahead, we believe the business is well positioned to deliver strong results during all points of the economic cycle. Should the current protracted bull market continue into the foreseeable future, we will continue to execute on the same strategy that we've pursued over the last number of years, looking for pockets of capital scarcity and unique multifaceted transactions in order to partner with other counterparties. In addition, we'll continue to finance the business on an investment-grade basis and leverage our operating expertise to enhance value through operational organic growth levers. Should the markets weaken, we believe our strong balance sheet, our liquidity, our robust asset sales program and access to capital will reduce the need to issue equity to fund growth. Accordingly, we believe we are one of the few companies in this sector with a strategy and the financial flexibility to benefit during periods of both market strength and weakness. With that, I'll now turn the call over to Wyatt to discuss our operating results and our financial position.

Thank you, Sachin, and good morning, everyone. During the first quarter, we generated FFO of $227 million, up from $193 million in the prior year. Our business continues to benefit from growing resource diversity, limited off-taker concentration risk, and the build-out of our development pipeline. During the quarter, overall generation exceeded the long-term average by 7%. As we have stated for many years, We do not manage the business based on under or over performance of generation relative to the long-term average and do not factor this into our long-term planning. Instead, our focus remains on diversifying the business which, over the long term, mitigates exposure to resource volatility, regional or market disruptions, and potential credit events. For example, given the breadth of our business, the recent events with PG&E will have no impact on our business as we have almost no exposure. Furthermore, our single largest non-government third-party customer represents only 3% of Generation, providing strong downside protection and safeguarding our cash flows. During the first quarter, our hydroelectric segment contributed $218 million to FFO. In North America, Generation was above the long-term average, and we ended the quarter with above-average reservoir levels in Canada and PGM, where we have significant seasonal storage flexibility. Additionally, we saw strong results in South America, supported by high prices for our energy and ancillary products. We continue to make progress on our contracting initiatives for our hydroelectric portfolio, signing 15 contracts in the quarter for a total of approximately 2,300 gigawatt hours per year. Our focus in Colombia and Brazil has been to lengthen the term of our power purchase contracts as power price volatility in these markets provides an opportunity to stabilize future revenues while locking in upside as our contracts are generally at or below market. Our wind and solar businesses contributed $67 million to FFO during the quarter, a 43% increase relative to the prior year as we've benefited from acquisitions and contributions from recently commissioned projects. We continue to generate stable revenues from these assets, as we benefit from the diversification of our fleet and highly contracted cash flows with long duration power purchase agreements. Our storage facilities and other operations, which are not reliant on power prices but rather sell services to the grid, contributed $7 million to FFO during the quarter. We commissioned a 19 megawatt hydroelectric facility in Brazil from our development pipeline during the quarter. In addition, we continue to build out 134 megawatts of hydroelectric, wind, solar, and storage products that are currently under construction that are expected to contribute $13 million to FFO once commissioned. We're also advancing our global hydro, wind, solar, and distributed generation development pipeline, including 636 megawatts of construction-ready and advanced-stage projects through final permitting and securing a route to market. We're also assessing 220 megawatts of repowering projects in New York, California, and Hawaii, all markets where renewables play a critical role in providing low-cost, clean energy. Our balance sheet remains strong with $2.3 billion of available liquidity at quarter end. We have no material debt maturities over the next four years, and our overall debt duration is 10 years. We remain well protected from foreign exchange volatility due to our hedging program, Accordingly, an overall 10% move in the currencies and markets we operate would have an overall 4% impact to our FFO. During the quarter, we raised $400 million through asset sales and the issuance of preferred units. We completed the sale of an additional 25% interest in a portfolio of Canadian hydroelectric assets. We also advanced the sales of our non-core portfolios in South Africa, Thailand, and Malaysia that once closed will generate an additional $90 million of total liquidity to Beth. As always, we remain focused on delivering to our unit holders long-term total returns of 12% to 15% on a per-unit basis. We thank you for your continued support, and we look forward to updating you on our progress in that regard. That concludes our formal remarks. Thank you for joining us this morning. We'd be pleased to take your questions at this time. Operator?

