Brookfield Renewable Partners L.P. Limited Partnership Units

Good day, ladies and gentlemen, and welcome to the Brookfield Renewable Partners second 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 touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sachin Chau, Chief Executive Officer of Brookfield Renewable Partners. Sir, you may begin.

Thank you, Operator. Good morning, everyone, and thank you for joining us for our second quarter of 2019. Before we 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. Our business performed well in the second quarter of 2019, supported by strong performance at our operating businesses and contributions from recent acquisitions. We advanced our strategic priorities during the quarter, deploying capital in a number of transactions while maintaining a robust balance sheet and access to capital. Of note, we generated FFO per unit of 74 cents a share, 35% increase over the prior year. We announced our investment in a joint venture with a global solar developer with over 6,500 megawatts utility-scale PV solar for approximately $500 million, or $125 million net to PEP, which we expect to close in the fourth quarter. We closed the acquisition of 210 megawatts of operating wind in India in and the first $350 million Canadian dollar tranche of our $750 million investment into an Alberta renewables portfolio. We announced the acquisition of a 322 megawatt distributed generation portfolio in the U.S. through TerraPower, nearly doubling our DG footprint and providing significant opportunities to drive incremental cash flow growth through operational and commercial synergies. And we ended the quarter with over $2.5 billion of available liquidity, raised approximately $275 million in incremental liquidity, the closing of the sale of certain of our South African facilities, as well as strategic up-financing and other liquidity initiatives. Finally, we reduced our FFO payout ratio on an annualized basis to approximately 85%. Our 50-50 joint venture with AKR to own one of the largest solar developers globally with an experienced management team, best-in-class contracting capabilities, and a proven track record of developing assets at premium returns. The portfolio comprises approximately 275 megawatts of operating solar, 1,400 megawatts of solar under construction, and a broader 4,800 megawatt development pipeline, which should provide significant growth optionality over the long term. Over the next five years, plan for the business is to develop 500 to 800 megawatts of new solar capacity annually in the existing pipeline and to look for additional development opportunities in the global solar market. This growth will complement our existing pipeline of development projects that today include over 600 megawatts of advanced stage wind, hydro, and solar, and approximately 130 megawatts of assets and construction. We expect to close the investment in the fourth quarter of 2019. Additionally, subsequent to quarter end, we announced through Terraform Power that we entered into an agreement to acquire for approximately $720 million a scale distributed generation business in the U.S. totaling 320 megawatts of recently constructed, fully contracted capacity underpinned by 17-year average remaining CPA term with credit for the offtake. This investment will nearly double our DG footprint making us one of the largest such portfolios in the U.S. and providing significant opportunities to drive incremental cash flow growth through operational and commercial synergy. The investment is immediately accretive and requires no incremental capital as we expect to fund the transaction in Terraform through project-level financings and asset sales. This transaction extends Terraform's contract profile, reduces its portfolio resource variability, and improves its organic cash flow growth. We expect the transaction to close in the third quarter of 2019. Finally, we continue to execute on our capital recycling program during the quarter, completing the sale of four of the six projects in our South African portfolio, proceeds of $108 million, or $33 million net to BEP. We also advance the sales of the final two projects in our South African portfolio, and other non-core portfolios in Thailand and Malaysia. We expect these asset sales to close in 2019 for total proceeds of approximately $180 million or $55 million net GDP. I'll now turn over the call to Wyatt to discuss our operating and financial position.

