Earnings Call: Q4 2017

Feb 7, 2018

Thank you for standing by. This is the conference operator. Welcome to the Brookfield Renewable Partners L.P. Fourth Quarter and Year-End 2017 Conference Call and Webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star, then 0. At this time, I would like to turn the conference over to Sachin Shah, Chief Executive Officer. Please go ahead. Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and 2017 year-end 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. I'm pleased to announce, with the support of our Board of Directors, the appointment of Wyatt Hartley as Chief Financial Officer. Wyatt joined Brookfield in 2010, and he has held several senior finance positions within the organization. His strong experience in finance and asset management will be key to supporting our growth strategy. Wyatt will succeed Nicholas Goodman, who is assuming the role of Group Treasurer for Brookfield Asset Management, and Brookfield Renewable will therefore continue to benefit from his advice and counsel. We continue to advance our strategy of growing our renewables business on a value-enhancing basis. Now in our twentieth year of operations and having delivered a 17% compounded annual growth rate since inception, we are looking towards continued future growth. Our strategy is simple. Acquire renewable power assets and businesses at below intrinsic value, finance them on an investment-grade basis, and optimize cash flow and value utilizing our depth of operating expertise. This strategy has proved to be effective over many years and through many cycles. Looking ahead, we believe the opportunity to create value for our unit holders will only increase as the world transitions away from carbon-producing power sources. This transition will likely take many decades, enormous amounts of global investment, and significant expertise. The world's advanced economies are still in the very early stages of replacing much of the thermal, centralized generation with a mix of centralized and decentralized renewable technologies. As a result, we have made a concerted effort to ensure our business is well-positioned to prosper during this transition. Over the last five years, we have diversified the business into a global multi-technology, renewable power owner and operator. During this period, we have grown our FFO per unit by 8% annually and increased our distribution per unit by 6% per year. More importantly, we have embedded the business with significant upside in the future. We now have substantial businesses in North and South America, Europe, and Asia that will support future growth in multiple markets and will allow us to focus our investment in regions where the risk-return proposition is strongest. We also have operating expertise across hydro, wind, solar, storage, and distributed generation assets, and we have amassed a 7,000 MW development pipeline, which we expect to provide, over time, excellent investment opportunities at premium returns. Lastly, we have maintained a strong balance sheet characterized by a high level of liquidity, financial flexibility, access to multiple sources of capital, and an investment-grade profile. 2017 was a particularly strong year for the business. We delivered a total return to our shareholders of approximately 25% during the year, and the business continued to perform well with all of our operational groups delivering on asset availability, development, and margin maximization targets. These factors, combined with above-average generation, resulted in a 31% increase in FFO per unit over the prior year. In the fourth quarter, we and our institutional partners closed the acquisitions of 51% of TerraForm Power and 100% of TerraForm Global. Combined, these two transactions added 3,600 MW of long-duration contracted solar and wind assets to our portfolio. The assets are fully operational and virtually all recently built with an average portfolio age of approximately 5 years. The assets are located primarily in our core markets of the U.S., Canada, and Brazil, while also adding small portfolios of operating assets in India and China. Since our acquisition, we have taken meaningful strides to both strengthen TerraForm Power's balance sheet and grow the business. Subsequent to close of our transaction, TerraForm Power executed a broad refinancing plan by purchasing and reissuing $1.6 billion of new unsecured and secured bonds. This transaction extended the company's overall maturity profile to 10 years, greatly improving overall financial flexibility through improved covenants and reduced annual interest costs by almost $20 million per year. Just today, TerraForm Power announced a $1.2 billion offer to acquire 100% of Saeta Yield, a 1,000 MW European solar and wind portfolio. The transaction is expected to be accretive on day one to existing shareholders and should provide compelling opportunities for follow-on investment. Since closing the acquisition of TerraForm Global, we have begun the process of integrating the assets into our existing operations in Brazil and establishing new offices and advancing growth opportunities in India and China. In light of the above-mentioned results, and with the strong growth ahead of us, we are pleased to announce that our board of directors has declared a 5% increase in our quarterly distribution, bringing our annual payout to $1.96 per unit. I'll now turn the call over to Wyatt to discuss our operating results and financial position. Wyatt? Thank you, Sachin, and good morning, everyone. We remain focused on driving cash flow growth from existing operations. This includes inflation escalations in our contracts, margin expansion through revenue growth and cost reduction initiatives, as well as building out our development pipeline at premium returns. These operational levers underpin our 5%-9% target distribution growth. In 2017, we delivered FFO of $581 million, a 31% increase over the prior year on a per unit basis. This was supported by the advancement of our organic growth initiatives, improvement in generation levels, and contribution from new acquisitions. Our revenues continue to be largely contracted across the business with over 90% of generation contracted and an average PPA term of 15 years. Combining this with our very stable cost profile, we benefit from a high degree of margin predictability, with the only meaningful variance to results being the underlying