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Good day, ladies and gentlemen, and welcome to the Brookfield Renewable Partners Second Quarter 2019 Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to introduce your host for today's conference, Mr. Sachin Shah, Chief Executive Officer of Brookfield Renewable Partners. Sir, you may begin.
Thank you, operator. Good morning, everyone, and thank you for joining us for our second quarter 2019 conference call.Before we begin, I'd like to remind you that a copy of our news release, investor supplement and Letter to Unitholders 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 performed well in the second quarter of 2019, supported by strong performance in our operating businesses and contributions from recent acquisitions. We advanced our strategic priorities during the quarter, deploying capital in a number of transactions while maintaining a robust balance sheet and access to capital.Of note, we generated FFO per unit of $0.74 a share, a $0.35 increase over the prior year. We announced our investment in a joint venture with a global solar developer with over 6,500 megawatts utility-scale TV solar for approximately $500 million or $125 million net to BEP, which we expect to close in the fourth quarter. We closed the acquisition of 210 megawatts of operating wind in India and the first C$350 million tranche of our C$750 million investment into an Alberta renewables portfolio. We announced the acquisition of a 322 megawatt distributed generation portfolio in the U.S. through TerraForm Power, nearly doubling our DG footprint and providing significant opportunities to drive incremental cash flow growth through operational and commercial synergies. And we ended the quarter with over $2.5 billion of available liquidity, raised approximately $275 million in incremental liquidity with the closing of the sale of certain of our South African [indiscernible] facilities, as well as strategic up-financing and other liquidity initiatives. Finally, we reduced our FFO payout ratio on an annualized basis to approximately 85%.Our 50-50 joint venture with KKR to own one of the largest solar developers globally with an experienced management team, best-in-class contracting capabilities and a proven track record of developing assets at premium returns. The portfolio apprises approximately 275 megawatts of operating solar, 1,400 megawatts solar under construction and a broader 4,800 megawatt development pipeline which should provide significant growth optionality over the long term. Over the next 5 years the plan for the business is to develop 500 to 800 megawatts of new solar capacity annually in the existing pipeline and to look for additional development opportunities in the global solar market. This growth will complement our existing pipeline of development projects that today include over 600 megawatts of advance-stage wind, hydro and solar and approximately 130 megawatts of assets under construction. We expect to close the investment in the fourth quarter of 2019.Additionally, subsequent to quarter end we announced through TerraForm Power that we entered into an agreement to acquire for approximately $720 million a scale distributed generation business in the U.S. totaling 320 megawatts of recently constructed, fully contracted capacity, underpinned by 17-year average remaining [indiscernible] term with credit-worthy off-takers. This investment will nearly double our DG footprint, making us one of the largest such portfolios in the U.S. and providing significant opportunities to drive incremental cash flow growth through operational and commercial synergies. The investment is immediately accretive and requires no incremental capital as we expect to fund the transaction in Terra Form through project-level financings and asset sales. This transaction extends TerraForm's contract profile, reduces its portfolio resource variability and improves its organic cash flow growth. We expect the transaction to close in the third quarter of 2019.Finally, we continued to execute on our capital recycling program during the quarter, completing the sale of 4 of the 6 projects in our South African portfolio, proceeds of $108 million, or $32 million net to BEP. We also advanced the sales of the final 2 projects in our South African portfolio and other noncore portfolios in Thailand and Malaysia. We expect these asset sales to close in 2019, for total proceeds of approximately $180 million, or $55 million net to BEP.I'll now turn over the call to Wyatt to discuss our operating and financial position.