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number 1 key on your touchdown telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that star, then 1 to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Nelson Ng of RBC Capital Markets. Your line is now open.

Great. Thanks. Good morning, everyone.

Good morning, Nelson.

In terms of the $70 million wind acquisition in India, what was the amount of project level debt, if any?

The project level debt would be consistent with general finance conditions in India. Right now, you're getting about 60% project level debt on the projects, and you would get a term in excess of 15 years and a pretty standard amortization profile.

Okay. Are you able to talk about just general, like in terms of where the market is in India in terms of the general level of expected levered returns on assets?

Yeah, I would say historically for the last, call it five years, levered returns in India, at least from our perspective, and I would say offshore USD returns, were generally trending between 10% and 12%, which is why we really stayed away from that market and why it was difficult for us to be acquisitive and even difficult to do development because development was on the high. More recently, what we've seen in India is some of those sponsors, some of those companies that were growing with that type of return profile We're also having to use significant amounts of sub-investment-grade debt to effectively be competitive. And some of that debt has very near-term maturities, and the markets there are distressed. In particular, the non-bank financial corporations are highly distressed in the country. And so we think there might be an opportunity for us to secure better relative-to-term returns. If we were to invest in the country, we're targeting north of 15% USD returns. with a path to 20% just to protect ourselves from what is obviously a developing emerging market.

Okay, thanks. And then just one last question on India. Obviously, I presume you're looking at a number of opportunities. Are you more focused on buying specific assets or are you open to buying a majority stake in an operator slash developer?

I think you've seen from us over the years that we keep ourselves open to all opportunities and we're not pivoting towards assets versus developers versus actual businesses. We're open-minded to all of them. In the end, it's about value and risk. Obviously, if we buy assets, that's right in our wheelhouse because we do have an operating business there now. We've got people on the ground and we can just tuck them into our existing platform. If we work with a sponsor or another entrepreneur, then we are a good partner and we know how to partner up with people internationally. And we can obviously create a lot of value together with somebody as well.

Okay. And then just one last question before I get back in the queue. So North American Hydro obviously had a pretty good quarter. Looking into Q2, obviously there's a lot of water resources given the flooding we've been seeing and hearing about. Could you comment about whether any of the flooding had adversely impacted any of your operations in North America?

Sure. You're right. Water levels have been very elevated. We've obviously been monitoring all of our hydro facilities, which we do regularly, but in particular with an eye to looking at reservoir levels and inflows more from a flood prevention perspective. I would say at this stage, all of our facilities are safe and secure. Our people are all safe and secure. And the threat level has actually diminished from maybe where it would have been two weeks ago. So we're in pretty good shape. We have no breaches. We have no technical issues with our operations. And our teams – who are used to this and deal with this regularly have done an outstanding job. Okay, thanks.

Thank you. Our next question comes from Sean Stewart of TD Securities. Your line is now open.

Thanks. Good morning, guys. Question on the repowering opportunities in the U.S. I think that's a new lever you guys are talking about. Should I think of that as an incremental organic growth driver for FFO above and beyond what you guys have talked about with the specific buckets at your investor day and going back some time now? Is this a new lever for FFO growth going forward?

Yeah, Sean, look, I would say yes, only because although we've always ascribed value to it in the way we think about the assets we own, probably, you know, last few years, it was just so far away that people didn't think about it, and particular analysts and investors would have not ascribed meaningful value to it. So I think as time marches on, and the scale of our business, in particular assets like wind and solar, where repowering is a meaningful part of value creation, as you get closer and closer to that, people will start to ascribe value, and I think that's happening. I think secondly, from an acquisition perspective, repowerings are sort of a hybrid between M&A and development, and many financial investors would struggle to wrap their arms around that because it comes with a bit of a development type risk, but also you're acquiring projects that are there. So I think from our perspective, we have a pretty meaningful M&A pipeline today, and a good portion of that is assets in North America and Europe that have strong repowering potential.

And how should I think about the returns on repowering versus more traditional development? You guys are pretty explicit about the returns you expect on that front. What's the differential for these repowering opportunities?