generation resource. The small exposure we do have to market prices is primarily within our hydro assets, which during the year reported $687 million of FFO, supported by generation above long-term average. Generation in North America was particularly strong at 7% above average, and we ended the year with reservoirs above long-term average levels. In Brazil, our energy marketing team actively managed our power to protect the business against low hydrology while capturing higher prices. Accordingly, we secured new PPAs for both existing assets and development sites at an average price of BRL 230 per MWh. In the fourth quarter, we secured a 30-year PPA that begins in 2023 at an inflation index price of BRL 221 per MWh for our 30-MW hydro site located in the southeast of the country. We expect to commence construction on this project in 2018. Generation in Colombia was above average during 2017. Our priority in this market continues to be the creation of a longer-term contract market. We signed nine PPAs during the year with an average term of between five and 10 years. Although volumes remain small, we are making progress in this regard. Our wind facilities delivered $105 million of FFO in 2017. Generation in our wind fleet was 9% below the long-term average during the year, with much of the shortfall in North America. Our portfolio in Brazil continues to outperform our expectations with capacity factors that regularly exceed 40%. We added further wind assets to this portfolio during the year through the acquisition of TerraForm Global. In Europe, we continue to build our wind business largely through a development strategy that generates mid-teen returns in a market where operating assets trade at very high multiples. We monetized two wind farms during the year to take advantage of this value differential, repatriating $150 million to our investors in the project or $60 million to Brookfield Renewable and crystallizing a 35% return on our invested capital. Our solar portfolio consists of over 1,000 MW of utility-scale solar and 400 MW of distributed solar generation. The vast majority of these assets are located in the United States and are supported by high-quality utility-grade contracts with an average term of 18 years. These facilities were acquired in the fourth quarter through our TerraForm Power and TerraForm Global acquisitions and therefore contributed modestly to FFO in 2017. In 2018, these assets are poised to contribute strongly to our performance. The recent tariffs on solar panels in the United States will likely modestly slow the pace of development in the near term and, at a minimum, will increase installed system costs. This will reflect well on in-place assets. In spite of this, we do not think these tariffs will have significant long-term impact on the adoption of solar as a bulk energy provider given how dramatically costs have declined in the last decade, far offsetting the impact of tariffs, the simplicity of the technology and speed at which it can be developed, and its obvious environmental attributes. Accordingly, we remain focused on growing this part of our business through both acquisition and development. We own and operate interest in three pumped storage facilities in the United States and the United Kingdom, which contributed $17 million to FFO in 2017. We made our first investment into the European storage sector in the third quarter of this year with the acquisition of our interest in the 2,100 MW First Hydro pumped storage portfolio. These assets benefit from revenues that are tied largely to critical ancillary services, which help stabilize the grid and provide the market with backup power. As a result, they represent a very stable source of cash flow, which is not correlated to market prices. We believe that the value of these storage assets in the United States and the United Kingdom will benefit over time from further penetration of intermittent wind and solar assets into the grid, replacing base load generation. Even with the advancement of batteries, these assets are unique, given their size, scale, and speed at which they can deliver the various grid stabilization services. We remain focused on a conservative financing strategy to ensure cash flow resiliency through the cycle. We maintain a disciplined funding approach, and our liquidity position at year-end exceeds $1.5 billion. In 2017, we continued to access multiple sources of capital, including through the preferred equity and equity capital markets, in addition to completing several up-financing initiatives. We completed $1.6 billion of project-level refinancings, including the issuance of 3 green bonds for an aggregate value of $1.1 billion. As with the sale of the 2 Irish wind farms this year, the strategy of redeploying recycled capital from mature, de-risked assets into new value-based opportunities is one that we expect to execute on opportunistically going forward. As we look to 2018, we remain focused on progressing our key priorities, including advancing our development pipeline, servicing margin expansion opportunities, and assessing select contracting opportunities across the portfolio. We believe the renewable investment environment remains favorable and continue to advance our transaction pipeline. With our largely perpetual asset base, high cash margins, organic growth levers, robust transaction pipeline, investment-grade balance sheet, ample liquidity and access to capital, we believe that we have built a business that is able to generate strong returns over the long term. Nevertheless, we remain focused on growing the business prudently and are committed to delivering total returns to unit holders over the long term of 12%-15% per unit. That concludes our formal remarks. Thank you for joining us this morning. We'd be pleased to take your questions at this time. Operator? We will now begin the question-and-answer session. To join the question queue, you may press star then one on your touch tone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead. Your line is open. Thank you. Good morning. I guess we'll go with the leadoff question to Wyatt. You know, given the time you spent at TERP in the last little while, could you maybe just outline some of the actions you took there? Does this provide possible validation of the Brookfield playbook for further distressed investing opportunities, whether it be Saeta or other things globally? Yeah. Thank you, Andrew. I