Brookfield Renewable Partners LP (BEP) 2017 Q3 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Brookfield Renewable Partners LP Third 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 Sachin Shah, Chief Executive Officer. Please go ahead, Mr. Shah.

Thank you, operator. Good morning, everyone, and thank you for joining us for our third quarter conference call. Before we begin, I would 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.

Our business continued to perform well in the third quarter. Above average generation, high availability across our fleet and the advancement of our organic growth initiatives all contributed positively to financial results during the quarter. We remain on track to deliver 8% to 10% FFO per share growth over the last 5 years.

We made significant progress on growth initiatives during the quarter and shortly after the quarter end, we also closed the acquisition of a 51% controlling interest in TerraForm Power. TerraForm Power has 2,600 megawatts of high quality, diversified solar and wind assets located primarily in the U.S. The acquisition is expected to contribute 6% accretion to the partnership's FFO on a run rate basis and generate long-term returns in line with our targets.

More broadly, this transaction establishes us with scale operations in solar and deepens our presence in wind and provides a platform for future growth.

During the quarter, we also closed 2 acquisitions in Europe. The first was our 25% stake in First Hydro which is the U.K.'s largest, most flexible and efficient pump storage portfolio. It has 2,100 megawatts of capacity across 2 plants that are co-owned with a European utility. We also completed the tuck-in acquisition of a 16 megawatt wind farm in Northern Ireland.

These transactions mark the continued momentum of our European platform as we capitalize on our deep wind expertise and establish a hydro footprint in the region. In aggregate, these transactions deployed $280 million of partnership equity and are expected to deliver approximately $50 million of incremental FFO to the partnership on an annual basis.

We also continue to progress the acquisition of 100% of TerraForm Global with a shareholder vote scheduled for mid-November. We invested considerable time and resources over the last few years, positioning the business to have embedded organic growth, scale to operate and develop projects across multiple geographies and expertise across multiple technologies.

We now have almost $30 billion of long duration, hydro, wind solar, storage and distributed generation assets around the world, all producing carbon free power at a time when countries are actively moving to reduce pollution and decarbonize the global economy.

All of our facilities are supported by dedicated in-house operating teams to enhance operations and ensure cash flows are both stable and growing. We continue to operate a very stable fixed rate finance portfolio and have access to multiple sources of capital to further enhance the value of the business over time.

We believe this scale and diversity will be beneficial to shareholders over the long term. It should allow us to further reduce operating costs and expand margins over time, pursue repowering opportunities across our fleet that provide long-term embedded growth and advance our 7,000 megawatt development pipeline with little incremental cost given that we can tuck assets into our operations.

Accordingly, we are well positioned to deliver per share FFO growth over the next 5 years in excess of our 5% to 9% distribution growth targets from contracted revenue escalation, margin expansion and development activities alone.

Finally, we have the benefit of being able to deploy capital around the world to markets where it is scarce so that we can continue to invest on a value basis. We continue to progress our $435 million development backlog. Having already commissioned almost 60 megawatts of construction assets in 2017, we are advancing the development of a further 265 megawatts largely in Europe and Brazil. In total, these projects should add $45 million to $50 million to our annual FFO over the next 3 years.

In Europe, we commissioned a 15 megawatt windfarm last quarter and we are making good progress towards completion of an additional 65 megawatts of wind which are in scope, schedule and budget. In Brazil, we expect to commission a 30 megawatt small hydro project later this year with an additional 20 megawatts on schedule for commissioning in 2018.

In addition, we are preparing to bid another 2 Brazilian hydro development projects totaling approximately 40 megawatts into the upcoming auctions in the fourth quarter, which if successful, should make them ready for construction.

From an M&A perspective, we remain very active in all of our key markets. As decarbonization continues to take hold around the world, we believe we are well positioned with our global operating and development capabilities, our investment expertise, and our access to capital to pursue continued long-term growth of the business. As a result, we expect to be able to continue to meet our annual target of deploying $600 million to $700 million of equity into growth opportunities.

I will now turn the call over to Nick to discuss our operating results and financial position. Nick?