Thank you, Sachin, and good morning, everyone. During the second quarter, we generated FFO of $230 million dollars up from $172 million in the prior year as the business benefited from contributions from recent acquisitions and operational improvements driving cash flow growth. We also continue to benefit from the diversity of our portfolio, a strong generation from our North American hydroelectricity, more than offset a period of relative weak in reason. In the second quarter, our hydroelectric segment generated FFO of $226 million. Our portfolio saw strong generation in North America at 15% above the long-term average and strong pricing income. We continue to advance our contracting initiatives across our business to focus on commercial and industrial products. In South America, we remain focused on extending our contract terms signing 14 CPAs in Colombia and Brazil for a total of over 1,200 gigawatt hours per year. As a result of these initiatives, in Colombia, approximately 30% of our contracts now have terms greater than five years versus none in 2016 when we acquired this. In North America, we continue to benefit from a 17-year average contract term and no material maturities until 2020. Our wind and solar segments generated a combined $66 million of FFO, up 32% relative to the same period in 2018, as we benefited from acquisitions and contributions to the recently commissioned project, as well as our cost-saving initiative. We also added 25 megawatts to our global rooftop solar portfolio, including commissioning 10 megawatts for our joint venture with GLP in China. and closing the first phase of a 15-megawatt acquisition in the U.S. Northeast. Our storage and other operations segments performed well, generating $7 million of FFOs during the second quarter as the growing intermittency of global electricity grids continues to increase the scarcity value of utility-scale global storage. We ended the quarter with over $2.5 billion of available liquidity In addition, we continue to prioritize investment-grade balance sheets that are rated triple B positive by S&P, which we believe gives us significant financial flexibility and provides investors with a lower overall risk profile. Lastly, we remain focused on terming out our debt at low rates and hedging our cash flows from currency fluctuation and the cost of economic prudence. During the quarter, we extended the term of debt in our Colombian subsidiary for approximately 10 years by issuing 1.1 trillion pesos of bonds in the local market. This was one of the largest financings ever completed in Colombia, and given the high-quality nature of our portfolio, was significantly oversubscribed. At Terraform Power, we progressed up financings of select assets in the portfolio and used the proceeds to repay creditors. Looking ahead, we continue to focus on executing on our key priorities, including maintaining a robust balance sheet, access to diverse sources of capital, enhancing cash flows from our existing business, and assessing acquisition options. 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 one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star, then one 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. And our first question comes from Sean Stewart with TD Securities. Your line is now open. Thanks.

Good morning, everyone. A few questions. The 500 to 800 megawatts per year for the Exelio portfolio that you're planning on developing, I think the prospective pipeline is across a wide array of geographies. Can you give us a sense of where the the midterm focus will be in terms of geographies, and then I think you guys typically reference 17 to 20% levered IRRs for greenfield development. Where do these projects fit in that spectrum?

Sure. Hi, Sean and Sachin. I'd start with just geographies in the near to midterm. The bulk of their pipeline is in Iberia, the United States, and parts of Latin America. And what I would say, which is why we like it, because we have a presence in the market. Obviously, we think it's just logical to continue to expand broadly into Europe, to further into Latin America, Brazil, even Chile long-term. And then the U.S. is a place to invest. So that's how I'd round out sort of mid-term priorities. For return perspective, remember they have operating, under construction, and pipeline assets. So you're absolutely right. On pipeline assets, we target high-teens returns back in U.S. dollars and nominal policy depending on the region we're in. You would translate it for the inflation differentials. For operating assets and under construction assets, I'd say we would be targeting... somewhere in that low double-digit type of term. So if you look at the bulk of the portfolio in the near term, it's really leading to under-construction assets, which we can say we do that low double-digit U.S. dollar return. And then the pipeline we'd expect building out at ITIN's return. And then obviously a key part of our strategy with business would be capital efficiency. And what we mean by that is making sure that we cycle pure assets, selling down projects, so that we rotate capital to better.

Okay. Thanks for that detail. Question for Wyatt. You guys referenced the up-financing activities at Terraform and in Columbia. Can you give us a sense of line of sight you have on further mid-term potential up-financing activities?