think from the outset, the first thing that we did would be the financing. As Sachin mentioned, we raised $1.6 billion of financings, both in the secured and unsecured credit market, which created not only extending our maturities to 10 years as well as significantly reducing interest costs, but as importantly, reducing a number of the financial covenants that give us the flexibility that we're very focused on when we look at financing a business in Brookfield. Secondly, from a growth perspective, I think we did two things. One, we recalibrated the market and established a growth target that we think is achievable over the long term. Secondly, the Saeta's transaction that we announced today clearly demonstrates the value that Brookfield brings to Saeta as a sponsor with a highly accretive transaction within six months of closing the deal. Maybe, Andrew, just to add a few things around our role in this. You know, one of the benefits that we were always communicating to existing TerraForm shareholders and hopefully new TerraForm shareholders is that we, as sponsor, will bring significant stability to the business and obviously our ability to grow and financial strength. If you look at the refinancing package that we were able to put in place, the banks we were able to bring into the revolver, our ability to find transactions. Some of that's luck. You know, you don't come out of the gate with a business with a big deal like this. We were fortunate to be able to have this announcement this morning. Most importantly, if you look at the last week in a choppy capital market, you know, the benefit of having a sponsor like Brookfield Asset Management is the company has this deal fully funded. The $1.2 billion the company will need, it is a function of $400 million of equity that it'll issue backstop fully by Brookfield Asset Management. Second, the $800 million of liquidity comes from the existing sponsor line that Brookfield provided as part of the transaction, plus the available credit facilities that were put in place post our acquisition, where we are able to bring in relationship banks. So if you look at across the board, you know, I'd say we've been able to support that business and really create momentum around its future, in a way that very few other sponsors could. I think that's one of the signatures of having us stand behind a company and supporting it more on a long-term basis. Lastly, I'd say just as part of the overall transaction in October, we took great effort to clean up the share structure. Everyone owns the same class of shares. It's just a class A share. We own 51%, so by virtue of that, we're just the largest shareholder along with everybody else. We, the broader Brookfield Group. This is great for Brookfield Renewable. We have a platform with a low cost of capital that we can use to continue to grow and continue to put money to work in great investments, but in a diversified way. I think there's a benefit here for all, for everyone. We were fortunate to be able to announce a good transaction this morning that hopefully will be completed by the end of the year. That, that's very helpful. Maybe just as a follow-up, and it's very clear just the liquidity you have at the BREP level. Maybe if you could give us a bit of broader context on how much dry powder is left in the Brookfield Infrastructure Fund III or any other available liquidity sources at really the BAM private funds. Sure. So you're right. At BREP, we have $1.5 billion of liquidity currently within our funds. I would say, as it relates to renewables, we have in the range of $2 billion of remaining liquidity for this series of funds. Obviously, BAM has a significant balance sheet and significant existing liquidity. I'd say across the group, between the liquidity we have, I'm speaking only in relation to renewables now, you know, we would be very comfortable with having somewhere in the range of $3.5 billion-$4 billion of total system liquidity that we could allocate to these types of transactions. That is just a huge differentiator in today's market, in particular, if markets do become choppy, both on the equity and the credit side. you know, we feel quite confident that we're in a great position, and we can look at select value opportunities to grow the business. Just for clarity, that 3-4 doesn't account for potential co-invests or successor funds that could be raised in the future. Correct. The two is just what's dedicated to our funds, and then obviously, our fund partners love co-invest. It's one of the features that they sign up for with us. You know, you can never put an exact number on that, but it's meaningful. And obviously, because of the size and scale of the institutions, whether they're sovereign wealth funds or pension plans who invest alongside of us, their co-investment programs are quite large. I would say there's obviously additional capital on the sidelines that we could call upon. But to put a number on it would probably be a little bit overly acute. Fair enough. Thank you. Thanks, Andrew. Your next question comes from the line of Rupert Merer from National Bank. Please go ahead. Your line is open. Hi, good morning, and congratulations, Wyatt and Nick, on your new positions. We've seen a flurry of M&A recently, of course, TerraForm's buying Saeta Yield, but we also saw the announced acquisition of 8point3 earlier this week, and NRG announced it's selling some assets this morning. Now, you mentioned you have a robust pipeline. I'm just wondering if you could give us a little more color on the state of the market for M&A. Are you seeing rational prices on assets in the market? And are price expectations changing at all with rising bond yields? I'll come back to bond yields at the end. Rupert, I think you're pointing out some interesting facts that are in the market today. To be honest, this is not new. This has been around for the last 5 years as bond rates have been low. I know they're rising a little bit right now. I'd say actually over the last 7-8 years we have seen a market where contracted renewables trade at a very, very healthy multiple. This shouldn't be new to anyone. You know, saw CAFD trade at, you know, north of 14x energy. You could do the math. You know, similarly, we saw a number of yieldcos with new sponsorship or new investment in them over the last year and a half off the back of the work we were doing with TerraForm. Prior to that, you would