Brookfield Renewable Partners LP (BEP) 2017 Q2 法說會逐字稿

Thank you for standing by. This is the conference call operator. Welcome to the Brookfield Renewable Partners L.P. Second Quarter 2017 Conference Call and Webcast.  (Operator Instructions) And the conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Sachin Shah, Chief Executive Officer. Please go ahead, Mr. Shah.

Thank you, operator. Good morning, everyone, and thank you for joining us for our second quarter 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.

The business delivered strong performance in the second quarter, supported by margin expansion, project development and growth. We remain on track to deliver compounded annual FFO per share growth of 8% to 10% for the 5-year period beginning 2012. To achieve this, we have focused on adding assets to our portfolio that are underpinned by stable, long-term streams of cash flow, but ones that can be enhanced with operational levers. These key operational initiatives, which I will outline, give us confidence that we can continue to grow our per share FFO by 5% to 9% annually, without relying on rising power prices or acquisitions, both of which represent upside to our investors.

Firstly, we've embedded inflation escalators in many of our contracts that are on track to contribute 1% to 2% to bottom line FFO growth this year, as we keep our costs growing below inflation in our mature businesses. We also have ample room to reduce costs in new businesses that we acquire, accordingly, we expect to deliver 1% to 2% annual FFO growth for margin expansion, across our business, as we both improve productivity and optimize the revenue profile of our portfolios. Much of our emphasis in the next several years will be on our Colombian portfolio, where we are executing on our business plan to increase productivity. Our proprietary development pipeline will contribute meaningful accretion to FFO. Approximately 3% to 5% per year as our experienced developing teams continue to work to deliver 15% to 20% returns on equity from these projects. Over the next 3 years, the projects that we are currently working on, are targeted to add $40 million to $50 million to our annual FFO, and we expect to fund these largely with cash on hand.

Turning to our operations in the quarter, we operate a predominantly contracted portfolio in excess of 90%, while maintaining a small, but valuable level of upside optionality to our revenue profile. During the quarter, we cleared 900 megawatts in the PJM capacity auction to enhance revenues in the 2020 and 2021 time frame. These capacity and ancillary sales generally increase our revenue from North American operations by over 25%, relative to current energy prices. The trend towards long-term contracting opportunities from both corporate buyers and government procurement programs continues and we're actively engaged in a number of these processes across our business in North America and Europe.

In Brazil, the expectation of modest economic growth in 2017 and the fact that little new supply is being built, is providing meaningful opportunities to our portfolio to capture premium prices. Power prices trended above 400 megawatt hour -- BRL 400 per megawatt hour during the quarter, as electricity demand improved and hydrology remained below average. In Columbia, we are advancing many of the initiatives that we anticipated when we acquired the business. During the quarter, we signed our first 10-year power contract with a local utility for 60 gigawatt hours a year. We also advanced approximately a 100 megawatts of late-stage development, with the objective of commercializing these projects in the next few years. Finally, we continue to surface cost reductions in the business and are working with management to increase productivity and leverage resources in other parts of our business.

As it relates to acquisitions, we're making good progress on closing the TerraForm Power and TerraForm Global transactions. Certain important milestones have been met, including bankruptcy court approval and the transactions are expected to close in the second half of this year. Following the quarter end, we also agreed to acquire a 25% interest in the UK's largest pumped storage asset for approximately GBP 200 million along -- alongside our institutional partners. The portfolio comprises 2.1 gigawatts of capacity and represents 75% of the UK's pumped storage capacity and 50% of its hydro capacity. With the U.K. facing tight supply margins, the closure of coal plants and the development of intermittent wind and solar plants, these facilities provide critical backup power and grid stabilization services. We expect this acquisition to be completed in the third quarter of the year. I'll now turn the call over to Nick to discuss our operating results and financial position.

