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Edited Transcript of BEP.UN.TO earnings conference call or presentation 3-May-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Brookfield Renewable Partners LP Earnings Call

HAMILTON May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Brookfield Renewable Partners LP earnings conference call or presentation Wednesday, May 3, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Nicholas Goodman

Brookfield Renewable Partners L.P. - CFO of BRP Energy Group LP

* Sachin G. Shah

Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP

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Conference Call Participants

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* Andrew M. Kuske

Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research

* David Ryan Noseworthy

Macquarie Research - Analyst

* Frederic Bastien

Raymond James Ltd., Research Division - SVP

* Nelson Ng

RBC Capital Markets, LLC, Research Division - Analyst

* Rupert M. Merer

National Bank Financial, Inc., Research Division - Analyst

* Sean Steuart

TD Securities Equity Research - Research Analyst

* Sophie Ksenia Karp

Guggenheim Securities, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Brookfield Renewable Partners LP First Quarter 2017 Conference Call and Webcast. (Operator Instructions). And the conference is being recorded. (Operator Instructions)

At this time, I would like to turn the conference over to Sachin Shah, Chief Executive Officer. Please go ahead, Mr. Shah.

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [2]

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Good morning, everyone, and thank you for joining us this morning for our first quarter conference call.

Before we begin, I'd like to remind you that a copy of our news release, investor supplement and letter to shareholders 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 SEDAR, EDGAR and on our website.

Our results for the first quarter reflect our ongoing focus on operations, generation in line with long-term average and the contribution of recent acquisitions. We continue to advance our development pipeline and are on track to deliver on our 2017 objectives for capital deployment and cash flow growth on a per share basis. Our investment pipeline continues to be strong with opportunities in both our core markets and new geographies as well as across multiple technologies.

During the quarter, we announced that together with our partners we've reached agreements to acquire 100% of the outstanding shares of TerraForm Global and a controlling 51% interest in TerraForm Power. On a combined basis, these businesses own approximately 3,600 megawatts of high-quality contracted renewable assets with the majority of their cash flow in the United States. Furthermore, with assets in India and China, these transactions provide geographical diversification and represent a meaningful investment into solar, providing a platform for future growth.

Turning to our operating businesses. In North America, hydroelectric generation was above long-term average led by strong inflows in Canada and the U.S. northeast. Our operating teams are actively managing our reservoirs to optimize generation and prepare for the spring season, which brings with it increased flows. In the quarter, we successfully cleared all of our eligible capacity into the recent capacity option in New England at a price of approximately $5.30 a kW-month, and we continue to sell energy, capacity and related products at premiums to market prices and in excess of our underwritten values.

Our European operations continue to meet expectations and deliver an attractive mix of new growth, project development and capital recycling opportunities. We continue to build on recent contracting successes and are advancing discussions with a number of large multinationals to supply them with clean energy from our wind fleet. The sale of 2 wind firms in Ireland totaling 137 megawatts during the quarter has crystallized a return of approximately 35% for BEP shareholders and generated net proceeds of approximately $60 million, which we can now recycle into new accretive growth opportunities.

In Brazil, we continue to benefit from our high-quality assets and deep, local operating expertise. The country continues to emerge from recession and its economic outlook is brightened with the expectation of return to growth in 2017. Power prices in the country remain volatile, ranging within BRL 200 to BRL 300 a megawatt-hour during the quarter, which has allowed us to capture premium pricing through our marketing capabilities.

In Colombia, we completed the privatization of our 3,000-megawatt Isagen portfolio and delisted its shares from the Colombian stock exchange. We continue to progress our business plan of improving operating efficiencies and advancing the development pipeline, including 2 new hydro projects totaling 100 megawatts.

Over the last 5 years, we have added approximately 6,000 megawatts of capacity to the business or 2,000 megawatts on a proportionate basis to BEP shareholders, and we have deployed $2.5 billion of BEP equity through a combination of acquisitions and project development. By maintaining financial and underwriting discipline, we've been able to invest capital at premium returns and deliver per share cash flow growth consistent with our long-term targets.