see, you know, all the old yieldcos or the private infrastructure asset managers or pension plans willing to live with a single-digit return on a long-duration stream of cash flow. Often that was being rationalized because bond yields were so low, and they were looking at it as a spread relative to those bond yields. We just could never get our minds around that because, you know, we have a target return that we wanna generate for our shareholders, and we're not gonna just grow for the sake of growth. For us, it was very important to be able to do different things. You know, I know I'm beating a bit of a dead horse here, but that's why we spent a lot of time focusing on hydro and making sure we were buying effectively a call option on the future and a reasonably good return along the way. It's why when we saw an opportunity like TerraForm that we executed very quickly and were able to secure something, you know, closer to the 8-8.5x multiple as a way to buy bulk solar and wind relative to where we see market multiples. I think, you know, we continue to believe that the market has an excess amount of capital. Transactions trade at values that we otherwise couldn't get ourselves comfortable. Saeta is another good example. You know, our bid for Saeta is. Again, we haven't put it out publicly, but it is at a very, very strong value. We think that it's great for the TerraForm business. I don't think that phenomenon is gonna change. Now coming back to your last point, I don't think that will change even with bond yields going up, as long as they go up modestly. As long as interest rates go up in a sort of a measured way with an uptick in inflation and growth in the economy in the United States, but still stay quite low, we think that there is a significant amount of capital on the sidelines. There's a lot of transaction activity in the renewable space, and we think that people will pay a healthy multiple to acquire assets, and we will continue to have to find unique and creative ways to grow this business. On the other hand, obviously, if rates go up very quickly, then I think we are really well-positioned because we have a strong balance sheet, a lot of liquidity, and we'll find tremendous deep value opportunities. I think, you know, if we start to see sort of a normalization of the rate environment after a decade of artificially low U.S. Treasuries, well, then we'll just keep doing what we're doing. If we see inflation pick up ahead of expectations, the ten-year move quickly up through 3%, and even get closer to 4, then I think we're really well-positioned. Remember, a lot of investors in our space have also built their businesses with sub-investment grade balance sheets, which is also in part why the whole sector has turned over. I think we're really well-positioned, and we're looking forward to whatever environment comes up to be active. With your excess liquidity position you discussed and with this robust pipeline, do you anticipate you'll be able to put all that liquidity to work this year? You know, we never think of it that way, Rupert. I mean, we tell the market that, you know, we think realistically, we can put kind of circa $600 million of equity to work per year. You know, we've been fortunate to hit that. Some years it'll be more, some years it'll be less. We don't run our investment program to put a certain amount of money to work. We run it to find good deals that are accretive, that meet our return thresholds. We build the business in a way where, you know, all the organic growth levers that Wyatt mentioned, and previously Nick had mentioned, are there to help support the distribution growth without needing M&A. You know, the fact that we can increase margin in our businesses, the fact that we have an ongoing development program, our recontracting initiatives in parts of the world where power prices are strong, all of that, we feel comfortably gives us a window to be able to grow the distribution at the lower end of our range right now. M&A is just additive. I'd hate to say that, you know, we are gonna absolutely put the money to work, but the investment environment is quite strong right now. Very good. Thank you. Your next question comes from the line of Sean Steuart from TD Securities. Please go ahead. Your line is open. Thanks. Good morning, everyone, and congratulations to Wyatt and to Nick. A few questions. Just first on the Saeta deal, you mentioned, Sachin, the $400 million TERP equity issue backstop by Brookfield. Is that all at the BAM level? Does BEP at the BEP level do you anticipate participating on a pro rata basis for that backstop? Yeah. We anticipate participating on a pro rata basis. Okay. Outside of TerraForm, you referenced in the prepared remarks a successful refinancing initiatives in 2017. Can you give us some context on 2018 options on that front, given a rising rate environment? With respect to TerraForm or more broadly? Outside, more broadly. Yeah, look, I think the low-hanging fruit for us was obviously TerraForm Power and TerraForm Global, both that had a very high coupon debt that had you know covenants that we wouldn't otherwise normally subscribe to and were just a function of the legacy ownership of that business. I think, you know, having gotten TerraForm Power completed, that was great. TerraForm Global, we're just in the market now trying to refinance that portfolio. We'll obviously be patient and wanna have good execution. More broadly, the business is really in good shape. We have good duration across our project-level debt. You know, we have circa 10 years of average duration. We size all of our project-level debt to investment-grade parameters, so we don't have high coupons or poor weak covenant packages that are kind of encumbering the business. Our corporate debt is all, again, investment-grade. We feel pretty good about the rest of the business, and there's really no pressure to have to get something done. That being said, while rates are low and the market is active, we'll just continue to chip away and push that duration out and keep locking in low interest rates. I don't think there's gonna be any sort of step change in our strategy other than with new acquisitions where we're inheriting a weaker capital structure. We wanna clean that up. Got it. The last question I had was on the dividend hike. You had better generation relative to LTA in 2017, successful M&A, good FFO per share growth. The 5% hike is still