Thank you, Sachin, and good morning, everyone. In the second quarter, we delivered adjusted EBITDA of $457 million and FFO of $181 million. Performance was driven by above-average hydrology in North America and Colombia, strong pricing in Brazil and continued growth in the size of our portfolio. In North America, generation was above-average in Canada and U.S. Northeast. In addition, through our active management of reservoirs, we are very well positioned to capture summer peak pricing. Our business in Europe achieved strong availability this quarter and we continued to successfully advance in development and construction program. We commissioned our 15-megawatt Crockandun wind farm in Northern Ireland and are progressing an additional 82 megawatts of construction stage projects in Europe that are expected to be commissioned between 2017 and 2019.

In Brazil, below average generation was more than offset by the high power prices experienced in the quarter. Our wind portfolio also performed very strongly, delivering generation over 20% above the long-term average. The construction of 2 small hydro facilities in Brazil with a combined capacity of 47 megawatts continues on scope, schedule and budget. In addition, we have approximately 70 megawatts of advance stage products, expected to come online in 2019 and 2020. Our business in Columbia continues to perform well. Asset availability was very high during the quarter, as significant precipitation resulted in generation levels being nearly 20% above the long-term average. Approximately 70% of our generation in the country is contracted providing stability to cash flows. Our liquidity position today exceeds $2 billion, including the proceeds of our recent equity issuance. Accordingly, we are very well positioned to fund growth opportunities. In addition, we continue to surface capital from our operating portfolio, closing 1 refinancing in the quarter and 1 shortly thereafter, raising approximately $100 million in incremental proceeds. One of the refinancings was the issuance of our first ever green bond, a $475 million project financing, that we secured against our 360-megawatt White Pine hydroelectric portfolio. At quarter end, the weighted average remaining duration of our project-level debt across the business was 9 years and our exposure to floating rate debt was 17%. In North America and Europe combined, approximately 90% of our debt is fixed-rate, with an average remaining duration of 9 years, providing strong protection to rising interest rates. In the coming months, our focus will remain on optimizing the value of our operating assets, advancing our development projects and progressing our robust transaction pipeline.

That concludes our formal remarks. Thank you, for joining us this morning, and we'd be pleased to take your questions at this time. Operator?

(Operator Instructions) Our first question is from Sean Steuart of TD Securities.

Few questions on the pumped storage acquisition. You and the partners who own 25% out of the gate. Is there an opportunity to step up that ownership, like was the case with Safe Harbor, your thoughts there?

Sure. Hey Sean, it's Sachin. Look, I think, it's not something that I'd say is out of the question today. Our partner there is (inaudible) NG, which is the former Suisse (inaudible), they don't have any intention to sell their 75% today, with that being said, you could read their public statements around asset disposition programs, repatriation of capital. And generally, a shift away from commodity oriented businesses. So, we think that over time, there may be an opportunity, if not, we've structured a governance arrangement that we're really happy with that provides a level of coal control, that we can influence the operations and work with them to optimize the facility, increase productivity and drive a better trading and marketing operations and drive cost reductions. So I think, we're comfortable with the 25%, but obviously, if there's an opportunity to acquire more, it's something that we would seriously consider.

And is there any asset level debt on the asset right now?

Yes, there is asset level debt. It's in the range of about GBP 400 million.

And any context you can give on capacity factor, production characteristics?

Yes, sure. What I'd say, the best way to think about this is over 85% of the revenue stream of that facility is by selling services to the grid. So one of the things we really liked about it is, it's not really predicated on energy prices or capturing on off-peak spreads, which if you -- if you are -- if you follow pumped storage in North America, that generally is a larger income stream. One of the nice things about the U.K. and the U.K. market is that this is really a giant battery that provides meaningful services like stabilization, fast ramp up, slow ramp up. And because these services are critical and are growing in light of coal retirement, it's a nice income stream that will be fairly stable, even with price volatility going forward.

Got it. Last question, just pricing in Columbia, you referenced the contract you signed, a little bit more context, Sachin, on your outlook for pricing there relative to current levels, how do you think about that market evolving?