Thanks, John. I think the general way to think about it is if you look back to kind of 2013, we've done around a billion dollars of up-financing business in that five to six years. If you look forward over the next five years, we think we have the same amount of debt capacity raised from an up-financing perspective. And it really is spread out throughout the world. Brazil, where we definitely have, you know, traditionally we haven't relied on the capital market in that region. Lending conditions in that market have gone a lot better. Rates have come down significantly. Most banks in the country are putting around a 5, 5.5% base rate in that country. So that makes borrowing in that country economically prudent. And so given our portfolio there is largely on leverage, that creates an opportunity raised $300,000 to $400,000 out of that portfolio. But it really is, of that kind of billion of forward over the next five years, it really is spread around the world. And it's all done at an investment-grade basis, so it's still an important part of our financing.

Okay. Thanks, Wyatt. I will get back in the queue.

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

Morning, everyone. First question is on Exilio as well. I would say this is a bit of a step out just given how large of a development pipeline is included here. Does this signify that you're seeing better opportunities on the development side versus the acquisition side on the solar assets?

Yeah, hi, Rob. Look, I think not relatively M&A right now, I think what we're seeing on the development side is, you know, the last sort of seven to ten years on development has really been about capturing, reducing construction costs as panel costs have declined or costs have declined, declining costs on the wind side have declined. So really, investors or developers who are successful in the past were really just betting that overall costs would continue to decline, and that decline would then work its way into their return. Therefore, they were bidding into projects at prices that were lower than you could otherwise build something at that moment in time, but what you were making was that build costs would decline by the time you had to actually build the project. I think what we're seeing now is we're at a bit of an inflection point in the industry where costs are largely flat, In some instances, tariffs and new subsidies, the overall cost structure is actually increasing on the margin, and therefore development looking forward, and I'd say for the next decade, takes a different skill set. It takes a strong operational focus so that you can operate the plants at the highest margins possible and most efficiently. It takes a strong capital discipline, so it requires investors who have strong access to capital and who are disciplined about capital recycling or effectively bringing the lowest cost of capital to bear to the project. And I think, therefore, it plays more to our strengths as an investor rather than making that cost a little fine by the time it's developed. So I just think the whole industry is at a bit of an inflection point, and I think, therefore, we see the next decade for us being more development being a more attractive part of our business Wrapping that all up, though, I would say that, you know, if the last 10 years we've done sort of 10% of our growth in development, I'm not at all suggesting it's going to be 50%, but I do think that it can go to 20% of our growth in development, and 80% could be M&A or 75-25, whatever split you want to prescribe in that range. And therefore, I just think that investing in portfolios like Xelio makes a lot of sense for us at this stage.

All right. I appreciate that color. And then switching over to the M&A side, we've been seeing your liquidity move up through 2019 so far, and we're seeing some assets for sale in Portugal and Spain. Can you just give us an update on kind of opportunities and the state of the market on the M&A side?

Sure. It's still highly competitive as always. There's lots of capital chasing deals. And I think our playbook hasn't changed. We tend to look for opportunities where we can bring our operational acumen there, where there might be a capital scarcity, where we see follow-on cash flow growth that we can deliver by optimizing the asset base. And, you know, I think in a low-rate environment for companies, There is a lot of capital and a lot of investors who like the asset class. We just continue to be aggressive about being different and trying to pursue different types of transactions. It doesn't mean we won't enter into auctions. It doesn't mean we won't sometimes win a highly competitive auction, but we have to have an angle that's unique. And, you know, I think the DG portfolio that we acquired through Terraform is a good example of an auction. We're obviously a winner. But given the scale of the business we have today, the people we have, and our ability to reduce costs, secure new services with those existing customers, and to grow that platform, it gave us a competitive advantage to be able to be successful.

All right. Thank you for that. I'll hop back in the queue.

Thank you. And our next question comes from Nelson Ng with RBC Capital Markets. Your line is now open.

Great. Thanks. A quick question on Columbia. So you mentioned that 30% of the contracts have a term greater than five years. Big picture, what's your, I guess, shorter and longer term target for contract term? And I guess, do you have to balance, like, is there a balance in terms of do you have to give up a bit on price to get a longer contract?