The way to think about it is on a repowering, you're actually getting paid a little bit in the front end to then surface value on the auction that's there. So therefore, you should see returns slightly lower than pure greenfield development. So if we're targeting north of 15, or if we're targeting 15 to 20% on greenfield development, we're at the lower end on what I call repowering opportunities, the lower end of that range.

Got it.

I'll get back in the queue. Thanks, Ashton. Thank you. Thank you. Our next question comes from Andrew Kosky with Credit Suisse. Your line is now open.

Thank you. Good morning. The first question is probably for Wyatt, and it's just on your contract profile on page 16 of your supplemental. And when we look out into 21, what's driving the dynamic of the price per megawatt hour increase from 80 in 2020 to 2021, where it's 89?

Yeah, Andrew, I think what this is reflective of is a number of things, I'd say. One, we have the inflation indexation on a number of our contracts as we highlighted a number of times. As we mentioned with the new Ontario contracts that we agreed through the restructuring with BAM, we get 3% inflation on those contracts. So one is the impact of just the broad escalation or inflation of those underlying PBA prices. And then incrementally, it's also an impact of mix just where some of the contracts that are coming off They're coming off at lower prices where our high-valued ones are staying in place longer term.

Okay. And then when you look out, say, the next few years, if you were to mark-to-market prices that exist today for the things you don't have under contract, so if we went back to sort of 85%, 90% in 2021, what do you think that blended number would be on a realized price for BAP?

Yeah, I mean, Andrew, the way we broadly think about it is over the next five years, we have in North America, we have around four terawatt hours per annum of generation coming off contracts, but that will roughly be at market level, so it won't really have an impact on our FFO. Where we do have a more significant contract roll-off is out into 2029, and we've always been focused on growing our business, so that becomes a less meaningful impact on our FFO. But over the next five years, it really is more lower-priced contracts that are coming up. So the impact will be, as I mentioned, minor to our FFO and will increase the average price that we're realizing on our contracts.

If I could just shift gears, still in hydro but now in Columbia, could you just outline some of the cost reduction initiatives that that you undertook in the ESOGEN portfolio and, you know, how do you stack the cost reduction initiatives that you've done thus far versus, you know, other things in the portfolio from a benchmarking basis?

Yeah, I mean, I think what I'd say there, Andrew, is just given the nature of the acquisition of Columbia, it was a government-run organization and the margins were well below where we were expected. So right now, a lot of the reductions are focused on reducing headcount. And what I mean by that is mainly on the contractor side. So we've made significant reductions in the use of contractors in the business. Incrementally, we're implementing right now a central control center, which, again, is very meaningful in reducing the overall cost of the business. So right now, at this point, The margin in that business is still around kind of in the 60% level. The margins we expect generally are more like 70%. So we're just really chipping away at a number of things that we identified on underwriting and then continue to identify to get those margins back in line with where we'd expect our overall portfolio to be.

Okay, that's great.

Thank you. Thank you. And our next question comes from Rob Hope with Scotiabank. Your line is now open.

Morning, everyone. Turning over to the TransAlta transaction, can you just touch on, you know, what you think the pros and cons are of the structure of the transaction, as it would be a little bit different than some of the other kind of, you know, quote-unquote sponsorship agreements that you have with other companies?