Thank you, Sachin, and good morning, everyone. In the third quarter, our business delivered strong results with adjusted EBITDA of $378 million and FFO of $91 million. Results were supported by above-average hydroelectric generation and high fleet availability. We continue to maintain a largely contracted portfolio and are focused on select contracting opportunities across the business to generate further upside.

In North America, hydroelectric generation was 6% above the long-term average due to higher precipitation in New York, PJM, Ontario and Québec. We actively managed our assets to minimize spills and capture peak pricing.

Our reservoirs ended the quarter in line with long-term average, leaving us well positioned for the fourth quarter. Average revenue per megawatt hour in the quarter was $70 supported by our long-term contracts.

In Europe, the business continues to deliver strong operational performance with generation in line with the long-term average. Our operating expertise in the market has enabled us to advance a number of organic growth initiatives both with regards to building our development pipeline and advancing corporate contracting initiatives.

In Brazil, power prices remain well above historical norms, as weak hydrological conditions and reservoir levels persist. We have been able to capture higher prices and benefit from the volatility through the implementation of a successful hedging strategy. We have signed 10 PPAs totaling 139 gigawatt-hours per year at an average price of BRL 230 per megawatt-hour, roughly U.S. $70 per megawatt hour, for deliveries up to 2021. This reflects a 3% to 6% premium to existing contracts over this period.

In Colombia, the combination of above-average hydrology and the ability to draw on our significant storage capacity resulted in hydro generation at 2% above the long-term average. We also ended the quarter with reservoir levels above the long-term average, positioning us well for the upcoming dry season, which typically lasts from December to April. System power prices remained low this quarter. However, recovery in market demand, combined with an expected return to more normal hydrology should support increase in prices in the coming months.

Our contracting strategy in the country continues to be focused on securing and renewing contracts with distribution companies and creditworthy industrial consumers. We were awarded several medium-term contracts with distribution companies and renewed 4 contracts with industrial off-takers at prices in the range of COP 190 per kilowatt hour equaling roughly $65 per megawatt hour.

Our investment in TerraForm Power -- sorry, the -- our recent investment in TerraForm Power, the results of that company have performed in line with expectations so far in 2017. And as we look forward, we would expect the investment to add approximately $40 million to Brookfield Renewables FFO in 2018.

The opportunity to grow cash flows organically through margin expansion and assets re-powerings, we are excepting these assets to provide a meaningful ongoing contribution to our business financial results and support our annual FFO growth targets. Our liquidity position, pro forma for the above mentioned closed transactions, remain strong at $1.7 billion. This leaves us well positioned to pursue further growth opportunities in the months ahead.

As we look forward, we will be focused on advancing our development and acquisition pipelines, optimizing and enhancing our existing operations, and preserving stronger liquidity and access to multiple sources of capital.

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

(Operator Instructions) First question is from Nelson Ng of RBC Capital Markets.

Just a question on TerraForm Global, you mentioned that the shareholder vote is in mid-November. Has the various litigation items been settled and do they have to be settled before the vote?

So they haven't been settled and they don't have to be settled prior to the vote. The company continues to work on them and really the ball is in their collective courts around that forward.

So you can have the vote and then settle the litigation, then close the transaction, is that the thing?

Correct.

And then just in terms of organics development activities, they are focused in Brazil and Europe. I guess, with -- like after closing the TERP transaction and with the pending Global acquisition, do you see a shift in development or at least development resources more towards North America or Asia?

I would delink the two of those things. I would say that we've always looked for development in North America irrespective of owning TerraForm and we've always looked for great investment opportunities in Asia. We've been looking at India for over 3 years, as you know, and so completely untied to TerraForm Global. And if we find them, then we will move forward with them and we will do them. I'd say the economic dynamic is just different in each region. In North America, it's pretty tough to do development today. Power prices are very low, it's just difficult to get long-term PPAs and so I would never want to overstate that. Development for anybody in the U.S. and Canada is a real challenge on the wind and solar side given just the state of the power markets. Hence why TerraForm power was such an exciting transaction for us because you could acquire at scale projects with returns that looked a lot like what developers or -- in fact exceed what developers are earning just to do that same work in the market in the U.S. today. India is probably different. India is a market where a lot of development exists. We've looked at a lot of development and candidly I would not be surprised if in the next couple of years, we have a very meaningful development program in that country.