Thank you, Sachin, and good morning, everyone.During the second quarter we generated FFO of $230 million, up from $172 million in the prior year, as the business benefited from contributions from recent acquisitions and operational improvements driving cash flow growth. We also continued to benefit from the diversity of our portfolio as strong generation from our North American hydroelectric fleet more than offset a period of relative weak [indiscernible].In the second quarter, our hydroelectric segment generated FFO of $226 million. The portfolio saw strong generation in North America at 15% above the long-term average and strong pricing in Colombia. We continued to advance our contracting initiatives across our business, with a focus on commercial and industrial customers. In South America, we remained focused on extending our contract terms, signing 14 PPAs in Colombia and Brazil for a total of over 1,200 gigawatt hours per year. As a result of these initiatives, in Colombia approximately 30% of our contracts now have terms greater than 5 years versus none in 2016 [indiscernible]. In North America, we continue to benefit from a 17-year average contract term and no material maturities until [ 2029 ].Our wind and solar segments generated a combined $66 million of FFO, up 32% relative to the same period in 2018, as we benefited from acquisitions and contributions from recently commissioned projects as well as our cost-saving initiatives. We also added 25 megawatts to our global rooftop solar portfolio, including commissioning 10 megawatts through our joint venture with GLP in China, and closing the first phase of a 15 megawatt acquisition in the U.S. Northeast.Our storage and other operations segment performed well, generating $7 million of FFO during the second quarter, as the growing intermittency of global electricity grids continues to increase the scarcity value of utility-scale renewable storage.We ended the quarter with over $2.5 billion of available liquidity. In addition, we continue to prioritize an investment-grade balance sheet. We are rated BBB positive by S&P, which we believe gives us significant financial flexibility and provides investors with a lower overall risk profile. Lastly, we remain focused on terming out our debt at low rates and hedging our cash flows from currency fluctuation when the cost is economically prudent.During the quarter, we extended the term of debt in our Colombian subsidiary to approximately 10 years by issuing COP 1.1 trillion of bonds in the local [market]. This was one of the largest financings ever completed in Colombia and, given the high-quality nature of our portfolio, was significantly oversubscribed. At TerraForm Power, we progressed up-financings of select assets in the portfolio and used the proceeds to repay credit [indiscernible.]Looking ahead, we continue to focus on executing on our key priorities, including maintaining a robust balance sheet and access to diverse sources of capital, enhancing cash flows from our existing business and assessing acquisition opportunities.As always, we remain focused on delivering to our unitholders long-term total returns of 12% to 15% on a per-unit basis. We thank you for your continued support and we look forward to updating you on our progress in that regard.That concludes our formal remarks. Thank you for joining us this morning. We'd be pleased to take your questions at this time. Operator?
Thank you. [Operator Instructions] And our first question comes from Sean Steuart with TD Securities.
A few questions. The 500 to 800 megawatts per year for the X-Elio portfolio that you're planning on developing, I think the prospective pipeline is across a wide array of geographies. Can you give us a sense of where the mid-term focus will be in terms of geographies? And then I think you typically reference 17% to 20% levered IRRs for greenfield development. Where do these projects fit in that spectrum?
Sure. Hi, Sean. It's Sachin. I'd start with just geographies. In the near- to mid-term, the bulk of their pipeline is in Iberia, the United States and parts of Latin America [indiscernible]. And what I would say -- which is why we like it, because we have a presence in [ those markets. ] Obviously we think it's just logical to continue to expand broadly into -- further into Latin America, to Columbia, Brazil, even Chile longer term. And then the U.S. [indiscernible]. So that's how I'd round out sort of internal priorities.From a return perspective, remember they have operating, under-construction and pipeline assets. So you're absolutely right. On pipeline assets we target high-teens returns [indiscernible ] U.S. dollars and [indiscernible] fee, depending on [ the region ] we're in you would translate it for the [indiscernible]. For operating assets and under-construction assets I'd say we would be targeting somewhere in that low double-digit type return. So if you look at the bulk of the portfolio in the near term it's really completing the under-construction assets, which we would say we'd do at low double-digit U.S. dollar returns, and then the pipeline we'd expect building it out at high-teens return. And then obviously a key part of our strategy in the business would be [ asset ] efficiency, and what I mean by that is making sure that [ cycling ] mature assets, selling down projects so that we rotate capital to better [indiscernible].
Okay. Thanks for that detail. Question for Wyatt. You guys referenced the up-financing activities at TerraForm and in Columbia. Can you give us a sense of line of sight you have on further mid-term potential up-financing?