Sure. Hi, Rob. It's Sachin. So, look, I think the benefits of the transaction are that this will provide TransAlta with the capital it will need to transition away from coal. And coal, as we all know, is a difficult asset class. It's difficult to finance. It represents an overhang on the stock. And the rating agencies and lenders are not thrilled about the outlook of coal for the broader business. So I think the company had few options. One would have been obviously to just be patient and wait for the next three or four years. Two would have been to issue equity, probably because they're tapped out of issuing a lot more debt, but issuing equity, and I don't think any of the shareholders, including ourselves, would have liked that at this stage. And three would have been to try to find some form of partnership where they could source capital and potentially expertise. And I think in our transaction, the real benefit is that they sourced both capital and a partner who has expertise in renewable. And as they transition away from thermal, obviously the future of electricity in every market around the world is going to be heavily underpinned by renewable technologies. And so this company needs to build that into its operating base, and we think we can assist in that regard. So I think that's the real... benefit of the transaction. From our perspective, we're obviously taking some risk. We are underwriting it with a view that we will convert in the future based on whatever the future looks like. There's not many organizations in the world who would do that. And what we think we have done by establishing a framework like that is demonstrated to them that we would be a strong partner and we're prepared to help them improve the outlook of that project because we'll be aligned with them as a real equity owner in that portfolio. So I'd say those are the broad benefits to them and to us. From a negative perspective, I'd say obviously those hydro assets were an important part of their business and I think as they weighed out selling or monetizing them, They wanted to make sure that they weren't monetizing them at today's value, which would be arguably a low point in the cycle. And they also wanted to make sure they never lost control of those assets. So I think they did a good job in making sure that if we were going to acquire an interest in them, that it would be at some point in the future such that they would have a chance to realize all of the value for themselves that they can create over the next five years as power prices increase, as markets deregulate, as the capacity market comes online. And then secondly, they did a really good job of ensuring that irrespective of anything, they will always retain control of those assets. So I would frame it that way.

All right. And then just on that last point, just in terms of control, do you view yourself as an investor in these assets or a partner with that at some point could exert more control?

Well, we're definitely a partner. Look, we're going to put two people on the board, two very, very credible people who have many decades of experience in the renewable sector in Richard and Harry. We're going to increase our stock ownership. We already were one of the larger shareholders, but we're going to grow that, almost doubling the amount of shares we own. It'd be hard to not call us a partner in that regard. And obviously, as a partner, we're a little bit more unique than what I would say a typical 5% or 9% shareholder would be in that we have a lot of capital now that we've invested into the business, specifically into those hydros, and we're going to be rowing in the same direction with everybody to serve as value from them. So I think that makes us firmly a partner.

Excellent. Thank you for the color.

Yeah. Thank you. Our next question comes from Mark Jarvie with CIBC Capital Markets. Your line is now open.

Good morning. It's been about a year since you guys took a stake in Infogen down in Australia. I just wonder what you guys are seeing in that market and whether or not that's sort of a priority market for you guys to potentially put more capital at work.

Hey, Mark. Yeah, Infogen, we own, as a group, we own 9% of the stock there. And I would say, first of all, the stock price has actually declined since we came into that position. And our outlook in Australia was really one where we believed over time power prices would drop and that the business there would really need a owner or sponsor or strategic partner who could help surface value through improvements in operational costs, improving margins, running the assets more efficiently, which is what we think we bring to the table. and then also looking for development and bolt-on growth opportunities for that business. Today, we continue to be patient because I think our thesis on power prices in that market is playing out. They are declining, hence why the share price has dropped. We continue to talk in a very constructive way with management, and I think we're either going to find a way to work with them and become a partner, but on a on an outlook that's realistic, or we're not and we're just going to sell out of the shares. And I think, you know, we've made that clear and we'll see how this evolves over time. But we're going to be patient because, you know, although it's an important market, it's not a huge market for us. And Australia is not a market that has a deep amount of scale, but it's nice to have.

So would you say kind of if there's a pecking order or sort of India up front in terms of you know, greater importance in other parts of North America and Europe versus Australia right now?

I wouldn't compare India to Australia. I think the difference is, so if you think about the way, the way we think about it is, you know, we try to put, call it 75% of our capital into stable, developed markets, North America, Europe, and Australia would qualify as that part of that bucket. But because North America and Europe are such large markets, have deep, deep investment opportunity, it doesn't really move the dial if we're in Australia or not in terms of how we spread that exposure across those two markets. Then when you think about the balance of 25% of our capital going into emerging markets, you know, five, seven years ago if we were having this call, it was really all just Brazil. And what we wanted to do a number of years ago was to broaden out the number of countries that had an emerging market exposure that we could invest in, but not increase the size of that 25% share. And we think that that's a smarter way to invest, a way that actually reduces the risk and makes it less binary. And therefore, we've added Colombia, and now we've added India and China. And I think that's why we've been prioritizing growing in those markets, because it actually just further diversifies the risk of that 25% bucket, as opposed to comparing it against a developed market the way you position it. Okay.