I think, we take a very long-term view of that market. Today it's a hydro-dominated country, so when there's lots of water prices fall, and conversely, when it's dry, the prices go through the roof. Given our portfolio is predominantly hydro, we've actually brought the company's contracting level down to about 70%, because our view would be that you don't want to get caught short in a hydro-dominated country, otherwise, you'll end up buying for very high prices. At the same time, we want to start to term out the contracts in the portfolio. So you saw that we signed our first 10-year agreement in the quarter. Do we think that that's going to be a regular occurrence, no, it's something that we are helping create in fact a long-term contracting market. And that will take a number of years of working with counterparties, but most importantly, it's a country of 50 million people with 3% to 4% GDP growth and a power sector of 15,000 megawatts or the size of Alberta. So you can just do the simple math and realize, they don't have enough power in the country. They're running out of domestic gas resources. And so, in the end, they need to, not only increase their level of hydro development, which we're well positioned to with our pipeline, but they need to add new resources to stabilize power prices. So we think it will be a tight market for many years to come, supported by strong growth prospects, and limited supply in the marketplace.

The next question is from Nelson Ng of RBC Capital Markets.

Just a quick follow-up to Sean's question about First hydro. So, Sachin, you mentioned that most of the -- or 85% of the revenue is based on the services to the grid. So is the asset long-term -- so does that mean if there's like a long-term contract and does that mean there's generally a big chunk of contracted revenues for that asset?

No, I'd say, you shouldn't think of this as contracted or uncontracted, it's providing services that are required by the grid, they don't contract for those. They're just critical services that -- some -- our hydro is often providing the background, we can capture additional revenue through those services, but there's no contract framework. This is not a hydro plant that sales into a wholesale market. This is a -- effectively a battery that provides storage and grid stabilization services to the grid. And you need that to ensure frequency stabilization to provide backup power, to manage on- off-peak swings and power prices. So it's just got of a different revenue profile and in light of our experience with our pumped storage in North America, we have a lot of experience we can bring to bear with this asset and start to optimize it over time.

Okay. Got it. So like how much volatility have you seen over the last number of years from that facility in terms of just EBITDA? And then I guess the second question is, does that -- how is the seasonality over the course of a year?

Sure, I'll start with the volatility. I think, the volatility would generally come from the demand for different services. So for example, the U.K. started -- very recently started and put in place a capacity market. So having a capacity market for this type of facility is obviously a net plus. And it's something that would create a higher revenue stream for this facility, starting in 2018, which is something that we underwrote. On the flip side, competition from batteries is something that over time could erode the value of this facility. So we factored all of that into our underwriting, we've considered the fact that there will be competition. But you're not competing against generation here, you're competing really against other storage type products. And we feel that given the flexibility of this asset, the number of services it provides, that today, even batteries can't provide, we feel the outlook for the plant is very good. Whether it has a stable revenue profile, we believe is very stable, but as services grow or decrease in demand, you're going to have to replace that with other sources of revenues. So there will be some volatility to it. With that being said, it provides, like I said, it's not really a generation asset, it's a services asset.

Okay. Got it. And then from a reporting perspective going forward, will there be new Europe hydro segments? Is that the intention?

Nelson, I think given that it's a 25% interest, the likelihood is that it will be a equity-accounted at this stage. So probably not have its own segment, but we can work on the disclosure and we'll update you through the quarter.

Okay, great. And then just one last question. Has bigger picture -- in terms of the Massachusetts, like Clean Energy RFP, did, like Brookfield as a group, like did they look at bidding in the process. I guess, could you comment on your ability and interest to bid into that process or even future processes? I know there's some assets that are contracted to BAM. I think, it's the New York assets and would BAM look to or do they look at bidding those assets into Clean Energy RFPs?

