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Brookfield Renewable signals interest in offshore wind amid M&A marathon


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Brookfield Renewable signals interest in offshore wind amid M&A marathon

Brookfield Renewable Partners LP will not rule out investing in the battered offshore wind sector as permitting risks decrease and developers potentially put assets on the market, CEO Connor Teskey said Nov. 3.

Long development timelines and uncertain costs have deterred the renewable energy giant from the industry, but "if a project needed to win approvals three or four years ago when it is going to get built out next year or the year after, that basis risk has shrunk materially," Teskey said during Brookfield Renewable's third-quarter earnings call.

"And now with some of the headwinds in the sector, there might be some eager sellers as well," Teskey continued. "We do think it looks a lot more attractive to us today than it has in the past."

Inflation, supply chain bottlenecks and high interest rates have hit US projects particularly hard in recent weeks, with companies such as Ørsted A/S, BP PLC and Equinor ASA recording third-quarter impairments related to unfavorable regulatory decisions and ballooning costs.

Brookfield Renewable recently closed its purchase of Duke Energy Corp.'s contracted renewables business in a deal with an enterprise value of about $2.8 billion and, with partner Cameco Corp., aims to complete a $7.9 billion acquisition of nuclear services provider Westinghouse Electric Co. LLC during the week of Nov. 6, according to Jenny Li, vice president of parent Brookfield Asset Management Ltd.'s renewable power and transition group.

"We saw a very significant co-investor demand to come alongside of Brookfield Renewable and invest," Teskey said about the Westinghouse deal. "It also allows us to continue to look to execute on the largest and most attractive opportunities at a scale that very few around the world can match."

Deal hurdles in Australia

A Brookfield Renewable-led consortium's purchase of Origin Energy Ltd., however, may be in limbo after the Australian utility's biggest shareholder rejected both the initial scheme implementation deed announced for A$18.7 billion and a recently revised offer that increased the cash portion offered to unit holders by A$1.2 billion.

AustralianSuper, the country's largest pension fund, plans to vote against the "substantially" undervalued scheme Nov. 23, according to a Nov. 2 statement.

"However, even if the scheme fails, the consortium could return with an off-market takeover offer at a similar price and likely nab a majority interest in Origin," Morningstar analysts wrote in a Nov. 2 note.

Brookfield Renewable still expects the deal to close in early 2024, Li said.

Under the transaction, Brookfield Renewable, GIC Private Ltd. and Temasek Holdings (Pvt.) Ltd. would take over Origin's energy markets business, with EIG Global Energy Partners-backed MidOcean Energy LLC separately owning the integrated gas segment. Toronto-headquartered Brookfield plans to invest up to US$750 million in Origin's energy markets business, which includes a 3,100-MW fleet of gas-fired generation and pumped hydro storage and 1,065 MW of wind and solar capacity, using funds from Brookfield Asset Management's US$15 billion Brookfield Global Transition Fund I.

Repurchases, Q3 results

During the third quarter, Brookfield Renewables also repurchased "almost 1.5 million" units, Teskey said. "With what we would view as kind of the irrational decline in our share prices over the last couple of months, for the first time in a long time, we saw it as a clear opportunity to buy back some of our shares for value."

Despite the renewables sector's stock price downturn, Brookfield Renewable is "not seeing any reduction in the returns we are able to generate," Teskey added.

Brookfield Renewable recorded a third-quarter net loss of $64 million, or negative 14 cents per LP unit, compared to a $136 million net loss, or negative 25 cents per LP unit, in the prior-year period. The company reported first-quarter funds from operations of $253 million, or 38 cents per unit, compared to $243 million, or 38 cents per unit, a year ago. The S&P Capital IQ consensus estimate for funds from operations was 39 cents per unit. Figures are reported in US dollars.

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