And then just one housekeeping item. In terms of TerraForm Power and Global, how will it be, I guess, reflected in Brookfield Renewable, I guess, going forward? Like will TerraForm -- like will it be consolidated in the adjusted EBITDA line, will be its own separate item or will the assets be kind of allocated in the various geographies and generation types?

So TerraForm Power, given the ownership structure, will be equity accounted into the financial statements. But we will try to break out the performance into the segments that we reflect. But it will be equity accounted. Global will be consolidated in line with -- we've done previous investments. But, again, we'll try to break out the assets by technology and geography to give you the segment review of performance. But Global consolidated and tariff equity accounted.

The next question is from Ben Pham with BMO.

On the TerraForm, the $40 million that you're anticipating in FFO, is that -- is there anything you needed to do there to get to that number in terms of financing or cost reduction or is it pretty much in the bet for you guys?

No, that's the going in number. Obviously, assuming normal hydrology and the business just operates the way we underwrote it. But -- I am sorry, normal wind and solar. But -- and hence why we gave a little bit of a preview for the year. They are tracking in line with what we thought and we don't expect anything to deviate from that other than the resource. And then I'd say, long term it actually gets better because there is an aggressive cost cutting program that's going on there as we in-house operational capabilities. There's going to be a growth program that we can put in place with its cost of capital that we think will be unique to the company. There's obviously a lot of repowering that's a strong option in the company to continue to grow its fleet or preserve its fleet. So the $40 million is kind of a going-in run rate and then there is some meaningful growth thereafter.

And you mentioned storage quite a bit on your Investor Day and you've now added a segment with storage of your recent first hydro transaction. And you look at, kind of, some of the past stuff you've done with cogen, you, kind of, just stuck in an artery. So interesting to see storage sit by itself. So is it more in line with your bullishness on that sector and then it's really going to be a big focus for you near term and over long term?

Yes, look, I think we've always -- if you want a contract it to cogen, which is kind of an interesting way to look at it, cogen is something that we've always looked at, but really struggled with the economics longer term unless you can find a very unique situation where you're buying into a tooling arrangement, for example. Whereas, I'd say storage, the reason it's interesting for us given our large footprint in hydro, wind and solar, batteries or pump storage have a unique ability to enhance the value of what we already own, but then become a critical service for the grid. And so we just see it as a much stronger growth area for us for those 2 reasons. And one where from a service to the grid perspective, we have very, very strong capabilities through our pump storage asset in Massachusetts now with the facilities in the U.K. because the services you sell, whether they come from a battery or pump storage, are largely the same. In fact, pump storage you sell more services to the grid than you could out of a battery today. So I'd say we're really well positioned once batteries become economic and scaled to take our in-house capabilities and use that to drive value through this sector.

And then lastly on -- maybe if I can ask on some of the credit rating commentary more recently and just wondering your thoughts on that and how you plan to react to that or think about that from just a balance sheet perspective?

I mean, I think we've always stated that we are committed to sold investment grade and we've been solid investment grade obviously since inception. We remain committed to that and I think BBB plus, we are comfortable in that space. Our funding plans don't really change based on what the agency's recent note. I would say that they're reacting to 2 years of adverse hydrology, which is varying and I think if you look at their note, they're saying that they will wait and see a return to long-term average which business is proving out now. We're going to work closely with them to understand their concerns and work with them to make sure there's no ongoing issues. And as I said, we remain committed to investment grade and this doesn't affect our funding plans for the business at all.

The next question is from Rupert Merer with National Bank.

You acquired a 16 megawatt wind farm in Northern Ireland in the quarter. We had assumed assets in Europe would be too expensive and you might be sellers rather than buyers in that market. Has that changed and can you comment on how the deal came together, what the return profile looks like?