Based on our current operating plans, we anticipate that by the end of 2017, we will have delivered compounded FFO per share growth of 9% since 2012. This cash flow growth derived from our portfolio of long-duration assets underpins our growing distributions and gives us confidence that coupled with our current dividend we can achieve our longer-term total return objective of 12% to 15% growth on a per share basis.

I will now turn the call over to Nick to discuss our operating results and our financial position. Nick?

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Nicholas Goodman, Brookfield Renewable Partners L.P. - CFO of BRP Energy Group LP [3]

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Thank you, Sachin, and good morning. Adjusted EBITDA and funds from operations were $453 million and $166 million, respectively, for the quarter. Performance was driven by generation in line with averages from our fleet. Strong inflows in North America were complemented by improved conditions in Colombia and Brazil. Our wind portfolios in Canada, Europe and Brazil also delivered strong output in the quarter.

We continued to deliver organic growth at 15% to 20% equity returns by developing and commercializing renewable power projects across our portfolio. In Brazil, we commissioned a 25-megawatt hydro facility during the quarter which, together with construction assets planned to be completed over the next 2 years, are expected to contribute approximately $20 million in incremental FFO on an annualized basis. Additional projects in 2019 and 2020 are expected to add another $25 million to $30 million to FFO once completed.

Our development and construction work is advancing on scope, schedule and budget. In Europe, we substantially completed a 15-megawatt wind farm and are on advancing construction of 3 wind projects totaling 66 megawatts in Ireland and Scotland. In Brazil, we are advancing the construction of another 47 megawatts of fully contracted hydro. As we build out and commercialize greenfield development assets, we are also replenishing our organic growth pipeline and recently agreed to acquire a 16-megawatt construction-ready wind project, with an option to purchase another project totaling 23 megawatts.

As Sachin mentioned, in the first quarter, we entered into agreements to acquire TerraForm Power and TerraForm Global, representing a total equity investment for BEP of approximately $500 million, which we expect the fund from existing liquidity. This will provide us with an ownership interest of approximately 30% in TerraForm Global and 15% in TerraForm Power on a pro forma basis.

Our liquidity position at quarter-end remained strong at approximately $1.6 billion. In addition, our financial position continues to strengthen with strong operating cash flows, low-cost financing and capital recycling initiatives. We completed a CAD 250 million offering of preferred units in the quarter and are working on a number of refinancing with the potential -- refinancings with the potential to surface an incremental $100 million of net proceeds to BEP.

We increased our distribution by 5% in the first quarter to $1.87 per unit on an annualized basis. In the current low power price environment, we expect our distribution payout ratio to remain above our long-term target of 70%. We would expect this to normalize over the medium term, however, as we continue to deliver both organic and acquisition-driven cash flow growth. In the meantime, given our robust operating cash flows, investment-grade balance sheet and strong liquidity position, we continue to have ample resources to fund our growth, capital expenditures and development program and grow distributions by 5% to 9% annually.

We are pleased with the progress we have made in the first 3 months of the year. Our near-term priorities are to progress our active transactions and growth initiatives, maintain high levels of operating availability and advance our development pipeline on scope, schedule and budget. We remain focused on delivering annualized total returns and distribution growth in line with our targets and believe this is achievable in the current environment and in light of our business prospects.

That concludes our formal remarks. Thank you for joining us this morning, and we'd be pleased to take your questions at this time. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Nelson Ng with RBC Capital Markets.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [2]

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Could you give a bit more color in terms of the timing for the TERP and global transactions, just some timing on when you expect -- like when the approvals process, like for -- like the various approval processes and timing?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [3]

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Sure. I'd say first, our expectation is that transactions should close by the end of this year. That's generally been the target that was set out when we signed the transactions. The steps along the way are bankruptcy court approval, shareholder vote and then, obviously, regulatory approvals. And all of that is tracking on plan today.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Are there kind of any specific dates set out in the calendar?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [5]

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Not at this stage. And once they are, it would generally be very public, given the nature of the transactions and what was involved with the various stakeholders. So it would be public once it is known.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Okay. And then just a few questions on Colombia. I'm not sure if my math is right, but were power prices above 50% lower this quarter compared to Q1 2016? I just noticed that the revenue and EBITDA for Colombia was pretty consistent year-over-year, but the generation was lot higher for the quarter.