So I would say, look, when we bought the business, virtually every contract ever signed was one to two years in operation, and a long-term contract market did not exist in the country. Our thesis at the time was that particular utilities and discons would actually like the certainty of a long-duration contract because it was useful to the trade base and it allowed them to plan their own cost structure over a very long time. We thought industrials might like it as well, but we weren't 100% sure. What we did know, though, is that we had the skill set to bring it to the market and we had a good team there in Columbia to execute on that strategy. And I'd say now that we're three years in, we've seen that thesis play out. We've seen customers really like the certainty of long-term contracts. It's helped that hydrology has been really volatile in the country. It's helped that gas has not been readily available in the country. And it's helped that GDP continues to grow and power demand continues to grow. So I think all of those things have worked in our favor. The economics, I would say, are not as black and white as you're suggesting. We signed many contracts last two years ago when there was a shortage of water at significant premiums to the current market price because, candidly, people were nervous about availability of water and demand growth, and therefore were just looking for certainty. I'd say, but overall as a trend, we value duration more than we value short-term costs because with duration, you can match fund the assets you can get a lower cost of capital and you can drive a higher return to shareholders. And therefore, we will always forego a little bit of income on the front end if we can drive more capital efficiency and a better return. And you should just think that way.

Okay, so just to clarify, so over time you would expect that 30% of contracts greater than a five-year term to just gradually increase, but there's no kind of sweet spot in terms of where you want that 30% to be?

Yeah, look, we're not proposing that we would increase it beyond 70%, and there's reasons for that in terms of just our own management and reservoirs and having some optionality available to deliver highly valued storable power in a scarce market. So I think you should expect us not to go beyond 70%, but from that 30% we're at today, we would comfortably move that up to 50%.

Okay, got it. And then while we're still in South America, a quick question on Brazil. You had three pretty good quarters in a row of, I think, slightly above average generation. Could you just comment on the reservoir levels? I presume they'll still be low average but have been improving, but can you just give a bit more color there?

Yeah, your observations are absolutely correct. Reservoir levels are still below the long-term average of the country, just given the depth of drought years ago. But they're improving. Power demand has been largely flat, which has allowed the recovery to occur faster than if the economy was running as it built. And I'd say we're just seeing, as a result of those factors, seeing our overall generation growth. Okay, thanks.

I'll get back in the queue.

Thank you. And our next question comes from Rupert Mayer with National Bank Financial. Your line is now open.

Good morning. Looking at the M&A landscape and your strategy on M&A, are you looking at any assets that are outside of renewable energy today?

Not in any way. Direct way, I'd say we are always paying attention to new technologies in what I call the decarbonization space. And we're always looking at ways that we can help companies solve for decarbonization of their existing infrastructure business. But, you know, at the end of the day, from a bulk investment perspective, today we continue to be focused on generation B.

Great, thanks. And then moving over to the wind results in the quarter, you had some softness in North American wind, and you mentioned that some of the softness was from maintenance outages in the U.S. Can you talk about... The results in the quarter, how much of the weakness was from a low resource and how much was from outages that you referenced in the U.S., and how much of that came from curtailments? And I think we typically are seeing curtailments in Canada these days.

Yeah, thanks, Rivers. Wyatt here. So on the maintenance point, I think the reference here is towards our portfolio where, As you likely know, they're transitioning to an O&M contract with GE. There were certain upgrades that had to be transferred. And so that was really, you know, isolated this quarter, putting that portfolio in place. And then if there's an O&M contract going forward, significant cost savings that it can provide. And as well, production guarantees are being guaranteed. that contract as well. In terms of overall open resource, you know, I would say you've seen this across the sector. Generally, North American was down, but really that really shows why we've been focused on diversifying our business in respect of diversifying outside of North America, Europe, South America, as well as diversifying across technologies and And we think that by learning that diversification of our portfolio, we're really well protected and it's really our unique portfolio so that we're not exposed to one thing.

And I assume you're seeing some curtailment on your Canadian assets. How do you account for that curtailment? Is the number that you present your actual generation, or is it what you're compensated for with compensated curtailment?