Sure. So we did bid into the RFP, and we haven't made public our bid submission. Although it could be made public at some point if we get advanced. And I'd say, you've seen some of the public submissions from other stakeholders who've also bid into the process. It's obviously a large RFP for a very high volume of power and for a long duration. So it's attractive to us, though, it is really -- this is -- this is the first wave of what we've been saying for a few years, which is states, governments, provinces are all now facing this significant shortfall of clean energy, whether that comes from hydro, wind, solar, storage facilities, as retirement of coal really takes hold. And you cannot fill that gap solely with gas, in spite of it being cheap in the Northeast United States. So we think, this is still early days. We have bid into the RFP, but we'll see how it evolves over the next few years.

The next question is from Rupert Merer of National Bank.

So you mentioned you've cleared 900 megawatts in PJM capacity auction for 2020, 2021. And that supposed to give you about 25% of your revenue from those facilities. Is that an increase from what you have today for those facilities in the capacity market? And how's that capacity market evolving for you?

Yes, so I'd say today in the capacity market -- so first, it's about bang on with our underwritten assumptions for assets that we've acquired in PJM. So it's not an increase. It's consistent with what we'd have underwritten. I'd say capacity prices in PJM today are generally lower than we'd like them to see. Although, as you know, for a number of years, we've been buying hydro in this low price environment and the low prices and the capacity auctions are really a function of significant gas in the Marcellus and a lot of gas plants being built, which is creating an overhang of supply. So I'd say from a surprise, energy prices are low, capacity prices are low, I think what's more important, and I just want -- the reason we're putting that out there is more so that people understand that when we acquire these hydros or even the hydros we have, simply looking at the headline energy price isn't a relevant measure. There are number of other services and products we do sell and those taken together would generally increase our total revenue by about 25% relative to where the energy price is. So it's just more an important data point to helping you assess the revenue streams that we attract on these assets.

Okay. Great. And can you talk a little about how you think that's going to evolve? You mentioned batteries becoming more competitive and entering your thinking when you're evaluating assets like the U.K., pumped hydro and we've seen a number of contracts signed recently for renewable power and battery storage. So how is your view on the future evolving? And how competitive do you think batteries will become?

I think, the proliferation of renewables and renewables storage will only be additive to our business. It will surface value from the plants that we own today and it will give us an additional asset class to invest in. It's no different than us having, just 7 or 8 years ago, having no wind or solar in our business and today having very, very significant amounts of it under management and as asset classes now that we can invest in so, one, I think, it's positive for the outlook of growth, and two, if you take batteries specifically, they have the ability to unlock value that today you can't always get in your assets unless you can capture it through peak pricing. This allows you to shift power to different points and time of the today, it allows you to sell some ancillary services. It has certainly impacted our view of underwriting. For example, on the pumped storage, we would say that we're looking at this as a more finite life asset, where services overtime decline if they get replaced by batteries and we've underwritten it that way. So we feel comfortable that our return on equity will be very strong. And if battery growth is slower than we thought, then we're going to do exceptionally well on that asset. So I think, batteries for us is a positive, in the industry it's a positive for our asset-base. If the development in batteries is slower than we think it will be, it just means we'll have to wait longer for those positives to be realized. But with the assets we have, we've reflected that in our underwriting, and we continue to be bullish on storage capabilities in the future for renewals.

How long do you think it'll be before Brookfield makes its first investment in battery storage?

We've been talking about doing a little bit on the margins, just as an R&D exercise, but I think to -- in the near-term, but I'd say for a more meaningful investment, I think, we're still 5 years away at least.

The next question is from David Noseworthy of Macquarie.

I'm just wondering if you could walk us through the remaining required approvals for the (inaudible) global acquisition?