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Nicholas Goodman, Brookfield Renewable Partners L.P. - CFO of BRP Energy Group LP [7]

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Yes, Nelson, I think your math is broadly right. And I think if you remember when we acquired Colombia last year, the country was going a through period of low hydrology and dry conditions. And being a system that's heavily reliant on hydro, that drove prices higher. As we've seen hydrology return this year, we're seeing the story play similar to what happened in Brazil, when you come out of a period of low hydrology and high prices, when people get conditioned to using less power. As hydrology has returned, demand has taken a little bit of time to return. So prices were lower in the first quarter, but we expect that to recover to normal levels during the course of the year. We still expect strong demand growth this year in the country.

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [8]

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Nelson, the only thing I would add just on Colombia in general and the reason we were excited about the investment last year was one thing we had seen historically in that market is this amazing resilience from the company that even if water levels were low and prices were high or conversely water levels were high and prices were low that the revenue, EBITDA and cash flow profile of the business was very stable. So it had a very good infrastructure type of nature to it. It didn't have volatile earnings. You're seeing that play out this year. And what we liked was we saw a tremendous opportunity to buy a business where you could drive operational efficiency, reduce costs, improve productivity, which would then drive bottom line results, which we feel we're good at rather than buying a business that was solely predicated on power price growth and growth of the headline revenue. So I think it's kind of neat that you're seeing in 2 years that just play out in front of your eyes, which is that stability of the revenues in spite of a very different year from a hydrology perspective.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [9]

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I see. And then in terms of, I guess, contracting strategy, I know in Brazil you try to enter into more contracts when power prices are high. I think in Colombia the average contract term is about 2 years. Are you -- will you be looking to kind of implement a similar strategy in terms of contracting as much as you can when -- if and when prices pick up? Or is that a different structure?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [10]

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Yes. Look, I think that dovetails a little bit with my earlier remarks is that it's a much more newer market than Brazil in terms of the depth of counterparties, the contracting structures. Brazil is a very mature market. You can go and sign 30-year contracts with the government. You can sign 8- to 12-year contracts with commercial counterparties. Colombia, it's just newer. They only deregulated in the last 10 years. The economy is smaller. And so we were, I'd say, in the near term, it comes back to my earlier comments, which is we like the very stable nature of this business and the fact that hydrology swings wouldn't impact its earnings capacity. Longer term, with the amount of GDP growth in that country, with power demand growing at 2% to 3% and with further industrialization, we believe a contracting market will open up. We are actually pushing on that, but that will take some time. And what we're seeing is the early stages of distribution companies looking beyond 2 years and saying, "it would be good to have 5-year contracts." We're just being patient in Colombia because we think that simply it's supply shortage and new generation is needed will drive prices higher and -- from where they are today. And we'll then take advantage of that structural change to put on longer-term contracts. So it's not a situation like Brazil where volatility allows you to. We need that structural change to evolve such that we can lock in longer-term, higher price contracts.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [11]

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Okay. And then just one separate question. In terms of the developments in Europe, is there any reason why the wind facilities are generally in the kind of 15- to 30-megawatt range? Are there kind of structural impediments for larger projects?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [12]

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In Europe, I'd say -- this isn't just an Irish phenomenon. I'd say, generally in most of the countries in Europe, what we've seen is smaller sized wind farms relative to North America and even relative to parts of Latin America, like Brazil. I think it's in part because of how the interconnection agreements are handed out, what they call grid. It's also in part just due to geography. Many wind sites are put up in smaller areas where you just don't have the capacity to put very, very large fleets up. So it's a little bit geographic, a little bit of how grid connections are handed out. But across Europe, you'll see this. You don't see the large 150-, 200-megawatt type portfolios that are being developed in bulk in one site like you do in, for example, California or in parts of Latin America.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [13]

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And then just...

