Doubling Down for a Renewable Future

Doubling Down for a Renewable Future

We have been building our renewable power business for the past 25 years, but the technological and manufacturing advances in the solar industry over the past five years may make the next 25 years even more exciting than the past 25. For context, we own approximately $10 billion worth of shares of our renewable partnership, in addition to the fee income that results from our managing renewables investment funds on behalf of our clients. As a result, this is a very meaningful part of our business, and we expect it to become much larger.

Our renewables partnership has a ±$20 billion equity capitalization, and along with other client capital we manage, this backs ±$50 billion of operating assets, a substantial development pipeline, and a depth of expertise across solar, wind and hydro renewable facilities.

Only five years ago we were not investing in solar because of the high cost of construction, subsidies required to enable projects to earn a reasonable return, and technology issues. Today, solar no longer requires subsidies in many countries and is amongst the lowest-cost sources of power globally. As a result, in a very short time we have added 3,000 megawatts of solar to our operations and have an additional 10,000 megawatts under development. To put this in perspective, solar panel costs are now 25% of what they were seven years ago. At that build cost, solar is very competitive in most markets, and it has the added benefit of being the most renewable.

 We recently completed the merger of TerraForm Power into Brookfield Renewable on an all-stock basis. TerraForm Power was one of the largest owners of solar globally prior to its bankruptcy in 2016. We acquired approximately 60% of it through a financial restructuring, implemented a new operating plan, and restarted the growth of the business. This has given all TerraForm shareholders, including us, a 35% compound return and over a tripling of value since our involvement with the business began.

More recently, we agreed to acquire a 1,200-megawatt solar development project in Brazil. This is one of the largest solar development projects in the world, and it will require both our development and energy marketing capabilities to bring the project to completion. We should be able to drive down procurement, installation and operating costs to deliver further value over time, which could make this an exceptional investment.

We continue to believe we are in the early innings of significant growth in renewables, and we are doubling down on this. We believe our disciplined cash flow focus and our global operating platform will continue to enable us to generate value from this sector for many years to come. With the growth we foresee, it appears that 10 years from now, solar will likely be the largest sector of our renewables business. That’s quite a change from five years ago, when we weren’t convinced it represented a prudent investment.

 Bruce Flatt

Chief Executive Officer,

Brookfield Asset Management Inc.

August 13,2020