And then obviously added some contracts in South America. Maybe you guys can give a bit more color in terms of duration and how those pricing on those contracts compared to what you kind of had as sort of, I guess, trailing one or two years or realized pricing down there.

Yeah. Thanks, Mark. So, I mean, looking at the various markets, I think in Columbia, as we've mentioned a number of times, it's always been a very highly contracted market, but General Convention and those markets are two- to three-year contracts. Our goal since we've gotten into the business was to get more duration on the cash flow on those contracts, and that's what we've been executing. So, you know, right now around 25% of our contracts in Colombia are anywhere from five to 12 years. So we've had a fair amount of success in adding duration to those contracts. And we've been doing it in line with the pricing that we had previously been discussing. So above where our current contracts are rolling off. In Brazil, same thing in Brazil. In that market, we've been doing contracting PPAs with industrials and commercial off-takers for a number of years. And so we just continue to extend those contracts. I think the average duration of the contracts we signed are between six and ten years, so adding some more duration there. And, again, on a pricing level, at prices that are consistent with where we would have indicated previously and generally above where our contracts are rolling off.

Okay. And then switching over to Europe, you know, with the election in Spain, has that impacted at all in terms of sort of your views on that market, or do you think there's going to be any disruption in terms of anything there in terms of, like, you know, people's willingness to commit capital when there's sort of a bit of uncertainty on longer-term policy there?

Yeah, the new party that's come into power has been highly supportive of renewables. And, you know, I'd say even through the election, all of the parties were largely committed to the current target in terms of new renewable content and the importance of renewable markets. So, Fortunately for us, we don't see any meaningful policy change or outlook on investment at this stage. And at a minimum, for the Sayeda transaction that we acquired into Terraform last year, we continue to be very happy with the assets. They're performing really well. And also, the regulated rate and the tariff that's set in Spain, we expect to be in that 7% range, which is well above what we underwrote when we acquired the business.

Okay, thanks, Asher. Thank you. Our next question comes from Rupert Meyer with National Bank Financial. Your line is now open.

Hi, good morning, everyone. On liquidity, how are you thinking about your liquidity position today? You talked about your ability to deploy capital in the event of a downturn. Given we could be at a late point in the cycle, should we look to bet to maintain a higher level of liquidity over the next couple of years?

Yeah, Rupert, I think what you've seen out of us is we've been very focusing on bolstering our liquidity. As you mentioned, our materials, our liquidity right now is at $2.3 billion. And we've always been focused on making sure that liquidity has sufficient terms to our revolving credit facility, which we negotiate on a bilateral basis with a number of Schedule A financial institutions over five years. And so we do that because to be an opportunistic investor, having that liquidity available to take advantage when markets, when capital might get a bit scarce is important. And then fundamentally, as we mentioned in our materials, we have over time grown the scale of the business so that we have an opportunity to recycle assets as a primary source of funding. which is really impactful in a downturn market where capital gets scarce and we don't have to issue equity to achieve our growth. So having a significant amount of liquidity through the credit facilities that we have, as well as a diverse source of capital, which includes the asset sale, has been a focus of ours. And we think that that really positions us well in both if we continue on a On a strong market or if we are on a downturn, we think we're well positioned either way.

So will you be looking to recycle more capital this year? Do you have a set amount of capital you'd look to recycle every year?

I'd say it's not that programmatic. What I would say more broadly, Rupert, is that over the next five years, if you look at our growth plans, we are building up the liquidity and we have the scale in the business such that we could fund this business with internally generated cash flow through asset sales and the existing liquidity we have. And we think that that's pretty unique in the industry today in that what it means is we're not going to be overly reliant on the capital markets, in particular equity markets, And then from a debt perspective, having an investment-grade balance sheet and having a cushion in our credit metrics is also a huge advantage for us. So if we needed to tap the credit markets to help us bridge growth, we could do that. Our bank lines, as Wyatt said, are very readily available and have significant room in them. We also have, and we never really talk about this, but it's been alluded to over time, is we have our private funds. And so that is a source of capital that sits beside us that allows us to then use both our capital at BEP plus the private fund capital to look for unique growth opportunities. And again, all of that, although it's great to have right now, it becomes really exceptional in a downturn. So we think we're really well positioned, and we've been focused on this for a while now.