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Operator [14]

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Our next question is from David Noseworthy with Macquarie.

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David Ryan Noseworthy, Macquarie Research - Analyst [15]

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Just wanted to start off on the TerraForm acquisition. And if this is too early, just let me know. In terms of the management team for the TerraForm entities, will they be the same as what BEP has? Or is it looking to be a different group?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [16]

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Yes, David, look, that's a separate public company. It's not our place to talk about the management team of TERP and Global at this stage. They're public companies. Nothing has been approved. And it would just not be appropriate.

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David Ryan Noseworthy, Macquarie Research - Analyst [17]

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Okay. And then -- so then with Global, that's not -- so that would -- would that fall under BEP?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [18]

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Well, no, Global is a public company today, David. So again, no transaction has been approved by anybody. What we've done is signed deals. And so -- again, it's not just appropriate to have that conversation for 2 public companies that are being traded today in the marketplace.

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David Ryan Noseworthy, Macquarie Research - Analyst [19]

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Okay, fair enough. And then just the -- with regards -- I understand you have sufficient liquidity to fund the $500 million. Is the intent -- the long-term funding, is that's -- it's your intent to have a different financing for that? Or is it just you're over time going to pay down that what would be on your line of credit?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [20]

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Are you talking about specifically for the announced acquisitions or just more broadly our funding strategy?

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David Ryan Noseworthy, Macquarie Research - Analyst [21]

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Specifically for the $500 million for the acquisition.

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [22]

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I see. So I would say there is no difference between this deal and previous deals. We generally use our lines and keep a healthy amount of availability on our lines to fund growth. We generally use operating cash flow to fund existing maintenance CapEx and our distributions. And then from time to time, we issue out of the capital stack whether that's debt, preferred shares, equity, we do a lot of up financing in the business. And I think one of the real advantages we have in our portfolio is just the sheer long duration nature of hydro and the fact that it's largely seen as a perpetual asset class by capital providers means we have far less on a relative basis debt amortization than most organizations in our space. And where we do have amortization, even on hydro, we have the benefit of being able to refinance that just because of that permanent capital that we put to work. So I think in this situation we have the liquidity largely available on our lines. We have some cash as well that we will use to fund the TERP and Global deals or other deals that happen to come along. And over time we make an assessment about the level of liquidity that we feel we need to replenish with some fundraising initiative whether that's debt or equity or project-level financing.

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David Ryan Noseworthy, Macquarie Research - Analyst [23]

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Okay. If I may on the tax, when I think about your new assets, all being brought on or kind of just co-owned with the Brookfield funds. And then some of your wholly owned assets that are kind of getting older and those tax options are getting depleted, how should I think about your cash taxes going forward and the fungibility of your different entities to shelter your earnings?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [24]

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Sure. So I think if you look at the legacy assets in the business, many of them, above -- a large portion of them, were in Canada where you're correct, depreciable asset base is declining, and we don't have the same tax shelter. That being said, in Canada, we actually benefit from the largest pool of what I call NOLs or tax losses in part because of our funding structure we issue corporate debt in Canada. We generate Part VI tax in Canada. We have most of our people from G&A perspective in Canada. So we generate this natural shelter in Canada, which if anything is actually meaning that we are more than offsetting the annual tax depreciation on our assets. We're actually generating net positive tax shelter. So in Canada, we're in great shape. In the U.S., we've generally been the benefactor of buying assets in situations where we could get a step-up on the tax basis, and we've been using that step-up to then shelter ongoing income or we've got accelerated depreciation, a lot of the wind fleet that we've acquired has been in the United States where you get the cash rent, you get a step-up, and you can accelerate your depreciation. And so we benefited from that. But for sure in the U.S., I'd say, we're pretty comfortable for the next 5 to 7 years. And then after that, we need to keep being thoughtful about how we manage tax and whether that's through additional debt issuances in the country, whether that's just buying in a more distressed way where you pick up some tax losses along the way, like we would potentially be doing in these announced transactions or whether it's corporate tax rates in the United States just decreasing, those are all good things that will be additive. Moving to Brazil, we pay a flat tax in Brazil. So shelter is not something that we have to worry about; we pay a flat tax, which is the regime we're in. In Colombia, we just bought the base business. We have very, very meaningful tax shelter, and we have, obviously, a step-up on basis there. So I'd say, generally, we're in pretty good shape from a tax perspective.