Sure. So we received bankruptcy court approval a couple of weeks ago. And now, we've -- obviously we have to have, for TerraForm Power, a proxy approved by the SEC such that we can go to a shareholder vote. And then there are a few regulatory approvals that would still be outstanding assuming all of that goes well. So I think, the combination of getting proxy circulars out there such that shareholders can vote on the transaction. That's number one. Number two is getting some remaining regulatory approvals. We've actually received the vast majority of regulatory approvals already. And so we feel pretty good that things are marching ahead as we expected.

Okay. And then, timing of the proxy approval, is that kind of like, weeks away?

Well, first draft of the TerraForm Power proxy circular was filed with the SEC this week. It's a public document. And we don't control the SEC's timetable. So I wouldn't say it's weeks away. I think, the SEC typically would take a month to 1.5 months before it provides comments. But it's a regulator, they can take as long as they need to, so we'll see.

Okay. (inaudible) that historically and looked at capacity and generation growth between 2014 and 2017, we've seen kind of both capacity and generation growth to the tune of 65% to 40%, I guess you go '17 over 2014 or '17 over 2015 respectively. But if I look at your maintenance CapEx, the growth in your maintenance CapEx has been much lower. I was wondering if you could just comment 13% year-on-year and 20% over '14, I was wondering why -- what's changing with regards to your assets that you're maintenance costs are not moving kind of in line with the growth of your portfolio? What are you doing differently today that you weren't doing in 2014 or 2015?

Sure. Often what it has to do with these aging facilities and the quality or upkeep of the facilities when we acquire them, so I'd say if you look at our facilities that we are buying, typically in the early to mid-2000s, often, there was a bulge of CapEx that we had to put in very early, because we are buying them from industrial companies. These industrial companies didn't have the capital to invest properly in the hydro facilities. And so we would acquire them and we would end up having to front-load our CapEx. So what we're actually getting now is the benefit of that front-loaded CapEx and sort of the mid- to late early 2000s. And that means that our CapEx programs in those older assets now is coming down, and coming down to a more stable, sustainable level. And I'd say, whereas, recently if you look at a lot of the hydros we've bought, other than the Smoky Mountain hydros, they were really bought from utilities and those utilities had programs that were more consistent with ours where the assets were in much better shape when we acquired them. And their level of CapEx was sufficient so that we didn't have to front-load our CapEx programs. And I could point to White Pine that we bought from NextEra, great asset, in great condition, NextEra put a lot of capital in. When we bought assets from Exelon, the same thing. These were utilities who understood the capital requirements of these facilities and so we could just carry on those programs as opposed to industrial owners who maybe looked at these as a cost and didn't really put the time and effort to keep them at the level that we would.

Perfect. And you may have answered this in the earlier question, so I apologize if this is a repeat, your Columbia contract, did you provide any details around power price escalators in that and how it compares to what you had previously?

Sure. The contract was signed at just over 200 COP per kilowatt an hour. So that would be in the range of $70 a megawatt an hour, if you want a U.S. dollar comparable. That would we well in excess of our underwritten value, and it would be consistent with like my earlier remarks, which is, it is a market longer-term that's tight from a supply perspective. And so fortunately for us, we were able to acquire that business without having to underwrite rising prices, but clearly, we feel the backdrop there is positive.

The next question is from Mark Jarvi of CIBC.

Quick question on the realized pricing, specifically in the U.S., just looking, the average pricing was in the low 60s versus about 70 a year ago and down from last quarter despite power prices sort of being modestly up year-over-year in most markets. Is that just a drop in capacity payments or just some other factor contributing to that?

Yes, it's not really a capacity-driven outcome, it's the fact that if you recall about 1.5 years ago, when we had a very cold winter and power prices spiked, we had signed a number of hedges, out a couple of years. And as those hedges roll off, we're resigning short-term hedges at a lower price. So it's really a function of power prices having come down in the last couple of years. And the roll off of the existing hedges that we had.

Okay. And then in Columbia, you talked about in the past when (inaudible) counterbalance in that market where pricing and generation generally sort of offset each other, what if there's -- because it's so hydro-dominated. This quarter, the generation was up dramatically, revenue was down year-over-year, was it just too far outside the norm for that counter balance to work? Is that how you think about it?