Great, thanks. And then quickly on Columbia, you talked about your recontracting there. We saw quite strong prices in Columbia this quarter. I know there's some color in your disclosures. So I'm wondering if you could give a little more color, for example, how good were the prices on the spot market and how much of your generation was uncontracted this quarter, and then maybe how that will change going forward with your new contracts.

Yeah, so maybe to split that into two, generally just in terms of our contracted versus uncontracted, the way we manage that business is we contract around 70% of our LTA generation and we do that just as a way of mitigating risk just in terms of the potential for resource volatility in the Colombian market. There's a delivery obligation on your contracts and so we don't want to be caught short. So that 70% contracted level is what you will expect to see us over the long term. And then we're selling that remaining 30% in the spot market. In terms of that spot market and the dynamics in Q1, I'd say there was two dynamics here. One is the country generally is performing really well. Power demand is increasing. So year-to-date power demand has grown up 4%. and there's not a lot of generation supply coming online, and so that has put some upward pressure on pricing. And then incrementally, Q1, which is their dry season, was an abnormally dry season, and a lot of the other generators in the country were at below LTA reservoirs, whereas we had stored water coming into the end of 2018, And so we're around LTA in terms of our reservoirs, and so we were able to use that dynamic to capture premium pricing. And so I think that part of it is more an opportunistic thing, but just in terms of the dynamic around power demand increasing, we think that that will be a continued tailwind for our business in terms of upward pressure on stock prices.

Great. Thanks, Vickler.

Thank you. As a reminder, ladies and gentlemen, that's star then one to ask a question. Our next question comes from Ben Pham with BMO. Your line is now open.

Okay, thanks. I want to go back to Indian and wonder if you can comment on your target returns in the region and whether as you build this region, potentially if you see some O&M synergies you can crystallize or is it mostly just a cost of capital? difference that makes you competitive?

First of all, I think I had said in an earlier question, we're targeting returns in that north of 15% USD offshore with obviously a path to better returns than that through operational improvement and value enhancement that we can bring. That's fairly consistent with our emerging market strategy. In terms of what we could deliver in that market, I would say given that it's a deregulated market where scale matters, it's really well suited for our type of business because with scale, with capital efficiency, with the ability to do M&A and development, and obviously the expertise we have from an operation and maintenance perspective, We think we can acquire well, and then we can improve assets through strong operations, through improved availability, through reduced costs, margin enhancement, all of which then drives additional capital efficiency in the business as well. So, you know, look, we look at it as a really good market where it's well-suited for a broad operationally-based investor and someone with scaled capital who can make large investments in the country.

Okay. And maybe can I ask, just with your recent entry into Alberta, a good multiple on the hydro side, could you comment on where you think, if you look at hydro globally, where you think that sector is from a cycle perspective? I mean, it's mostly been money flowing from strategics to pension plans paying huge multiples. I mean, is there opportunity for you, if you look at globally, where you can be successful in deals like you did in Alberta?

You know, I'd say, look, broadly on hydro, it's an important asset class. If you're going to move away from thermal in markets around the world and you're going to have you know, a bulk of your power coming from non-carbon emitting sources, well then, you know, nuclear, hydro, wind, solar, these are today the readily available bulk power suppliers that don't produce carbon. And, you know, obviously hydro is one that we happen to have a deep expertise in. So I think our objective in the business is to continue to acquire hydro continue to acquire it in situations where we think we can add value to the situation. And often that means that merchant hydro is probably an area that's less suitable for pension plans, as you said. Pension plans are looking for more contracted cash flows and that stability that comes with a long-term PPA. Whereas I think strategics are really still the investors who look at merchant hydro as because obviously it's more operationally complex and requires the capabilities to market power and trade power and sell services. So I think for us that's obviously an area of strength for us both on the operation side but also the trading and marketing side and then secondly we continue to like Hydro because they're long duration assets and you can earn very good stable returns over a long period of time and they can be financed really well.