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Operator [25]

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Our next question comes from Sean Steuart with TD Securities.

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Sean Steuart, TD Securities Equity Research - Research Analyst [26]

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A few questions. With respect to the agreement you reached in December regarding the hydro portfolio in Europe, are you guys at a point where you can give us a little bit of detail on the operating parameters for those assets? Any detail you can provide there?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [27]

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Sure. So these are the Spanish hydro assets that we agreed to acquire, subject to regulatory consents. I'd say at this stage, Steuart, the regulatory consent process is actually being handled by the seller, not by us. Obviously, they keep us in the loop. But it was one that we always knew had many hurdles in front of it, just given the historical dynamic between the company, the various unions involved and the region in the country which that the assets were located. So I'd say it's going slowly. And we are hopeful that we can resolve the regulatory approvals in the next few months. But at this stage, it's not -- there's no near-term catalyst to get approvals in place. And we would expect to give you an update likely next quarter on that.

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Sean Steuart, TD Securities Equity Research - Research Analyst [28]

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Okay. And you noted the sale of the Irish wind assets, what looks to be really compelling returns. Can you speak to any thinking on other potential asset sales in the near to mid-term? Or do you wait for TerraForm to close and work through the ROFO structure that you guys envisioned for that transaction?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [29]

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Yes. I'd say, I would just -- I would almost put that transaction aside and just say we have a business to run. And part of our strategy to raise capital and to crystallize value for our shareholders is to sell smaller, discrete portfolios of assets, in particular where we see valuation is above the level where we'd be a buyer. So we have been saying now for 2 years that wind fits that category. Completed contracted wind in good markets fits that bill. And so we would continue this strategy where we find smaller, discrete parts of the business that we could sell. For us the criteria involve not only just creating value, but having a place to put that capital into accretive growth. We want to see shareholder capital compound at the returns that we're talking about. So what we don't want to do is just take the capital and return it back to everybody. We actually want to put it back to work in a new investment that we could generate the type of returns that we target as opposed to where many of the financial investors today are targeting and hence that's the buyer universe. So I would just detach that completely from the transaction and say that one, are we looking for other places to sell down, yes; two, it's likely in our wind fleet; and 3, we're being very careful about it though because we want to make sure that we have places to put the money to work so that -- such that we can create accretion.

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Sean Steuart, TD Securities Equity Research - Research Analyst [30]

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Okay. One last question. The contract profile you guys gave note some larger hydro portfolios with contracts that expire in 2020 and 2021. That's a few years out. But can you give any context on those contract expiries and your thoughts on recontracting options there?

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Nicholas Goodman, Brookfield Renewable Partners L.P. - CFO of BRP Energy Group LP [31]

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Sean, it's Nick. I think we touched on this last quarter. I think the major contract in there that's really rolling off would be one large contract in Québec. We have contract with BAM, which is about 1.4 terawatt-hours a year. And that's like a [CAD 65, CAD 70] contract a year. And so I think when we look at that contract today, that power is sold largely into New England for all products, energy capacity ancillaries. And our view is that when -- even today with that contract, we would be able to breakeven. So from a price risk perspective, we don't believe there's a price risk when that contract expires. And obviously, we'll work to recontract in the meantime. But even right now, we don't see there being a significant risk to the revenue for the business. And we're working hard to look at recontracting opportunities.