Yeah, we haven't seen a material amount of curtailment in our assets.

Hello?

Hi. Can you guys hear us?

Yes, it did cut out, though.

Okay. Sorry, we cut out there as well. I think what you may have missed is we have not experienced material level of tailman in our Ontario fleet of analysis.

All right. Very good. Thank you very much.

Thank you. And our next question comes from Moses Sutton with Barclays. Your line is now open.

Thanks for taking my questions, and congrats on the strong quarter. Brazil's been mentioned, but hydro performance in North America has been well above the LTA for three quarters now. We calculate 8% capacity factor higher than the LTA. Any visibility into expectations into 2H? Has some of this been due to how you've been managing operationally, or is it more or exclusively due to just hydrology conditions?

Hey, Moses. It's Sachin. You know, look, I'd love to take credit for our team. We'd love to take credit for operational changes. The reality is we've been in hydro for 30 years, and we've noticed for a long, long period of time that above and below long-term average cycles are long. So you could have a couple of years of below. You could have a couple of years of above. In particular, our assets that are fed through Great Lakes. We've always seen longer dated cycles in those. It's why we make it a point not to adjust our guidance or, in fact, adjust our dividend based on variability of the resource. And I know we've had a good run recently with above average. But, you know, just a few years ago we were below. and people would get down about that. So I would say, you know, we've been in this long enough to know that we plan our business on very long cycles. We measure water inflows, electricity generation, reservoir levels, and sufficient in a really detailed way. And, you know, over the last 30 years, we feel really strongly that our long-term average is a good, reliable indicator of future earnings power for the business. And, yeah, on the margins, obviously, we manage the operations around things like storage, reservoir levels, outflows, and regulatory restraints. But in the end, transportation really has been, in fact, leading to in the last few

That's very helpful. And then any color on the strong Canada hydro pricing, dollar per megawatt hours up double digits year over year, and then looking toward the rest of the year, on a USD basis, would you still expect high 60s per megawatt hour?

Yeah, look, some of that is because we're benefiting from contractual increases in TPAs in Canada at well above an inflation rate. So we get a 3% increase per year in contracts in Ontario on our hydro fleet. So therefore, if you take that combined with currency movement, it's showing up as a meaningful increase in the per megawatt hour revenue that we're earning. But I would say for the most part, our business in Canada is fully contracted. We don't have merchant exposure. We have contract term comfortably over the next 10 years in Canada. And therefore, we don't expect to see a lot of variability in that market. And any increases will come from tractable escalation.

That's very helpful. And last for me before I jump in the queue. can you quantify the above LTA performance in terms of its contribution to FFO? We calculate about $30 million or so. I'm just wondering if you could throw a number out there.

Maybe what we can do is, Wyatt or somebody from our team, call you up. I'll do that.

That would be helpful. I'll jump in the queue. Thanks.

Thank you. And our next question comes from Ben Pham with BMO. Your line is now open.

OK, thanks. Good morning. When you guys think about adjusting this long-term average, I know the last few years it's been below. Now it's above. And so there's a little bit of normalization to think about. And then you add in the acquisitions you've done and then this 500 to 800 megawatt pipeline. Aren't you directly heading towards the upper end of your 6% to 11% growth rate the next five years?