Okay and And maybe lastly, you share your thoughts on your positioning and a potential downturn. You can really capitalize on that. Maybe you can talk about, and it's great you highlight that because I think a lot of people kind of forget you do benefit from market strength as well. But is it the market strength side, I mean, is it outside of rising power prices and refinancing debt? Is there anything else that may be missing there on the market strength?

I think what we're really referring to is we've just gone through a period where valuations continue to increase largely because investors, pension plans, financial investors need to allocate capital to this sector, whether they need to allocate it because they're increasingly moving their allocations to private investment versus public securities or whether they have ESG requirements or whether they actually just believe renewables are a great asset class in and of themselves. we're just seeing a flood of money to this sector, and as that occurs, valuations go up, obviously, just as a supply-demand situation. And I think a lot of that comes from the fact that we've just been now in 10 years of strong markets, and therefore valuations, they start to creep up higher and higher, and they're underpinned by very, very low rates. In that type of environment, obviously, if you look at our business, we have not changed our return thresholds. We've not reduced them to compensate for that lower yield environment or to compensate for the higher valuation environment. And all we're saying really is though that if you believe that cycles over time change, then it's prudent on our part as managers to make sure we have a business that can perform well even if the cycle turns. And for us to do that, it means we need to have a very strong balance sheet with an investment grade profile. It means that our debt maturities have to be pushed out. And we've done that now with over 10 years of debt maturity in terms of average duration. Have bank lines that have a high level of availability and have term behind them. And then, you know, obviously from a broader Brookfield perspective, we raise private funds and we have strong sponsorship and strong alignment with Brookfield Asset Management. So all of that really underpins the firepower that our business has, such that if markets do turn and investors pull back, we might actually see a unique opportunity to acquire significant assets for deep value.

Okay, that's fabulous. Thanks a lot for your help.

Yep, no problem.

Thank you. Our next question comes from Jeremy Rosenfield with Industrial Alliance Securities. Your line is now open.

Yeah, thanks. Just a couple of cleanup questions. First, with regard to the construction-ready project and the repowering project, how much of that is within the TURP entity specifically versus Brookfield or Brookfield Renewable, or is it all TURP on the repowering side?

No, I mean, so I think we've said 220 megawatts of power of potential repowering opportunities. There is some directly in VEP. I'd say, you know, 150 or around 150 is in TURP. So the majority of it is in our fleet in TURP, but we do also have some that are directly owned on PDP's balance sheet.

Okay, and then the $50 million of FFO... once commissioned, is that referring specifically to both the construction-ready and the repowering opportunities, or was that only the repowering?

No, that's all of that. So that more advanced construction-ready development pipeline of around 600 megawatts on a gross basis plus the repowering, that's total, and the net to that megawatts of that, uh, of that pipeline is around 500 megawatts in total.

Okay. And yeah. And it was there a capital amount that you have in mind in terms of the, um, the potential investment opportunity associated with those, uh, those projects.

Yeah. I mean, so if you, if you, as I mentioned, there's around 500 megawatts of net to that, uh, you know, it's a mix of wind, solar, uh, And hydro, so if you said it's kind of 1.5 million per megawatt, that's around 750 of total capital, and you probably could get 60% leverage on that. So that's around, you know, 350, 300 to 350 million of debt equity capital over that period.

Okay. Thank you. That's very useful. And then just in terms of the TransAlta Strategic Investment Agreement, and the two tranches, I understand it's about 25%, which is going to be the net investment from Brookfield Renewal. I'm just curious in terms of the different tranches, if each tranche is also 25% or if there is a difference in terms of one tranche versus another.

Yeah, no, there's no difference. They're the same in each tranche.

Okay. And then just maybe from a more high-level perspective, Recognizing that I guess you don't see yourselves as potential owner-operators long-term of gas assets from a strategic perspective, and really you're willing to be a shareholder in TransAlta and backstop its transition to more of a renewable future. Strategically, if you look at other entities and other opportunities, do you have a willingness to replicate this and take on some thermal exposure elsewhere in order to gain access to high-quality renewable assets?