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Operator [32]

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Our next question comes from Rupert Merer with National Bank.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - Analyst [33]

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Relatively speaking, how interesting are markets like India and China to BEP? And could we see much of your future growth come from those markets with or without the acquisition of TerraForm Global?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [34]

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Hey, Rupert. Yes, I'd say India, first and foremost, we've now been spending 2 years there on the power side studying the utilities, studying the regulatory framework, understanding the government incentive structures, the feed-in tariffs. Credit quality from utility off-takers is a big issue there. Operational inefficiencies is fairly pervasive, but values are decent. And so what we see in that market is very similar to at various points in the history of Brazil that we saw there, a very large population base, a very undersupplied market, a country in India that imports much of its coal, much of it highly polluting coal to power its grid and is looking for a way to create both domestic sources of power and to reduce pollution in the country, and so you got government support. And so all of that fits in with our thesis that it could be a really great market for us to invest in over the next 50 years like Brazil. But given its risk profile, it is an emerging market, we would be cautious and we would be careful and we would grow, I think, like you see us do in Brazil at a modest pace and making sure that we have a very strong local operating team, we can pursue development and attract higher returns, and then be in a position to obviously repatriate capital and provide us with a really good geography to build upon. So I'd say India, we're more advanced, and I think you will see us investing there irrespective of the current transaction, and we've been trying to. China, I would say, it's still earlier days for us, a very good market, of course, more advanced than India. They have a much more -- much larger installed capacity base but also one where thermal coal is a very, very prevalent part of the supply stack and that they want to diversify away from. And I'd say with China some of the issues that we're mindful of is just property rights and ownership and contractual rights longer term. But we are seeing a healthy level of foreign investment in that country. And we're -- I'd say, we're just a couple of years behind versus India in terms of our research and knowledge of that market. So we won't take it off the table, but it's a little bit of earlier days there.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - Analyst [35]

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If you invest in India, are you leaning one way or another as far as looking at organic developments or M&A?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [36]

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I think in all of these markets, our preference is always to start with M&A through an operational business. One, it just bring cash flows in the door, day 1. It allows you to [pay for seats]. Two, you can then use it and use that platform to then drive a 2-pronged growth strategy with a combination of M&A and organic development. Real luxury we have in BEP is that, we have all of our developments internalized. We have somewhere in the range of 100 people who all they do every day is development work around -- for us around the world. And we can send people to India. We can then work with the teams there and build that capability there. So I think our preference would be to buy into the country and operating business, buy in small and then use that and grow a platform similar to what we did in Ireland, similar to how we started in Brazil. Colombia is a bit of an outlier just because what we bought was such a large scale, but the concepts were the same. So I think you'll see more of an M&A strategy at the outset, but development will surely be on the table in India, and it will be a way for us to differentiate ourselves and generate outsized relative returns.

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Operator [37]

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Our next question is from Andrew Kuske with Crédit Suisse.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [38]

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Maybe just a question on the uncontracted portion of your portfolio, which obviously grows over time and keeping in mind that you've obviously got a lot contracted. But when you look at the market today and all the markets you touched, what are you seeing from really underlying economic activity driving good power demand and maybe ultimately prices versus just say near-term weather-related impacts?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [39]