Sure. No, it has not changed. Your baseline assumption, Rupert, is 100% accurate. Single asset acquisitions are often too expensive for us. We just have a real local presence in Ireland given our strong development history there through Bord Gáis. And fortunately, the country still has a strong feed and tariff regime. So this would be, I'd say, more of something that we are able to secure through years of bilateral relationship building. I wouldn't look at this as sort of anything and the underlying economics in the country having changed or in the continent having changed. And it's just a function of having developers on the ground, operators on the ground. Every once in a while, somebody wants to deal with you because they see you as a credible counterparty who can move quickly, who is good for their word and can do a lot with us in the future. And often the reason developers come to us bilaterally as opposed to going to auctions is they may have 10 other site and they want to know that they're building a relationship with somebody who will always be there to acquire their projects.

Could you possibly see more opportunities in Europe on the acquisition front?

We actually have a pretty healthy pipeline in Europe today along the continent. But, again, there are always situations that are, I'd say, a little bit unique and not your traditional auction situation. So we have a good pipeline. We have a large M&A and development and operating team there now after 4 years of building that capability out. And -- but I would say you shouldn't expect us to be entering all of the auctions and just paying the most for projects.

And then secondly, on TerraForm you talked a little about margin expansion potential. Can you talk a little about the scale of that potential and the timeframe for realizing their benefits? And then also in the go-forward plan for TerraForm, if you can give a little color on what we might see in terms of dropdowns in the future.

Sure. So first on cost reduction. So TerraForm, we've left it public and now has a management team. John Stinebaugh, the CEO, has been pretty open and active in terms of articulating to the market our cost reduction program coming from both G&A improvement and in-housing operations. So what I would suggest is you should spend some time on their website and look at their public materials. I wouldn't want to, sort of, preview that in advance for people. But it's no secret that we're going to reduce G&A and improve the operational capabilities there and we're going to see meaningful margin expansion over and above our going-in returns. I'd say from a dropdown perspective, we've taken great care to ensure that dropdowns are only to the extent that Brookfield Renewable decides we're going to sell something that we just have another buyer in TerraForm who has a ROFO and that doesn't preclude us from selling out in an auction to a third party. And so it's a tool that we have that brings in another capable low cost of capital buyer. But it's not a call right that TerraForm has on Brookfield Renewable and that's a pretty meaningful difference compared to other yield cos in the market. So you should look at it from a breadth perspective as -- to the extent we decide we're going to sell projects that are mature, we have a good use of proceeds. We're going to use the proceeds to continue to grow our business. All we've done is really added another buyer to the mix which is great. It's just more competition.

The next question is from Rob Hope with Scotiabank.

Maybe turning the attention to Brazil, there is some commentary about instituting a new hedging program and it looks like you did successfully enter into some PPAs. Can you just add some color on is this just opportunistically given where the pricing was or is this more of a structural change there?

No, I'd say about 3 years to 4 years ago when we started to see reservoir levels declining in the country even prior to the recession, we brought our contracting levels way down into the mid-70s, high-70s percentage for 2 reasons. One is we had a view that water levels in the country would be low and we may not have as much power to generate. So we didn't want to get cut short. And 2, we thought there would be tremendous volatility in the country just by virtue of the growth rates on power demand in the country versus how much reservoir levels we're growing. And both proved to play out for us and all the recession did was turbo-charge that entire dynamic. And so I'd for the last three years, our position has been to maintain a lower level of contracting and then be very -- highly opportunistic. So all of a sudden, this year as the rainy season was modest at best and the economy is starting to grow again with around 1% GDP growth, we're seeing power demand come back and power prices get very, very elevated very quick. So we're signing up PPAs again at prices in excess of the mid BRL 200 per megawatt hour and we're getting duration of 8 years to 12 years on those contracts. So it's a very good time right now in Brazil for our business to be signing long-term deals and we're taking advantage of that.

And then just adding on some of the commentary earlier on the call just about your ability to allocate capital to different geographies, you did mention that Europe could be looking little expensive. Where are you seeing the best opportunities right now either M&A or organic?