Yeah, that's a good question. I'd say first, we have owned gas plants. We actually do own gas plants in the business. Not a lot, as you said. Not because we don't like gas plants. We actually would love to own more gas in the business. We just think the economics have been really tough in the last decade with the efficiency of combined cycle turbines increasing significantly, heat rates coming down very, very meaningfully. and a flood of cheap gas. All of that has lent itself to, you know, that could be a tough business to make money in over a long period of time. So we like the asset class and we like the technology. We just need a better framework to be compensated for the risks that come with it. So I'd say full stop. We like the technology. We actually think TransAlta does a really good job with their gas plants and their expertise on gas. is very important and is something that obviously we'll get to see firsthand and learn a lot from. And as you said, this transaction gives us a pretty unique vantage point to be able to get that exposure through our share ownership to a broad portfolio of renewables and gas plants. And the partnership obviously then gives us that direct exposure to hydros, would we then replicate this? Absolutely. If we found other opportunities to partner with companies that are transitioning away from their thermal past into their renewable future, we think that this could be a pretty good model. I'm not at all suggesting there's a long list of companies out there that want or need that, but it's absolutely a model that we could replicate and employ in other parts of the world. because we think it presents really unique benefits to both sides of the partnership group.

Okay, great. Thank you.

Thanks. Thank you. And our next question comes from Rachel Wei with Deutsche Bank. Your line is now open.

Thank you. Good morning. Good morning. First off, just morning, I just want to ask in terms of share buybacks, did you guys do any this quarter and What are your thoughts and your priorities going forward?

No, we didn't, Rachel. We did not buy back any stock this quarter. I think we had mentioned last quarter that we had acquired about $50 million of our stock. We had invested about $50 million buying back our stock at an average price of around $27 million. That was obviously on the back of some market turbulence in December that everybody on this call would know about. More recently, the markets have started to stabilize. The outlook on yield continues to remain low and it looks like central banks around the world, in particular the markets where we operate, are not pushing rates up. And so I'd say at this stage, probably you shouldn't expect us to be buying a lot of our stock back. We continue to think there's value from an intrinsic value perspective that our stock is trading at a discount. And you can see a few years ago we had posted what we thought the intrinsic value of the business was at that time. But on a relative value basis, we're seeing really, really strong M&A and development opportunities around the world. And so for us, it's about prioritizing where our capital goes. And at this stage, we want to keep our liquidity levels high and find growth opportunities to expand the business.

Great. Thank you. My last question is about emerging market currency hedges. I know you've said that some of the markets are really expensive to execute the hedges. And just given the fact that you may, as you mentioned, allocate 25% of your equity to markets like India and others, can you just give us some high-level thoughts about your currency hedge strategies in some of the markets? Thank you.

Sure. Look, I'd say full stop, we hedge every currency that we can where there's liquidity and the cost of hedging makes sense. So virtually every currency that we have in the business is fully hedged back to the U.S. dollar. The two that are more expensive are the Indian rupee and the the Brazilian reais, and in particular the Brazilian reais, and that's a function of yield differentials in the countries between the U.S. dollar and those kind of currencies. And so the way we think about it is, you know, if you were to pay all of that differential away, effectively buying insurance, then you need to also factor in Are you growing in those countries? Are you just redeploying that cash back into that country to continue growth? Do you need the capital back at any point in time? And what's the duration of your investment in that country? Are you going to be there for 20 years? Well, if you are, then you likely don't need to buy a very, very expensive insurance policy. Now, on the other hand, if you are selling assets and you're trying to bring capital back up, into our U.S. Treasury than we would hedge, even at a higher cost. So I think with those two countries, we take a little bit more of an opportunistic view about the cost of insurance relative to our capital needs, whereas in all the other countries we operate, the cost is just so low today, given where rates are. It's just a no-brainer. We would buy the insurance all the time.

Great. Thanks.

No problem.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Sachin Shah for any further remarks.

Okay. Thank you, everyone. As always, we really appreciate the support, the interest in the company, and we look forward to continuing to update you during 2019 on our progress on all of our key objectives. Thank you, everyone. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day. Thank you.