So first of all, I would say a few things. Just conceptually, the 6% to 11% has nothing to do with hydrology or variability of wind, solar, hydro. We always assume and plan at long-term average. And if we're below, then that's a miss in the year. And if we're above, that's found money, and we don't pay it up. So I want to make sure that principle is clear. And then as it relates to the 6% to 11%, where I think a year ago or two years ago, we gave some visibility that for the next four to five years, we had very strong predictions that we would grow FPO share at that rate, in light of cost reductions, new contracts, development that we've had. Absolutely, it's our job to keep replenishing that and build that out over time. So when you see us make investments like we made with Xelio, the build-out that we've been doing with Terraform, the PAs that we're signing, cost reduction initiatives that we have in Latin America, the build-out of our business in India, it's absolutely with the view of growing or maintaining that 6% to 11% FFO growth rate We make the investment, but then we have a business plan that we carry out to actually drive cash flow growth. So what we want to make sure investors understand is that our objective is to invest capital accretively on day one, but more importantly is to surface value for those investments over time because of the strong debt or operational capabilities. And that is when we find investments that allow us to both buy for value but also extract value over time, they tend to overperform investment. even our 12% turn threshold. So that's a long way of answering yes. Of course, we're trying to continue to build out the runway of that 6% to 11% growth.

Okay. I was just going through just, you know, in that plan, you had said you only need 1,000 megawatts of development, and you're already moving 200 megs, and then you add this 5 to 800 megawatts, and that doesn't even considered acquisitions you've done and will be doing going forward. So it just looks like you've really solidified that target that you highlighted less than yesterday. On the payout ratio, then, you also have the target of 80% FFO by 2022. You're pointing to 75% this year, and I absolutely agree that you've got to adjust for a long-term average, but it doesn't look like you're heading... ahead of plan on the payout ratio?

Yes. Just to be clear, we pointed to 85% annualized. I think 75% came from somebody's research in Credit Suisse, or I think it was Andrew's research that said 75% this year. But we put out 85% on annualized visits. Yes, we are tracking ahead. You know, look, on the payout ratio, I think, and I've talked to many of you and I've talked to many of you, we have the strongest balance sheet in the sector, have a significant amount of liquidity, very strong sponsor, a lot of shares in the company, and we have one of the most diverse sources of access to capital relative to any peer in the industry. So we've never been overly worried about payout ratio, whether it was 98% or now 85%. We've always been comfortable that we had the financial flexibility to move over. However, we got a lot of feedback, and we respect that feedback, that we need to bring it down, and we need to make sure that the investor community feels comfortable with it. So we've been bringing it down, and we've been doing it simply by surfacing value in our existing assets. So we're at 85. We're far ahead of the 2022 target that you pointed out. It's good. I think it's being reflected now. People are taking more interest in the stock, which is also good. And I think we see a really credible path to getting into the 70s within that same time. Once we're in the 70s, again, I think combining that with all of the other things you said, we have really, really strong firepower.

And Ben, just to clarify, we're 75% payout on an FFO basis year-to-date, but we do have a season of business, so we said... on an annualized basis.

Okay, that's great. Thanks, everybody.

Thank you. And our next question comes from Andrew Kuski with Credit Suisse. Your line is now open.

Thank you. Good morning. You've managed to buy or are in the process of buying a pretty big solar pipeline of opportunities. So if you should go ahead and actually start building some of the solar facilities, do you anticipate you know, a bit of a return enhancement versus some of the facilities you built in the past, such as wind and hydro that just, frankly, take longer to build. And with the solar, should you build them, you have a faster capital recycling trajectory. Is that true? Am I thinking about that the right way?

Yeah, you're hitting the nail on the head. That's exactly right. You know, if you build things, you know, The procurement side of it is, the supply chain side of it is really deep today. So you get converters, panels, connection structure very quickly. And there's a bit of a supply side of investment. So I think, you know, to go back to a little bit of that earlier, we bring capital, discipline, and efficiency to this business that I think is valued by our partner and by the management team there. And we just think that would be a really creative way to grow elements of this as opposed to betting on pricing.

Would you care to quantify the return enhancement?

Sure. I mean, look, if we're building at... U.S. dollars at anywhere from, let's just use our 12 to 15%, because let's assume we get every project right, and so we'll have some 18s and we'll have some 10s. Let's say we're blending around that 12 to 15, and we're monetizing, and that's in U.S. dollars. Typically today you're monetizing these same projects at 7 to 8 to the financial investor. So if you think about the opportunity for regression, and let's just say you're not monetizing... but you're monetizing partial interest, you know, that could be anywhere from 400 to 700 basis points of appreciation for every dollar confessed in a very quick timeframe because of your first purchase. You can build and rotate very quickly. So it's highly, highly accretive business. You run it well, and it's got the expertise.