So we continue to see opportunity in Brazil. North America continues to be very active for us, more in sort of the category of large complicated things. And Europe, as I said on the earlier commentary, it's expensive but we are continuing to find a way to look at bilateral opportunities which are compelling. I'd say moving to Asia, India is a strong market and we're pretty active there. We have been for a few years and we're just being careful and opportunistic and we'll pick our spot. I wouldn't say one market is better than the other. I think the luxury we now have as an organization is that in every market we've got people in the ground who invest on a value basis and have been with us a long time and our pipelines in all of our markets are quite good and active.

The next question comes from Sean Steuart with TD Securities.

A couple questions. The North American wind generation was below LTA, which I guess has been a running theme, not just for you guys, but for a lot of the industry and such. And I guess I'm wondering and -- or thinking about the ROFO pipeline and the timing towards executing on that. How much does relatively weak generation on the wind side play and your thinking on the pace at which we might see those dropdowns and how that affects your thoughts on valuation parameters you might be willing to move those assets on?

Sure. And, Sean, it's a good question. I think I have said on previous calls one of the benefits we have on the wind side is -- although I'd fully acknowledge the wind levels have been lower on a regular basis, virtually all of the wind we have in North America, setting aside TerraForm, we've built ourselves and other than, I think, for 100 megawatts of it. And being -- this is where being a developer and building your own projects is a real advantage. We are able to build and underwrite at mid to high teens U.S. dollar returns supported by utility-grade PPAs. And so what that means if you're a Brookfield Renewable shareholder is that if we targeted 16%, 17% return and the wind isn't blowing to the extent we thought, maybe you are making 14%. But we didn't buy 8% and are making 6% and that's a really, really important distinction that I think people need to keep in mind. So from our perspective, having these windfarms generate sort of 14%, 15% returns with slightly lower wind on a buy and hold to maturity basis with 20-year PPAs in the U.S. is a pretty good place for us to be and would be very, very tough to replicate those type of returns in today's market. So we're not fussed about it. We don't view it as something that is a hangover on the business or that needs to be sold out of the business, in fact. It's the exact reason why we went into development rather than acquisition on a technology that was pretty new in the last 7 years to 10 years. When it comes to the ROFO pipeline, that's a completely separate decision framework for us. That will be used to the extent that we find great opportunities to invest capital and we're always better raising money in the business by selling assets at very high returns rather than issuing our equity, which we should always be judicious about given it's the most expensive cost of capital for us. So I think we look at that more as a cost of capital, use of proceeds decision whereas lower wind, when you're a developer and you've got significant cushion in your return, it doesn't keep us up at night.

Second question, more broadly on the focus on FFO as the key metric when you're thinking about dividend, growth, sustainability. You guys exclude that repayment from that calculation. Post TerraForm Global, you are going to have more amortizing debt going forward. How are you guys thinking about that item when you're squaring up FFO growth targets and dividend growth sustainability over the long run?

So I think your point is that largely today we've had a perpetual asset base with hydro being high 80% of our business and Global thus change that a little bit. We still be north of 80% with Global. So I think I suppose clearly a really important metric. That being said, look, we are going to provide all of the metrics AFFO and FFO, and make sure that we provide people with all the information they need to look at the cash flows that are retained in the business versus the cash flows that are being used to deleverage the business. And obviously the tradeoff there is that as your deleveraging, you are improving your credit quality and as long as we feel confident that we can keep putting that money to work either by doing redevelopment on the backend or growing the business through third party acquisition, it should not be very relevant in terms of ongoing earnings measures. But our objective will be to provide both FFO and AFFO as a regular measure of our cash flow generation of business.

The next question is from David Noseworthy with Macquarie Capital.

Maybe I could just start off on Brazil. You mentioned that some of the contracts that you signed are -- or signing there are 8 years to 12 years. But just in the commentary, it mentioned that you are signing contracts up to 2021. I was just trying to reconcile the 2 comments.

Yes. So when you're putting on -- there's a free market and there's a regulated market. The free market there is when you're signing bilateral customers and those contracts could be anywhere from 6 months to 12 months to up to 12 years. Generally, beyond 12 years you don't see a market -- in the free market. And then when you get into the regulated market, they are 20 years to 30 years. I think I'm just making this distinction that contracts we are signing in Brazil today are not regulated government PPAs. They're all with existing customers that we have in the business or new customers that we're attracting through our free market operations and the duration will vary anywhere from 6 months all the way up to 12 years.