at the low end of your long-term guidance range. Should we read that as you guys just being conservative given still relatively high payout ratios? How should we think about that increase in the grand scheme of things? Yeah. I think there's a number of factors that go into staying at the low end that we've been communicating. Obviously, the high payout ratio is one thing that we wanna just make sure that we continue to chip away, and we feel pretty confident that we're now getting to a much better place. Two is that, you know, with the generation part of it, that part we don't get too stressed about bad years or good years. Like, yeah, it's great that we had a good year, but that doesn't drive our thinking. We'll never increase the distribution because we were above average. Correspondingly, we'll never go to the lower end because we were below average. That's something that we take a much more long-term view on. Lastly, I just say, you know, in light of my earlier comments, where broadly the industry is presenting more and more growth opportunity, and we're at this unique juncture where, you know, you could have rates uptick, and we could see deep value opportunities, or you could just see more of the same, but the industry is growing. We just wanna keep a significant amount of dry powder to be able to participate and continue to grow the business. Staying at the low end for us for the foreseeable future is just the right overall tactic to take in that regard. Got it. Okay, that's all I had. Thanks, Sachin. Thanks. Your next question comes from the line of Nelson Ng from RBC Capital Markets. Please go ahead. Your line is open. Great, thanks. Just a quick question on, I think, Wyatt, you mentioned the 30-year PPA in Brazil that starts in 2023 for a 30-megawatt hydro site. Could you just give a bit more color in terms of, like, why it's a 30-year contract at a with a late start date? Is it a bilateral contract? I guess, do you expect more, I guess, much longer term, like 20- or 30-year PPAs in Brazil? Hey, Nelson, it's Sachin. Just on that was a development project. It's 100% owned by BEP. It should contribute circa $8 million-$10 million of FFO per year once the asset is completed. The structure of the contract is actually nothing unique. It's part of the regulated market. This was a government auction. The government comes out with auctions every year, typically looking for power to be provided to the market in the future. This would have been an N minus six auction. It would have come out in 2017. What that generally means is they're looking for power six years from that date. We would have bid into it. We actually bid a few facilities into the auction. One of them we secured, which was this one, the 30-megawatt hydro. There was another one that the auction cleared at a price that was lower than what we were comfortable with. It's fine. You know, we'll keep that project in our pipeline, and we'll just stay disciplined and continue to make sure that we target the right level of return for our projects. Nothing unique. 30-year government PPA, inflation indexed, part of their auction mechanism. We have a great pipeline in Brazil, and we typically sell our assets into these government auctions where you get really, really nice inflation-protected cash flows. Okay. In terms of the inflation protection, does that, like, relative to, I guess, from a U.S. dollar perspective, does the inflation, is that a good compensation for, I guess, the difference in longer-term FX rates? Yeah. I would say, first of all, in Brazil, they changed the base inflation metric that they apply to these contracts. There used to be one called IGPM, which historically provided sort of partial hedge against the U.S. dollar. They've moved to a straight sort of their version of CPI. It's called IPCA, and that's just a consumer basket of goods. I'd say either way, these are great from a broad sort of macro hedge against the U.S. dollar because obviously inflation differentials do drive currency value in the long term. From our perspective, you know, having full inflation pass through on our contracts just helps preserve and actually grow our margins over time. It's not perfect. We do fully expect that, you know, over time, we will take some volatility on the Brazilian currency because we don't otherwise hedge it. We do get, you know, the protection against inflation, and that should be the biggest worry is if you're in a highly inflationary economy, you wanna make sure that your revenues are catching up to a degradation of the currency value. Okay. Thanks, Sachin. Just one other follow-up on Brazil. Could you just talk about the hydrology and reservoir levels in general? I believe we're kind of in the rainy season, so like, have you seen any improvements on the- Yeah. I guess, reservoir levels? Yeah, it's been a decent rainy season so far, so reservoir levels have improved. You know, they've never really recovered from the drought 2.5 years ago, so they kind of were well below average. Even though we've had a few good rainy seasons, they just, you know, that gets offset by the fact that growth is back in the country. We're starting to see an uptick in GDP. More importantly, we're seeing power demand start to grow again. These are all good things. Like, these are nice problems to have when you run a power business, that power demand is growing again and the economic engine of the country is growing again. I'd say we just position the business for some volatility around generation and power prices, and the way we do that is simple. We keep our level of contracting, you know, down into the mid-70s%, as it relates to anything we sell in the open market. That way, if there is a bit of a shortage of power, we don't get caught short. Conversely, when power prices spike, we have a little bit of length in the portfolio that we can capture that premium against. It's a nice feature to have. It also is a great way for us to then go out and meet counterparties because we do have length and secure bilateral contracting opportunities. Okay, great. Thanks, Sachin. Your next question comes from the line of Ben Pham from BMO. Please go ahead. Your line is open. Thanks. Good morning. I had a follow-up question on the Saeta transaction. When TERP was looking at that, can you remind me, did they have a first right offer on looking at that acquisition? Sorry, this is a third-party transaction, so there's no concept