Yes, the volumes was so strong this quarter in Columbia. The power prices plummeted. But the business is still tracking on plan, on its budget and still tracking consistently with our underwritten annual cash flow expectations.

Okay. And then looking at U.S. hydro generation, some of the data points, you've seen hydrology, it was a very wet spring, and just looking at the unit holder -- shareholder, unit holder commentary about well positioned for Q3. Did you hold back some generation in terms of stocking up their reservoirs that you've, sort of, maybe, get you above LTA in Q3?

You know, look, we always plan to try to keep reservoirs at a high level coming into the end of the summer, because you can get very hot periods where prices spike in the U.S. Northeast. And so, I wouldn't say we pulled back, I'd say we just operated as planned where we try to keep reservoir levels high such that if you get peak pricing coming in, we're ready to respond and we can capture those peaks quickly.

Okay. Helpful. And then just lastly, with the first hydro acquisition in the U.K., you got the Irish assets, you've got development projects in Scotland, maybe just talk a bit about how much more effort you guys are putting in that market going forward and how important it is to build scale and sort of have a larger portfolio in that market to be relevant?

Yes, sure. I think, one is -- look, we think Europe is a market that long-term continues to be very attractive, 500 million people on the continent, very strong support for renewables, a very strong economy, in spite of low growth, the fundamentals of the economies in most of those countries is very good. And you have a very low-risk regime in general. So for us, we're going to be an investor in Europe for a long, long time. It's just about picking and choosing our spots and finding opportunities to deliver the value that we are targeting for our shareholders. And Europe is a tougher market in that regard, because returns are often low. So I'd say over the years, we've been just plotting our way through very carefully. First with Ireland on the back of the Eurozone prices, and Ireland really trying raise capital to repay IMF debt, and EU debt. Then we went to Iberia on the back of weak labor markets in Spain and Portugal and acquired some projects in Portugal. And we've got a lot of people on the ground in that region continuing to look for opportunities. Scotland, very strong wind resource in that part of the U.K. And we feel that over time, as wind continues to be developed, naturally, and subsidies come down, the stronger wind regimes will be the winners. And that's what we think about Scotland. And with the U.K., we've been following the story of coal retirement and really, it being an island, effectively the need for renewables, for potentially biomass, for batteries and for storage and when we found this opportunity, invested in pumped storage, we felt that it was just particularly unique given the long-term outlook in a very sizable country that's going to be tight supply in the long-term in our view. I'd say, longer-term, we continue to look to Western Europe, but we're going to pick and choose our spots, but we'll be there for 20 years plus, because we think it's an excellent place to invest.

The next question is from Ben Pham of BMO Capital Markets.

Just come back to your prepared remarks on historical growth you've delivered at 8% to 10% higher up of your range and you also talked about the 5% to 9% going forward. Can you comment on the time frame you're looking at? And if you can also talk about the pace of distribution growth relative to that cash flow rate when you kind of look at your historical 8% to 10%, you've been growing a dividend at 7%. But your payout ratio was much lower in that 10', 13' time frame?