And then with regards -- you provided that BRL 230 per megawatt hour average contract price in the new contracts. How does that compare to your contracts price on the overall Brazilian contracts portfolio?

Well, again, I think you have to break out regulated versus free market. Today, that would clearly be in excess of the regulated market. The regulated market which is the auction market in the country would probably be low 200s. And in the free market, it's pretty much in line with where the free market trades today, but higher than our embedded contracts in the free market.

And then finally, right now we're seeing power prices trade -- in Brazil trading right up against the regulated cap of -- it was at 533, I believe. What do you see going forward in 2018 and if the cap raises, do you see that flow through to what you get in both the free market and regulated market?

Not really. The cap is more a function of balancing daily supply and demand. It's not something that people can capture meaningfully. What's more important is it's a strong signal for weak supply or heavy demand or just supply-demand imbalance. And it's more of an important measure to demonstrate that structurally long term, the country continues to be short power. And so if we have a development program there and you have a contracting capability and you've got a good commercial business, then fundamentally long-term you should see earnings growth and earnings appreciation. Are we capturing the 500 every now and then? Yes, we are. But it's not something that we bank on or promote too heavily because it's a small part of the business. I think what's more important, if you're a shareholder, is the trajectory of opportunity in the country as the economy recovers and as supply continues to be weak.

Just moving to India, Brookfield has been highlighting obviously you on this call and previously your interest in India. How do you think about adding coal, thermal power assets to your portfolio as part of gaining a key hydro asset and is there a maximum amount of -- a maximum threshold of non-renewable assets above which Brookfield will not go above?

Yes. Look, we don't actively seek out coal or thermal assets. We have over the years acquired some gas plants along the way if they come with a larger portfolio. So I would say that we always maintain some flexibility to acquire assets we like and bring along other assets that we may have to sell off to somebody, we may have to shutdown, we may have to just run off if they are a runoff type business in order to acquire bulk assets that are renewable that we think have a meaningful place in the supply stake long-term. So we never say never. In terms of hydro in India, we continue to look at it. It's not something that we prioritize over wind and solar in India. They're all good. I would say they just all have different issues. Hydro in India has just suffered from the development side from significant cost overruns and weak credit from utility off-takes given the regions that hydro is in, largely in the North or in the deep South. And whereas wind and solar, given that you can put those anywhere in the country, you can focus your time and efforts on states with better balance sheets and better utility off-take arrangements. So we're looking at it all and we would not say no to bringing a thermal on. In terms of a hard cap that you asked about, again we don't think of it that way. The business continues to grow and so we feel we have the flexibility and the balance sheet to do a little bit of thermal if we needed to, if it's going to move the dial on our renewable business and strategically be very important as a transaction.

The next question is from Mark Jarvi with CIBC Capital Markets.

First, there is 2-part question on Columbia. One would be, how much generation did you contract at USD 65 per megawatt hour? And then the second part would be, looks like you are continuing to see cost improvements, stronger margins which you highlighted at the Investor Day. Just wondering whether or not there is anything unusual in this quarter or is this something that we could think could be sustained in the next few quarters?

Sorry, it was thin on the call. But to answer your question. So the contracting that we did in the quarter at those prices we did, just over a gigawatt hour -- sorry, 1,000 gigawatt hours, that would be for the next 2 years at those prices. And that was done with a very credible utility off-taker in the country. And then for the cost reduction, I think what you're seeing year-over-year in the cost coming down in Colombia is not so much to do with the cost reduction plan, it's more that last year when we had low hydrology, we were running the gas plants. We've had higher fuel purchases last year than we have this year. So the cost reduction year-over-year is more to do with lower fuel purchases than actually putting in place our plan. But you're going to start to see next year as we start to put in place our longer term cost reduction capital restructuring, then you'll start to see the efficiencies come through in the results next year.

And then question on the recent DOE, the Notice of Proposed Rulemaking on Resiliency. What's your view in terms of maybe ability of hydro to be considered as one of these fuel safe type technologies and being given proper consideration in that rule?