of right of first offer. It's just an M&A transaction with a third party. When you acquired TerraForm Power, was there any sort of preferential treatment that TERP would have going forward in terms of what they could buy and not buy? No, they have a mandate. Okay. Their mandate is to buy operating wind and solar in North America and Western Europe. This fits into that mandate, so we would, of course, buy it through TerraForm. There's no preferential treatment, there's no ROFO in relation to third-party transactions. It's just that the mandate is to buy operating wind and solar through that business in those two markets, North America and Western Europe. Okay. All right. Thanks for clarifying that. Then really from the BEP shareholder perspective, then it's really you guys would then look at the potential accretion if you were to buy Saeta directly versus TERP doing it, and then that flows directly to your benefit indirectly in a BEP perspective. Is that the thought process there, or is it even- No, I wouldn't look at it that way. I mean, I would look at it more like today for BREP, everything we buy is through a fund. When we buy things through the fund, we generally take up somewhere between 25% and 30% of the investment. Having the fund gives us this great ability to bring more capital to bear to a transaction, looking at larger and more unique things that, you know, you can look at the last five years of what we've been able to do with that. TerraForm is just another fund. It's a fund that happens to be public, but it's still managed by Brookfield. Rather than putting 25%-30% into each deal, today we're putting 16%. I suspect over time, as the company grows and issues more equity, that 16% will grow. You know, over time, it should look very similar. The only difference is rather than it being a private fund, it's a public fund. But for BREP, it's exactly the same. We're investing through a fund into assets that we otherwise love to own, but we don't put undue stress on BREP from a capital commitment perspective as a result of it. Okay. I got it. More detailed question next, Vlasios, you mentioned Louisiana, the pricing step down and wondering if there's anything else to think about in terms of pricing downside this year or next year. No. Louisiana stepped down, I believe last year or this year, sorry. There's no more step-downs now until the end of the contract period. In the portfolio broadly, let's just go through it. The only other contract that we have that's expiring. It's not actually stepping down, but it's terminating in one of our hydros in Canada, Lièvre, which sells all of its power into New England. That contract is today on energy, capacity and all ancillary products at circa $50 U.S. all in. That would be pretty consistent with what we get in the markets if we were to disaggregate all the products and sell, you know, the energy, sell the capacity, sell the ancillary products. We're getting in and around that same amount. Although that contract is expiring at the end of 2019, today it's pretty much flat with the market, and we don't expect any major uptick or downtick from the expiry of that contract. Okay. All right. Thanks, Patrick. Thanks, everybody. No problem. Your next question comes from the line of Robert Hope from Scotiabank. Please go ahead. Your line is open. Good morning, everyone. Two questions. The first, going back to the M&A theme. We saw TERP move rather quickly with Saeta. When you look at global and some of the, you know, more diverse geographies, be it India or China, do you have the same level of confidence as of right now in those geographies to make such a large acquisitions, or are you still dipping your toe in? You know, everything is opportunistic for us. I'd say Saeta is one where although it appears from a public context that we moved very quickly, the reality is all of these things take time. You follow companies for many years, you form a view on them. You talk to counterparties over many years. Often you talk to them multiple times, and things just take time. I would say there was nothing different in this transaction. It wasn't something where you know, it was unique in terms of its speed or time. You know, thankfully, we had supportive shareholders in the business who saw a good transaction and were willing to execute with us. I think with India and China, you know, India is a very, very active market, and the level of foreign direct investment in the country is very high as it relates to renewables. If anything, in India, we just find that the values are just higher than we could otherwise be comfortable with today. If we found the right opportunity, and if we found it at a value that we were comfortable with, we'd be very comfortable moving quickly. China's a little different. Less foreign direct investment, less ownership that's not held by sort of state-owned entities. That just makes it harder because, you know, things don't trade as much. There isn't that sort of third-party environment in China that exists today that we expect that over time will develop, and hence why we think it's important to be there in a measured way. All right. I appreciate the color. Just moving over to Brazil, the recontracting of the existing assets in, let's call it the low $70s U.S. You know, that's below kind of the, what you were putting forward at your Investor Day, which would have been north of 80. You know, when do you think, you know, the recontracting upside with Brazil could come through? Yeah, I think it's a little bit challenging to look at it in U.S. dollars. I know we present it that way to keep the story simple, but the reality is that market, if you take that 70 on its face value, you have to also look at it relative to the construction cost of the project that you're developing. Project construction costs and development costs are very site-specific. It depends for that one, for example, you know, it's a high head river in a really well located part of the southeast region of the country where significant load exists. Power prices are very high and basis risk is very low because there's significant transmission activity in that part of the country. You can take a lower price but actually generate a far better return because your embedded investment cost is lower and the risk profile of the asset is lower. I think just looking at sort of whether it's 70 or 80 can be misleading. We could easily do a transaction at 