Sure. So I'll start with the fact that, one is, we always look at sort of fundamental cash flow growth in the business. Just to make sure that we're growing and that dividend growth is supported by real underlying business growth as opposed to just wanting to payout more to our shareholders. So that's first and foremost. And I'd say, if you look at the levers that drive that growth, contractual inflation escalation, that's something that we feel very confident about given the long duration of our contracts and how contracted our portfolio is. Looking at margin expansion, that's something that really just reflects our operating capabilities, we've spent, the better part of 20 years, building an operating platform that has strong expertise around the world. And we're constantly finding ways to improve productivity, lower costs and drive (inaudible) at margin expansion. And in particular, when we buy new businesses, we find opportunities to leverage our existing capabilities. And then our development pipeline, as I alluded to. Today, it's stronger than it's been ever, we've made it a point in the last 5 years to keep adding to the development pipeline. It exceeds 7,000 megawatts today and it's really spread out around the world. And we can move capital to parts of that pipeline where either capital is scarce or supply is tight and you can secure a high-priced long-term contract. And so again, we have a very good outlook on the development pipeline. I think, your last point on payout ratio, when we launched BREP, we launched it with a couple of assets that had declining contracts or contracts that were going to roll off in the two, and particularly, Louisiana hydro and our gas plant in Ontario, both of those when we launched the company in -- back in -- late 2011, were things that we knew would be headwinds, and I would say that the fact that -- and they obviously had a large impact on our payout ratio. But the fact that we've been able to grow, buy assets, build out our development pipeline, continue to reduce costs and grow the underlying cash flow in the business to offset all of that decline and continue to grow the business, speaks to the growth profile of this business. And really this sector and how positive it can be long-term. That you can withstand short-term decreases in contractual assets, and still continue to deliver strong dividend growth, growing value to our shareholders and significant upside optionality in the back-end by buying the merchant hydros.

Is this a 5-year outlook then or is it something different?

Look, I think it's a long-term outlook. We generally plan for the business in 5- to 10-year increments. We're not really focused on a short-term. Obviously, today in the short-term, we feel very good, the business is performing well and we feel that cash flow growth is well supported with the pieces that are in place. But I'd say, we generally look out 5 to 10 years, and we're pretty confident that our 5% to 9% target is something that's quite achievable. And as you alluded, we've been paying out around 6% to 7% per year in addition to having a 5.5% dividend yield, and we think that combine those 2, is allowing us to deliver the total return that we promised to our shareholders. But more importantly, all of that is supported by the underlying growth in the business.

Can you clarify also to just how you calculate this average return? Or are you guys taking '16 numbers normalize that for production and you're looking out -- your cash flow in 5 or 10 years and just taking the average as your business also grows each year as well?

Yes. So for normalize, what we do is, we try to show people that if you had constant FX and constant generation, is there a same-store growth in the business? And so for us, that's a really important measure, Just to make sure the business is growing year-over-year, without the vagaries of foreign currencies or generation or a particular pricing change in the contract. We wanted to show that the baseline business continues to grow and if it's continuing to grow and we know that we have a strong development program, and we know that we have a strong M&A program, then we feel pretty confident that fundamentally, the business is in a good shape.

And maybe just last one on some of the commentary about the construction-ready projects is almost 150 megs. Where are you guys with that and is that -- is any of that the Columbia 100 megawatts or is it something else?

No, it's not Columbia. It's actually a combination of Ireland and Brazil.

Okay. And is it just -- are you -- is it mostly permits at stage you're waiting for?

No. For the most part, those are substantially ready to go. It's just that we're being patient on pricing. In Brazil, there continues to be government market auctions and given the markets type there, we're just making sure that we -- when we do sell into those auctions, we get a price that hits our target return threshold.

The next question is from Andrew Kuske of Crédit Suisse.

You're acknowledging you've got contracts in place in a number of the assets, but when we look at your asset mix, and especially by geography, is your inflation expectation, you're lending a letter to unit holders rather (inaudible) and really rather conservative of the 1% to 2%?

Yes, I mean that's a fair point, Andrew. I think, we are -- we're always mindful that in Europe and even in North America, the inflation environment is low and in Europe, in particular, you could argue that inflation is 0 or 0.5%. So I think, we tend to be -- we tend to temper our expectations around that, because -- just given the waiting of those 2 markets now. Obviously, if you look at Brazil and Colombia inflation, in the more recent past, has been higher. And that generally goes to I guess what you're getting at, which is, we will likely do better than that. But that being said, I think 1% to 2% is something we feel we can comfortably deliver over the long-term if you go to long-term inflationary outlooks for the countries that we're invested in.

