Brookfield Renewable Partners looks to build new nuclear generation

Brookfield Renewable Partners LP is looking at investing its own capital in new nuclear generation, after parent company Brookfield Asset Management Ltd. announced a strategic partnership with the US government to build at least $80 billion in nuclear reactors across the country, funded through trade agreements with Japan.

The deal, which involves Brookfield and Canadian mining company Cameco Corp.'s joint venture ownership of nuclear equipment and services provider Westinghouse Electric Co. LLC, will see the US arrange financing and facilitate permitting and approvals for the new Westinghouse reactors.

Upon closing the transaction and with financing facilitated by the US government, Westinghouse plans to begin orders for long-lead equipment.

"We expect the first projects to begin their development process, I would say, in the next quarter or two," Connor Teskey, the Brookfield Asset Management president and Brookfield Renewable Partners CEO, said during a Nov. 5 third-quarter earnings call. "Nobody has taken a breath. We worked from trying to close the agreement to immediately turning our attention to what can we do to pull the first project out of the ground."

Under the agreement, the US government will be granted a participation interest, which, once vested, entitles it to 20% of any cash distributions in excess of $17.5 billion made by Westinghouse after the granting of the participation interest.

The US government must make a final investment decision and enter into agreements to construct the reactors for the participation interest to vest. If the participation interest has vested by January 2029, and if the valuation of an initial public offering of Westinghouse is expected to be $30 billion or more at that time, the US government will be entitled to require an IPO, according to the companies.

Before or in connection with the IPO, the participation interest will directly or indirectly convert into a warrant, with a five-year term, to purchase equity securities equivalent to 20% of the public value of the IPO entity, after deducting $17.5 billion from the public value.

Longer-term, however, the partnership's projects "probably do find a path to landing in the hands of more natural owners, whether that be utilities or [independent power producers] in the market," Teskey said.

Separately, Brookfield Asset Management recently signed a letter of intent with South Carolina's state-owned utility, known as Santee Cooper, to conduct "early-stage diligence" on potentially purchasing and developing the two unfinished reactors at the V.C. Summer nuclear plant.

Westinghouse built the failed two-unit expansion, which was abandoned in 2017 after about $9 billion had been spent. The project's cost overruns drove Westinghouse to declare Chapter 11 bankruptcy that same year.

Brookfield Renewable Partners and Cameco acquired Westinghouse in 2023 for $7.9 billion.

"We do think there will be considerable opportunities for us in this space," Teskey said about investing in and owning nuclear reactors, but "we are only going to do so if we can get the appropriate protections around cost overrun and key nuclear risks and generate the appropriate risk-adjusted returns."

"You can share cost overrun burdens with the offtakers, i.e., they pay out a higher [power purchase agreement] price if the facility overruns," he added. "You can share cost overrun burdens with the technology and construction suppliers, and you can also arrange financing that provides incremental liquidity in the event of cost overruns."

Power sector construction and technology firms, as well as potential customers and capital providers, "all have been very constructive and positive of the idea of participating in the build-out of new nuclear with some socialization of cost overrun protections," Teskey said.

Brookfield Renewable Partners reported generating $302 million in funds from operations, or 46 cents per unit, for the third quarter, compared to $278 million, or 42 cents per unit, in the third quarter of 2024. The S&P Capital IQ consensus estimate for Brookfield Renewable Partners was 46 cents per unit.