Brookfield Renewable (BEPC +0.00%)(BEP +0.72%) has been an incredible growth stock over the years. The renewable energy giant has expanded its cash flow at a nearly 10% annual per share rate over the last decade. That rapid growth has helped power total returns of 17% annualized over the last two decades, well ahead of the S&P 500's 7% pace during that timeframe.
As good as Brookfield has been in the past, its future looks even brighter. The renewable energy company has made several moves to accelerate its future growth prospects, and it could produce even higher returns in the coming years.
NYSE: BEPC
Key Data Points
Tailwinds growing stronger
Brookfield Renewable recently held its annual Investor Day. The big takeaway is that the decarbonization tailwinds driving its business have strengthened over the past year. That puts its business is in an even better position than it was a year ago, when it noted that the tailwinds driving its growth had never been stronger.
It's seeing accelerating demand for decarbonization solutions, driven by increasing government incentives, energy security concerns, and inflation. These drivers have boosted the company's confidence in its long-term growth forecast. It sees a quartet of power sources driving 10%-plus growth in its funds from operation (FFO) per share through at least 2027:
- Inflation escalation on its existing power purchase agreements should add 2% to 3% to its FFO per share each year as it increases contract rates in line with inflation.
- Margin enhancement activities such as recontracting assets as existing contracts expire to higher market prices should increase its FFO per share by 2% to 4% annually.
- Investments to build out its extensive development pipeline should add another 3% to 5% to its annual FFO per share.
- Merger and acquisition activities could add up to another 9% to its FFO per share each year.
That's up to 20% annual FFO per share growth, 8% of which Brookfield said it has already secured and funded. That baseline easily supports the company's plan to grow its dividend payment by 5% to 9% per year. Meanwhile, Brookfield has enormous financial flexibility thanks to its strong balance sheet, capital recycling initiatives, and recently closed $15 billion Global Energy Transition Fund to pursue additional developments and M&A opportunities.
Adding more power
Brookfield has been actively adding to its investment opportunity set this year. It has already secured $3.5 billion of new investments in the North American clean energy sector alone, which it will fund through its investment in its transition fund. The company most recently agreed to invest up to $2 billion in Scout Clean Energy and Standard Solar.
The company and its partners agreed to acquire Scout for $1 billion and potentially invest an additional $350 million (Brookfield will fund $270 million of this investment). Scout's portfolio includes over 1.2 gigawatts (GW) of operating wind energy assets, including 400 megawatts (MW) it manages for third parties. Scout brings a portfolio of over 22 GW of wind, solar, and storage projects, including about 2.5 GW of under construction and advanced-stage projects.
Brookfield and its partners also bought Standard Solar, a leading commercial and community solar operator. They paid $540 million and will invest an additional $160 million to support its growth, with Brookfield funding $140 million of the total investment. The company has 500 MW of operating and under construction assets and a nearly 2 GW pipeline.
These deals complement its recent investments in Urban Grid and carbon capture and storage (CCS). It's investing up to $650 million into Urban Grid, which has a 20 GW utility-scale solar and energy storage project pipeline. Meanwhile, it's investing up to $750 million into Entropy and a joint venture with California Resources, which are building leading CCS platforms in Canada and California. The investments across four clean energy asset classes provide it with diverse sources of growth.
Brookfield underwrote these investments before the U.S. passed the Inflation Reduction Act (IRA), which will provide more incentives for clean energy development. Those additional incentives will significantly boost each of those businesses and the company's legacy operations in the country. That could empower the company to grow even faster over the coming years.
Powerful growth ahead
Brookfield Renewable has already secured the projects and funding to grow its FFO per share at an 8% annual rate through 2027. However, thanks to recent investments, its strong balance sheet, and the IRA's passage, it could grow by as much as 20% per year. That's almost twice as fast as it delivered over the last decade. Add in its nearly 4%-yielding dividend, and Brookfield could produce powerful returns for investors in the coming years, making it a great growth stock to buy for the long-term.