That's helpful, and maybe just a different track for the second question, and it really relates to the changes we saw in Alberta. And being cognizant, it's not even been a week since the government announced the intention of an energy-only market versus the prior government moving towards a capacity market. How do you think about that in relation to your underwriting of the portfolio purchase you have there or the investment you have with TransAlta?

Yeah, good question. You know, look, I think... And everyone can see this. You can see energy-only markets in America. You can see capacity markets. And in the end, deregulated markets are meant to provide a price signal to incentivize new supply to come to mind. I think what we've seen traditionally is markets, particularly in the U.S. East, with a strong capacity bid or a strong capacity option, really incentivize, typically incentivize gas-fired operations. And when you have a strong energy market, you get a bit of a tilting towards for renewable investments because they don't qualify for capacity payments. You can't build a wind and solar farm today and bid it into a capacity pension. You get no rating credit for capacity. So I think you project that dynamic onto Alberta as just a base case work assumption. And from there, say, okay, well, what does that mean potentially means a bit more intermittency in that market as cold comes out. And it means that assets where you have embedded storage could have more underlying value. And then if you take that to our underwriting, why did we like that hydro portfolio? As it has a significant storage capability and has significant ability to provide stabilization services to the grid, all of which become valuable either in the near term or in the long term as thermal as out of the supply stack. So, you know, I don't want to speak on the company's behalf, but I think that's a framework from within which to think about it, and I think from our perspective, you know, for us it's a net puzzle.

Okay, that's great. Thank you.

Thank you. And as a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1. Again, that's star 1 to ask a question. Our next question comes from Mark Jarvie with CIBC Capital Markets. Your line is now open.

Thanks. Good morning. I want to go back to Exilio and the development opportunities. How do you guys see about securing offtake and types of contracts for those development projects and maybe talk about any expertise on origination that that team might bring that Brookfield doesn't have existing?

Yeah, that's a great question. That is what we like about the management team. They have a long history of signing PAs, of securing customer relationships, and securing all of the permitting and intersection requirements of solar development. You know, we have that in our organization, but I would say this management team is very strong, has shown a track record of being able to do it in a way that creates value on a simple buy-and-hold maturity basis. and we think that we can obviously leverage that team and provide assistance where needed with our own existing operators and our access to capital that can only make the team's ability to serve the value of long-term better. So we're really happy with the team. Our partner, KKR, has been in this investment for a number of years already, so we feel like we have a like-minded partner from a value creation perspective, and we feel like we had a good ability to meet with both our partner and the management team's diligence to get comfortable that the contract practice was being created on the future.

Okay, and then is there a belief that storage is going to be increasingly key to building out that solar pipeline and the type of contracts you'll be looking to procure?

No, we're not banking on batteries or storage as part of our underwriting thesis. Obviously, storage is needed around the world, and batteries are one option for storage, but they're still far away, still expensive. There still isn't a global leader when it comes to electricity battery production. You're starting to see the auto manufacturers get into this in a big way for their own businesses, but you're not seeing what we saw in wind and solar manufacturing specifically focused on the electricity industry. supply side starts to get created. So I think, you know, we're not betting on it, and it's part of our decision.

Okay. And maybe just pivoting to pump storage in the U.S. I know you guys have had some projects sort of quietly in the background. You haven't been too vocal about it. What do you guys see in terms of the current, you know, prospects for that, whether it's permitting or support by FERC, or where do you guys see opportunities, or is it still a bit of a ways off?