80 on a bilateral basis, but build a much weaker project, and I'd say our returns would be worse off for it. You know, I think 80 is just a bit of a way for us to provide a simpler story, but I think the truth of it comes down to each project and project-specific attributes. Thank you. Okay. Your next question comes from the line of Mark Jarvi from CIBC Capital Markets. Please go ahead. Your line is open. Morning, everyone. Just wanted to clarify quickly on the Saeta Yield transaction. Maybe just clarify when the timing of your equity commitments are for either the irrevocable component and the subsequent tender offer would be. The company signed its irrevocables, obviously last night, which means that greater than 50% of the shareholders are now committed and bound to the deal at $12.20. The voluntary tender offer will be launched over the next, I'd say, 6-8 weeks, post-regulatory review and some other securities review that needs to get done. We expect that to happen in the normal course. Once that's launched, it's outstanding for, I believe, 90 days. We spend time with shareholders, and the company spends time with shareholders, explaining to them the value of the deal. The real benefit we have is, having more than 50% support and having locked up more than 50% of the shares. There are two important things. One is to privatize the company and to squeeze out the minority. You need to get to 90%, including the 50% that is already tendered. Two, to delist the company, you need simple majority. We already have enough shares that we could affect a delisting of the company. The whole process, though, I suspect from beginning to end, will likely get us into late third quarter, maybe early fourth quarter. The first tranche, we should expect you guys to commit some equity in the first quarter here now with the irrevocable No, no. 'Cause although those shares are committed. Okay. Irrevocable, you fund them at the same time you fund everybody else. Best case scenario, it's sort of mid to late summer. To the extent that there's it runs sort of more on a normal basis, I would say Q3. Okay. That's helpful. Thanks. Just broadly on tax reform, beyond what maybe the impact is to you as a company, but how do you see it impacting power price in the U.S.? Should we think that the marginal cost to produce is gonna come down if cash taxes go lower? Or what's the view in terms of sort of corporate tax reform on U.S. power prices? Yeah, I think there's a few things in there. First of all, I think it spells the end of tax equity longer term. As a result of that, you get rid of this sort of artificial subsidy that lowers the cost of capital that has been a bit of a drag on power prices. You bring back to replace that level of debt, 'cause effectively, tax equity is just a form of debt. To replace that, you move back more into a traditional project finance market where, you know, in our view, lenders spend more time looking at the overall credit profile and covenants become more punishing once they fall out of investment grade. I think, all else being equal, that with the tax reform, you'll start to see a more rational capital stack against a lot of these projects that have been developed today with tax equity and back leverage, which, you know, really means the equity owner puts very, very little skin in the game, and then can accept a very, very low power price to generate a mediocre return. We believe that will start to clean itself up and rationalize as tax equity falls away and project finance becomes the primary source of funding. Then second, if you look at the back end with lower tax rates, you know, I think it comes down to this is more of a macro question. I'm probably not, you know, the expert to be able to speak to this, but in our simplistic view, look, lower tax rates more broadly in the United States will drive economic growth, will drive reinvestment in the economy. That's already having people talk about inflation pressure, which is then driving a discussion on interest rates and the back end of the ten-year curve. If all of that happens, I think the cost of capital broadly in the United States goes up, and it's what we talked about earlier. Does it go up modestly and you start to get a more normal ten-year, or does it go up quickly and things kind of whipsaw? That's what I think the market is struggling with today. In either scenario, our view is if cost of capital goes up, projects become more expensive. That puts a little bit of pressure under power prices, and power prices, all else being equal, should rise over the longer term. It's been a long time since power prices have risen, so it's difficult to predict that. Okay. Thanks for those comments. Maybe this one's for Wyatt, but you guys have talked about pulling some costs out of the business and had suggested you made good progress on that. How should we think about how those are gonna be spread out across the business? Are they confined more to one operating geography, or should they kind of be proportioned across all your different platforms? Yes. Thanks, Mark. I think we laid this out on our investor day, and it's currently in our corporate profile, but I think you should broadly think about this as spread out through our operating platforms. Now, obviously, the platforms are of different size. Maybe in North America, we do have an ability to extract a bit more cost savings. Broadly speaking, we're looking at each region and looking to optimize costs in each of those businesses. Okay. Thanks, guys. Your next question comes from the line of Jeremy Rosenfield from Industrial Alliance. Please go ahead. Your line is open. Yeah, thanks. Just maybe one cleanup question. The U.S. Northeast power market recently has seen a big spike in the price of power, obviously off the back of spiking gas prices. I'm just curious if there has been any sort of read-through or if you've been able to capture some of that upside in early Q1 so far, and you know, just overall from a business strategy perspective, if you think that this type of situation may continue to occur in the future, whether you position yourself more openly as some contracts roll off down the line. For the benefit of the callers, I think everyone knows that in the Northeast United States, you know, we had a few weeks of very, very cold temperatures. That put significant pressure on grids in New England and PJM in New York, and hence, power prices spiked, and we