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Yes. I'd start with just the risk profile to our business and then we can get into sort of the structural elements of the market. As Nick alluded, we have the contract coming due in 2019. Then in 2020, 2021 and 2022, we have 2 contracts coming due from our main assets, like Hydro America was the acquisition we made many, many years ago that was in the fund. Those contracts are all priced in the range of the mid-30s. So I'd say we have the benefit that the contracts that are coming due in the next 5 years are very, very low priced. And if anything, we're actually earning more by selling the power into the market and selling the ancillaries and capacity plus energy then just earning a single price for all 3 or all 4 products. So we're comfortable that the risk profile for the business is sound. Then when you actually get into the market, we've now been in what 7 years of very, very low gas prices, thermal coal retirement and a low growth period in the United States. So I'd say what we've seen in our business is a tremendous level of resiliency. And we've used it rather than sitting tight, we've actually used it to our advantage to go and buy assets and underwrite them on a merchant basis at this level. So what we're very confident in is that if power prices just were to remain low and be in the cyclical low for a protracted period of time, then we would earn the lower end of our underwritten returns which, I would say, generally would be low double digits, and we'd be fine, and we would -- that would be definitely accretive to the business. Would it be in the mid-teens that we target? No. But that's also why we've geographically diversified. We have a development business. And we would use all those other things to blend our returns and get into that mid-teens return range. That being said, we have a tremendous warrant in this business. That warrant is that if power prices go up even by a very modest amount, $5, $10 a megawatt-hour, and you saw a little bit of that warrant play out during the polar vortex 2 winters ago. The sheer impact to our bottom line is significant. And so we feel very confident that if all else being equal nothing changes in this marketplace, we'll earn low double-digit returns on U.S. assets that are very safe, that have 100 years in front of them to generate income, have high cash flow margins. If you get just a modest increase in power prices whether that's because natural gas demand grows through pipeline interconnectivity, through growing demand, through cost of capital going up with interest rates going up modestly in the United States, all of that will be net additive to the business. And it doesn't take a lot then to turn those assets from 11% or 12% returns to 15% to 17% returns. And so we feel pretty good that we have that wind in our back. But definitely, it's something that we're mindful of. And I'd say, Andrew, it's also the reason why we're progressing a contracting strategy that looks to -- looks beyond the utilities and looks to corporate off-takes because we recognize the need to build out the business and actually build the capability to have multiple contracting streams again to bring diversity to your offtake structure. So there's a lot that we are -- of thought we're putting into it, but I think we're in a fortunate position relative to many of our peers where we've actually been able to buy in this environment rather than worrying that our contracts are falling off.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [40]

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That's helpful. Maybe just one follow-up, just on a quick hydrology update around the portfolio and the expectations for this year. Any major deviations from LTA or not?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [41]

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That's a great question, one that I would be lying if I told you that all we ever do is plan for average. Weather patterns change so quickly. To date, reservoirs are in good shape. The spring is evolving the way we saw it. We expect strong inflows through the spring melting season in at least in Canada and the U.S. and north -- and the northeast. So it all looks pretty normal right now. But as we've seen in previous years and, I think, just in the light of the last 2 years we've had with very, very low hydrology, I'd be reticent to say that you can kind of bank on long-term average for the year. It all just looks pretty good right now, but weather pattern change. We could above. We could be below, but we're clearly in for a couple of years been in a low cycle.

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Operator [42]

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Our next question is from Sophie Karp with Guggenheim Securities.

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Sophie Ksenia Karp, Guggenheim Securities, LLC, Research Division - Senior Analyst [43]

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Couple of questions maybe. First on the M&A side, with the TERP in the pipeline, do you feel that you have room for another deal this year? Or is that sort of this is it for 2017? And my second question, if I may, is on the -- I go the other side. We've heard some [ranting] coming out of Washington that the federal government needs to make bigger efforts to preserve baseload generation, maybe [override] space on that. What do you see that progressing? And maybe, are you monitoring that? And how do you think that potential regulatory change may impact your business?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [44]