Maybe just diving in a little bit more, but even in the OECD markets where you have exposure, the overall inflation might be 0 to 1% or 2%, but the power price inflation might be greater given the transition towards renewables in certain markets as a requirement basis. Is that a fair comment?

Yes, that is absolutely a fair comment. And I think that's something that I would say is really where that 10% merchant auction our business, should drive lots of value. Again, we are tempered, because we've been in a low-price environment for 7 years now. And so when you're in something that's that protracted, it's not -- it just doesn't help from a credibility perspective to push it, but we obviously think the option has tremendous value.

That's helpful. And then just one final question. How much dry powder is in (inaudible) 3 that's available to BREP assuming that you close off the TerraForm deals later this year.

That's a good question. We probably still have in access of $2 billion to $2.5 billion left. It's very meaningful.

The next question is from Sophie Karp of Guggenheim Securities.

I would like to get some color maybe on the regulatory environment in the U.S. and specifically, there's a couple of bills that are going through in the Congress right now, there's Hydropower Policy Modernization Act of 2017, and House Bill 3043. The other ones, and they mostly deal with the -- they're trying to ease the licensing and permitting requirements in the U.S. to build new hydro facilities. And this is something that you guys highlighted many times in the past that it's impossible to build hydro in the U.S, this is what makes your acquisition strategy so successful. And so where do you see that go and that you're involved with the indistinct groups that are kind of advising lawmakers on this? And how do you think this could affect your operations going forward?

Sure. First, I'd say, we are proponents of anything that drives the further advancement of hydro in the U.S. We think that if the U.S. can open up and ease the restrictions on permitting for hydro, that's a good thing for this sector more generally. I think, what it does is it signals to people simply how valuable hydro is. They wouldn't be doing it if something wasn't valuable from an economic perspective and from an asset quality perspective. And also to help meet -- green our decarbonization initiatives in the different regions in the country. I'd say, more practically speaking, in the markets where we have hydro, largely in the Northeast and a little bit in the Southeast, the development potential in those markets is pretty low absent permitting restrictions. And it's a function of not having really high-head sites that have the quality where you can drive high-capacity factors and build out facilities with storage and with peaking capability. Are there some small run-of-river facilities that can be built, yes, but they won't move the dial. I think a lot of that might help in the Northwest of United States where you've got very, very large river basins and significant coal that's going to be retired. Those markets were not really invested in. It's really the mid-sea market that I'm talking about. Not a large base of population lives there and power prices there have been low for decades, and really the market's been controlled by utilities. So I guess my view would be that, one, it's positive broadly from a macro perspective, because I think it speaks to the quality of the assets that we own, which we talk about a lot. But, two, I don't think, in the markets we're in, it will have a really meaningful impact.

The next question is from Frederic Bastien of Raymond James.

I was wondering if you could provide an update on your capital recycling efforts?

Sure. So we did complete the wind farm sale in Ireland, I think, it was in the second quarter. And today, just given our liquidity position in excess of $2 billion, we are not ramping up our capital recycling at this stage. As we've always said, it's an opportunistic program, one where if we feel that values in the marketplace have drifted well above intrinsic value. And we think that we can recycle the capital for better returns then we're a seller. I think, we still have a lot of assets in the portfolio that are candidates for it and we're always looking to take a little bit of that gain off the table and crystallize it. But it's not something right now that we're pushing hard, just in light of our liquidity and our access to capital. But obviously, if the market continues to ebb in the direction of significant overpayment, above intrinsic value, we can't ignore that and we will look for opportunities to sell.

Great, sounds like you are more in favor of deploying capital right now, so that's good.

This concludes today's question-and-answer session. I'll now hand the call back over to the presenters for closing remarks.

Okay. Thank you, everyone, again, for joining us this morning. We appreciate your support as always and we look forward to updating you at the balance of the year at our year end call.

Thank you for participating. You may now disconnect your lines. Have a pleasant day.