Yeah, we have a handful of pump storage sites, you know, the bulk of which are in California, and these small-scale storage sites. We have some expansion opportunities in the West and East, one of which is our bare swamp facility that we're actually in the middle of pursuing currently and close to delivering, and in Ontario, candidly. You know, pump storage is one of those where because of the cost to build, you need a PPA. And I'd say at this stage, we still don't see a willingness from utilities or regulators to provide the necessary organization to deliver it. And if you don't have a PPA, either you need existing embedded infrastructure like we have at Bear Swamp, where it's just expansion, aligned with a capacity market like you have in Binghamton, make the economics work. So doing it in New England, doing it with AirSwan, but I would say the other projects are still on hold and just patient.

Okay. Thanks, guys.

Thank you. And our next question comes from Frederick Bastien with Raymond James. Your line is now open.

Good morning, guys. Your pipeline of opportunities seems to have grown exponentially in the past 12 months, at least to me, which I guess is a good problem to have. But just wondering how you reconcile the opportunity to invest in certain assets versus others, and probably more importantly, the size of the equity check that you decide to write against these assets.

Hi, Frederick. Thanks for the question. Yeah, look, I think your observations are bang on. We spend less six or seven years trying to globalize the business and broaden out from a technology perspective so that we could be an exactly the position we're in today, which is having many, many opportunities to parse through such that we can pick the best opportunity. In terms of what makes an opportunity the best, I'd say we start from a risk-reward perspective. We want opportunities where we see the highest potential return, lowest risk, and risk is... And risk is both development from a geographic perspective, a currency perspective, and return is what we can surface from those assets by buying well and then operating well. And so that is our criteria. We also have strengths. Even if we see very, very meaningful emerging market opportunities, but that would skew the nature of the business, we're going to be very careful about them. We've said to investors and and to our analysts that we want to keep the bulk of our investments in North America and Europe, and we want to have, you know, 25%, 30% of sort of emerging market exposure, and we want to have more countries in that emerging market bucket, so we select there. We're not changing that strategy or that process. So that's the overlay when we look at how to pick an investment, but in the end, it's about risk and support and what we deliver most accretively to our investors. From an access to capital perspective, we've also prioritized keeping our balance sheet strong. Again, you know, having a triple B high balance sheet is unique, but it's not just a flag that we can wave. It also gives us tremendous financial flexibility. As Wyatt said earlier, you know, we have ample financing opportunities in Brazil, in our various wind and solar farms where our financing structures are much shorter dated than our PPA term, and in our hydro portfolios where We have contracts rolling over and refinancing is coming up where we can up-finance the business. So, you know, today I would say we probably have close to a billion dollars of up-financing opportunities. We have significant asset recycling opportunities. And all of that is a function of keeping a strong balance sheet and having extra flexibility. So I don't think the strategy is going to change, and we'll just continue to grow the business in a lot of ways.

Thanks. And as of July 31st, which technologies do you believe present BEP with the best risk-reward opportunities?

That's a good question. You know, look, hydro is still, I'd say, when you find hydro for value, it is still an incredibly stable technology. source of cash flow that typically grows over time in value and the intrinsic value of business really supports the underlying intrinsic value of the business and the perpetual nature of it is a nice match to our perpetual equity that we issue. Wind and solar, I'd say now that the costs have come down, are really good asset classes. They have a meaningful amount of growth in front of them. Technology has gone a lot better. The costs are there now that they don't need subsidies, which is always something that we're great about. So I'd say those three technologies, which are now considered all-power technologies, are really strong. They underpin our growth. And, you know, we said at an investor day maybe a year ago that if the world moves to 25% doables in the markets where we're an investor, it is somewhere in the range of $5 to $6 trillion of growth opportunities for this asset class and this sector. We are a very, very small piece of that. We think we're a meaningful piece and we think our business has an incredible runway of growth for the next decade just given what's happening on the planet from supply transitioning to... Great.

Thank you so much.

Thanks, Frederick. Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Sachin Shah for any closing remarks.

Okay, well, thank you everyone again for your support and your continuing interest in the company. I wish you all a great balance of summer, and we'll talk to you at the end of the third quarter for our next quarterly update. Thank you.

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