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Sure, I'll start with your first question. Yes, as Nick outlined in the prepared remarks, we have $1.6 billion of liquidity. We have debt capacity. We have, obviously, capacity to issue preferred equity and common equity. So I think our access to capital is very strong. We don't have plans to issue any paper in the near term, but we have the capacity from a ratings perspective from just a share price perspective. And we've got ample liquidity today. So I think our focus right now on further growth is really looking for opportunities that are unique where we don't have to participate in auction, where we can create meaningful accretion to our shareholders. And if those types of opportunities come on, then we will access the relative markets or just use our existing liquidity position which is pretty healthy and continues to be above $1 billion even post the funding of the 2 TerraForm companies. So I think we're -- on the liquidity side and the funding side, we're in very good shape. On your question around baseload generation, I don't think of that as a political Washington thing. I think that's just more an obvious byproduct of many years of investing in intermittent technology like wind and solar while retiring baseload coal. Simply put, that equation just cannot last. And it's why in addition to us taking a broader macro view on power prices and asymmetric risk profile of investing in hydro, it's also why we always felt that hydro was a great investment because of its baseload nature. And as baseload resources decrease and that scarcity of baseload grows, then the value of what we acquired should increase, and we should be able to monetize that. So I think the fact that Washington is speaking about it now means that what everyone is seeing at the various state and local levels has now made its way up to the feds, and it's a function of reliability of supply, which is what regulators worry about. And so that means a few things. It means that baseload resources should get additive compensation over time to incentivize the build out of baseload resources. It means that storage will become really important and continue to increasingly become important. Whether that's pump storage like we own or batteries that many jurisdictions are now procuring, those are all going to be very important. And it just means that we're in the next stage of the evolution of the power market, which is going to go -- which was previously simply just decarbonized, and now how do you build a reliable grid with a largely renewable and baseload gas resource. And that's something everyone is thinking through now.

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Operator [45]

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(Operator Instructions) And our next question comes from Frederic Bastien with Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division - SVP [46]

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I'd like to push you a little further on the M&A front. Just wondering if you could tell us where you're seeing the best potential for M&A opportunities in the next couple of years? You touched on India and China, but it didn't sound like they ranked high on your target list. So wondering if you could provide a bit color there.

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [47]

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Frederic, it's Sachin. We're seeing a lot of opportunities in the U.S. still, which I think is great because just the risk profile of investing in domestic transactions is low, and we're finding opportunities with excellent returns in North America -- in the U.S. and Canada, I'd say, but in North America. I'd say Europe is tough just because of how much capital is chasing the transactions there, and it's grinding returns down. Brazil is still a really, really strong market. And the aftermath of the recession and the political scandal there is still leaving many, many balance sheets in distress and many sellers looking to shore up their liquidity positions such that they can just run their businesses as opposed to grow. And that means the competition in the field there is still very thin, which is great for us. I think India, I would say India is only a little bit slower today not because there is not a lot of growth, but because we've seen so much competition in that market, many foreign investors went in. And so it's more of how would we position ourselves in that environment to not just compete on a cost of capital basis but to buy accretively and to build accretively. So India is just a different dynamic. It's one that's very healthy competitive and many, many people competing in, in particular foreign capital coming in. So we're just being patient more than anything. So I'd say that sort of the lay of the land for us. But the North American market still looks very, very strong.

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Frederic Bastien, Raymond James Ltd., Research Division - SVP [48]

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That's great to hear. And conversely, I guess, I can probably conclude from your remarks here. Which regions may contribute to recycling initiatives? It sounds like Europe might still be an area of -- where you could source some of those initiatives?

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [49]

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Yes, on a very select basis, Europe, a little bit in the U.S., but I'd say those are really the markets where you see the most significant today low cost of capital chasing deals. The only other market I would that we are spending a lot of time on and I gloss it over because I think of it as North America, but Mexico. And Mexico, again we're just seeing a lot of opportunities to acquire wind, solar with strong development pipelines, and this is just all part of their policy that they set in place 2 years ago around deregulating their power market, bringing in foreign capital. So we actually have people in the ground now in Mexico looking at opportunities. And the benefit of Mexico, setting aside proximity, is just the fact that many of their contractual structures are denominated in U.S. dollars. And so they do have a really good risk profile as a country to invest in. And in light of the elections that we saw in the U.S. in November, it's a market that I think has taken a few knocks from an investor appetite perspective.

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Operator [50]

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There are no more questions at this time. I will now hand the call back over to Sachin Shah for closing comments.

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Sachin G. Shah, Brookfield Renewable Partners L.P. - CEO of BRP Energy Group LP [51]

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Okay. Thank you, operator, and thank you to all of our participants on the call today and everybody listening. We appreciate your support as always. And we will talk to you in the second quarter of 2017. Thank you.

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Operator [52]

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This concludes today's conference call. You may now disconnect your lines. Thank you for participating. And have a pleasant day.