Yes, look, this is -- these rules are all coming out because of the intermittent nature of wind and solar. And so what the markets -- and you're seeing this with ISOs, you're saying this with regulators at the federal and state level, they're all looking for technologies that they can compensate or ensure have high degrees of reliability or resiliency depending on the metrics that they are prioritizing. And we continue to believe that hydro meets all of those criteria. And I'd say that the challenge we have sometimes is that hydro, because of its age and vintage, doesn't often get into the first round of criteria that the regulators are looking for. But over time, as more and more wind and solar come in and more intermittency comes in and that continues to play havoc with the grid, we've seen the benefit show up in other ways with our hydro facilities through ancillary payment streams like spinning reserve or capacity or Black Star revenue streams. And all of that comes because we are highly reliable, have significant resiliency and can be counted on to provide backup power in the event of a power interruption in key markets in the United States.

But you don't think therefore in the immediate near term that you guys would be made considered as part of that package?

Look, we're actively trying to be considered part of that, but we're not banking on it at this stage.

The next question is from Andrew Kuske with Credit Suisse.

I think the question is probably for Nick to start off with on the contractual profile. So if I look on sequential quarters, you've had a little bit of an uptick on the price per megawatt realizations on to the future. Not a whole lot of incremental power of those contracts you bid in '19. So to what extent is that -- are there new contracts in place versus just FX moves in the portfolio?

Yes. I would say that we -- under in a quarter most of the recontracting would have been done in Brazil and Colombia as we highlighted. And so we would have slightly enhanced the levels of contracting because we did contract at stronger levels for Brazil and Colombia as we've discussed. Contracting activity in North America, it's slower. We are working towards bidding into RFPs and working on corporate contracting opportunities. But you're right, the impact, as we look forward, is mainly FX and then some marginal improvements in the prices in Brazil and Colombia.

And then maybe just following up. Just on looking at industrial contracts, corporate contracts. What's the level of sophistication that you're seeing from some of the buyers, particularly Amazons and the Googles looking for renewable power? And what kind of green premium, if we can call it that, are you really getting and can that be quantified?

I'd say, first, the buyers are getting more and more sophisticated and some of them are very sophisticated. And they all want green because it's important to their customer base and for their public image. And increasingly they understand that wind and solar alone can't provide them full 24/7 green power and hydro is great at being able to balance that. And so our ability to provide them with a bundled product is something that is resonating. That being said like everybody today in the power sector in United States, nobody wants to pay a significant margin for this. So I would say level of sophistication is high, hydro is clearly starting to be recognized and you're starting to see it even in state level RFPs that weren't corporate driven because they're realizing there's going to be more competition for the hydro from a corporate level and so they are now starting to include in their RFPs. Where we still see a strong disconnect is on price. And that's just a function of where wholesale markets trade today and you can imagine it's difficult for some procurement person in organization to justify to their internal committees of paying a meaningful premium when they look at the power price and it's trading at $30 a megawatt hour. So we're just in that dynamic right now where the commodity price is very low and we don't see a meaningful premium for green emerging at this stage.

Just maybe one quick follow up on your comments, Sachin, and it's on the 24/7 comment. Do you view yourselves as having a significant portfolio advantage given the asset positioning you have in the Northeast at this stage versus a number of other players in the market? And then, possibly given what you've done on the pump storage in the U.K., an emerging potential advantage in that market?

Yes. And, Andrew, you are kind of hitting the nail on the head now, which is this is exactly what we've been trying to build out over the last few years which is continue to buy hydro when we see depressed prices because of their flexibility, capture storage because it's a great complement to our wind and solar, and then have a very diverse product offering where you can tailor solutions to customers that are more 24/7 that do provide backup capability. And I would even go one step further and say it's also why we're getting into commercial, industrial DG or distributed generation because we think that having those customers and being able to build or provide that level of flexibility from multiple resources will over the long term prove to be very valuable.

The next question is from Frederic Bastien with Raymond James.