saw some unplanned outages of units in that sector as well. You know, look, to answer your question, first of all, did we benefit from it? Yes, absolutely. We do have leverage in our portfolio. As everyone knows, we bought a number of merchant assets over the last 5 years at very, very low and historically low power prices, and we've kept our leverage. We haven't secured long-term contracts for those projects because we didn't see there being value in doing so in a low-price market. We felt comfortable we were buying with significant downside protection. We benefited, absolutely. You know, a couple of weeks of high prices, though, I wouldn't suggest that it warrants a change in strategy. I think our strategy is pretty simple. When we buy things at the bottom or close to the bottom, and we're comfortable that we're earning a reasonable cash flow based return, and an IRR for our investors, if things just stay at the bottom and we're getting a really strong call option on the future if power prices go up, then for us, that's more the strategic position that we would take. That the volatility that you saw in the first 2 weeks of the year, that's just that pays for the call option for a little bit and helps us realize some value on it. Obviously, if that persists or that volatility grows over time, so you know, let's say you get 5-6 years of volatility, you get you know, under-investment in base load generation with all the penetration of renewables, the IPPs in the U.S. continue to be distressed, and you don't have a sufficient level of build-out of what I'd call base load and peaking generation, then I think you might see an environment where more and more users of power want to contract longer term with a bit of a healthy premium to the market. This becomes quite interesting for us, and then we would change our tactic and start to enter into long-term contracts to capture some of that optionality in the portfolio. A couple of weeks is just a nice-to-have. It doesn't change the long-term strategy at this stage. Okay, good. Thanks for that, Sachin. Appreciate it. That's it for me. Thank you. Your next question comes from the line of Frederic Bastien from Raymond James. Uh- Please go ahead. Your line is open. Great. Thanks. I got questions along those lines. You've been able to offset more recently some of the pricing pressure you're experiencing in the U.S. by locking up capacity, like, at various auctions. Are there other opportunities to do so in the future? Just wondering if there are other initiatives that you're pursuing to tap new revenue sources in the U.S. Yeah. Hi, Frederic. Yes. I think broadly speaking, the trend we're seeing in the marketplace is that there is an increased level of interest from corporates, cooperatives, municipalities, and what I'd say, traditionally, bulk buyers of power that used to just go to their utility and sign up a utility contract. There's an increasing amount of interest from those entities to do bilateral contracting. Often their motivations are they want power that they can be assured is renewable, they want long-term certainty because they recognize that we're in this very, very low commodity environment, when it comes to gas, and they see what we see, which is that that can last for 5 more years or so, but over 20 years, things could change quickly and their cost structures could go way up. They also, you know, many of them just wanna deal with another corporate rather than dealing with the utility. There's a number of reasons why this is evolving. One of the things that we see as a great benefit in our portfolio to be able to offer these customers is the ability to combine and bundle our power sources. To take our base load generation that we have that can run 24 hours, 7 days a week with our hydro facilities, to be able to offer RECs from our wind and our solar projects, to be able to offer new projects with our development pipeline, and also to be able to offer shaping with our peaking capability, with some of our storage and some of our reservoir-based hydros. To be able to bundle our products, we think this will have tremendous value in the future. We've been engaged in a significant amount of conversations with folks, whether it's direct customers or through retail centers. At this stage, though, we still don't see enough value in it to be able to lock in longer-term deals. I'd say we are definitely seeing this very significant trend developing in the marketplace that we think we're really well-positioned to capture over the long term. Thanks for that. The other question I have relates to pumped storage. You've made some good investments more recently in the U.K. related to that. I assume it's pretty small market. Can you give us a sense of, you know, what the opportunities you're seeing in that market to substantially increase your exposure? Specifically to pumped storage? Yes. Yeah, I think you know I think you're right. You know, pumped storage, just as an asset class itself isn't that big. Usually the units are quite substantial. There's very few owners of them. They're absolutely critical to grids, which is why we love them because they have tremendous scarcity value, and they cannot be rebuilt or replaced. We spend a lot of time studying and understanding them, even in the context of the development of batteries, which you know, you can build, and you can build on scale, but they don't have many of the qualities or the attributes that pumped storage will have over the long term. So we believe it's when you can buy them, we believe they're tremendously valuable. If you can buy them for the right price, you can have, you know, 50 years of strong earnings that aren't correlated to market prices or generation in the system, that are really just a function of being a service provider, which is a nice way to diversify the revenue streams for BREP, and have very, very long duration cash flows and an asset that grows in value over time. Great. Thanks very much, Sachin. Thank you. Okay, well, seeing no further questions, again, I just wanna thank everyone on the phone, and all of our shareholders and directors and employees, and stakeholders for their continued support for the business. We do appreciate it, and we look forward to giving you an update, in the first quarter, on our progress on our 2018 initiatives. Thank you. This does conclude today's call. Thank you for your participation, and you may now disconnect.