Just wanted to build further on the distribution generation opportunity. Obviously, you are gathering a lot of investor attention right now and do know that TerraForm is an important player in that square. Just wondering if BEP is planning to keep TerraForm as its preferred platform to grow market share or is there a separate plan for the partnership to pursue DG opportunities on its own?

So yes, it's a good question. I think the way to think about TerraForm is, obviously TerraForm does not do any development work. It acquires operating assets whether they are at a DG level or they're at a utility level, focused on C&I. And so I think to -- if we're going to build out a DG business, there's room for both. TerraForm has the ability to keep buying assets that are operating, that don't have development risk. Whereas Brookfield Renewable can really benefit from its development capabilities. And if we're originating customers, we're doing development work, that will be clearly in Brookfield Renewable. But we'll need to, obviously, keep those 2 things separate over the long term.

And are there better opportunities in the States at the moment or are you seeing this market sort of evolve also elsewhere?

Sorry. Are you saying are the better opportunities in the U.S. today?

In DG, yes?

U.S. is clearly further along on DG, mostly because they had very strong net metering policies. And that led to a significant proliferation of DG across the U.S. in what I'd call high value states. So that's our focus today.

The next question is from Sophie Karp with Guggenheim Securities.

I wanted to ponder a little more on this TerraForm and Brookfield relationship. And my question is this, you mentioned that you would -- could potentially sell mature assets into TerraForm. And what constitutes a mature asset in your definition? And also why would that be better for TerraForm to own such an asset? It seems that versus Brookfield versus -- considering that the cost of capital seems to be fairly similar at this point between the 2 entities, at least if you look at the Bloomberg forward estimates. And -- or do you expect that to change somehow the cost of capital in a relationship?

Sure. So there's a couple of questions in there. First of all, what do we define as mature. I think any asset where we have developed it, we've built it, we're operating it, we put a contract on it, we've financed it long term and there -- and maybe we've squeezed as much margin out of it as we can, I would define as largely mature. It's better held in somebody else's hands long term as more of a coupon-type asset than ours where there is limited operating upside that we can draw out of the asset. And again, we look at it simply as a way to raise capital at a better cost than issuing our equity. So this is not suggesting we have an active sales program, but recycling our capital is really important to us. And you've seen over the last few years that selectively we have sold off windfarms that meet that criteria. So I would say that's our definition, number one. Number 2 is, when we think about cost of capital of TerraForm versus Brookfield Renewable, I know many people in the market just look at dividend yield. We look at it a little bit differently. We think about cost of capital in terms of what type of return are we promising to generate for our shareholders. And at Brookfield Renewable, we've always targeted at 12% to 15% long-term return. We believe that's the cost of our equity that people ascribe to our equity and that our cost of capital. Whereas in TerraForm Power, they're targeting more of a 9% to 11% type return and that's their cost of capital from what they promise to deliver to their shareholders long term. So clearly, they have a lower cost of capital than we do, setting aside where the shares trade. And then lastly, I would say that they're just one potential buyer for these assets. We will -- if we decide to sell because an asset is mature and because we have a good use of proceed, then we will run a sales process and TerraForm would or could participate in that and have a right of first offer. It doesn't mean that somebody else with an even lower cost of capital couldn't come in and buy that. It just means that TerraForm had access to a very large portfolio now of assets that could be sold in the future to help its growth program. I think more importantly for TerraForm and what you can see what we've articulated to the Street is that what it gives us is a dedicated wind and solar platform largely in the U.S. and Western Europe were assets do trade at a premium. We often don't buy those assets because of our target returns. We now have a company that can go out, they can acquire these projects with Brookfield Asset Management providing its investment capabilities, but acquire them with their cost of capital which is lower and grow the business on that basis. And so we think it's a unique vehicle because it will be able to grow through M&A, it will have access to this ROFO pipeline, it will have organic growth inside of it. And long term if we can build it out, then it becomes a nice piece of Brookfield Renewables business to participate in assets we otherwise couldn't own.

This conclude the question and answer session. I'll now hand the call back over to the presenters for closing comments.

Okay. Well, once again, thank you for joining us today on our quarterly conference call. We appreciate the support as always and we look forward to updating you at the end of the year on our full year results in February. Thank you everyone.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.