Thanks, Sean. I think generally the way to think about it is if you look back till kind of 2013, we've done around $1 billion of up-financing kind of business in that 5-to-6-year period. If you look forward over the next 5 years we think we have the same amount of debt capacity [to be raised] from an up-financing perspective. And it's really spread out [throughout the world] still, but we definitely have -- traditionally we haven't relied on the [indiscernible] part of that region. Lending issues in that market have gotten a lot better. Rates have come down significantly. Most banks in the country are [ lending ] around a 5%, 5 1/2% base rate. So that makes borrowing in that country [indiscernible] economically prudent. And so given our portfolio there is largely unlevered, that creates [indiscernible] portfolio. But it really is of that kind of $1 billion [indiscernible] the next 5 years. It really is spread around the world and it's all done at an investment-grade basis, so it's still [ safe ] for [inaudible] of financing.
And our next question comes from Rob Hope with Scotiabank.
First question is on X-Elio as well. I would say this is a bit of a step-up just given how large the development pipeline is included here. Does this signify that you're seeing better opportunities on the development side versus the acquisition side on the solar assets?
Look, I think I -- not relative to M&A right now. I think what we're seeing on the development side is the last sort of 7 to 10 years [ on ] development really has been about capturing, reducing construction costs as panel costs have declined [indiscernible] costs on the wind side have declined. So really investors or developers who are successful in the past were really just betting that overall costs would continue to decline and that decline would then work back its way into their returns. Therefore they were bidding into projects at prices that were lower than you could otherwise build something at that moment in time, but that you were making the bet build costs would be fine by the time you had to actually [ build ] the project.I think what we're seeing now is we're at a bit of an inflection point in the industry where costs are largely flat. In some instances it's these tariffs and these subsidies that overall cost structure is actually increasing on the margins and therefore development going forward and I'd say for the next decade takes a different skill set. It takes a strong operational focus so that you can operate the plants at the highest margin as possible and the most efficiently. It takes a strong capital discipline, so it requires investors who have strong access to capital and who are disciplined about capital recycling or effectively bringing the lowest cost of capital [indiscernible] to the project. And I think therefore it plays more to our strengths as an investor rather than make that bet that costs will decline. But [indiscernible].So I just think the whole industry is at a bit of an inflection point. And I think therefore we see the next decade for us being more -- development being a more attractive part of our business. Wrapping that all up, though, I would say that if the last 10 years we've done sort of 10% of our growth in development, I'm not at all suggesting it's going to be 50% but I do think it can go to 20% of our growth from development and 80% could be from M&A or 75-25, whatever split you want to proscribe in that range. And therefore I just think that investing in portfolios like X-Elio makes a lot of sense for us at this stage.
All right. Appreciate that color. And then switching over to the M&A side, we've been seeing your liquidity move up through 2019 so far and we're seeing some assets for sale in Portugal and Spain. Could you just give us an update on kind of opportunities and the state of the market on the M&A side?
Sure. It's still highly competitive, as always. There's lots of capital chasing deals. And I think our playbook hasn't changed. We tend to go look for opportunities where we can bring our operational acumen to bear. There might be a capital scarcity, where we see follow-on cash flow growth that we deliver by optimizing the asset base. And I think in a low-rate environment there is a lot of capital and a lot of investors who like the asset class, you just continue to be aggressive about being different and trying to [indiscernible] different types of transactions.It doesn't mean we won't enter into auctions. It doesn't mean we won't sometimes win a highly competitive auction. But we have to have an angle that's unique. And I think the DG portfolio that we acquired through TerraForm is a good example of that. That was an auction. We were obviously the winner. But given the scale of the business we have today, the [ people ] we have, and our ability to reduce costs, secure new services with those existing customers, and to grow that [ platform, ] it gave us a competitive advantage to be able to successfully [indiscernible].
And our next question comes from Nelson Ng with RBC Capital Markets.
Quick question on Columbia. So you mentioned that 30% of the contracts had a term greater than 5 years. Big picture what's your short- and longer-term target for contract term? And I guess do you have to balance -- is there a balance in terms of do you have to give up a bit on price to get a longer contract?
Nelson, this is Sachin. So I would say, look, when we bought the business virtually every contract I would sign was 1 to 2 years in duration. And a long-term contract market did not exist [indiscernible]. Our thesis at the time was that particularly utilities and [ disk cons ] would actually like certainty of a long-duration contract because it was useful [indiscernible] rate base and it allowed them to plan their own cost structure over a very long time. We thought industrials might like it as well but we weren't 100% sure. What we did know, though, is that we had the skill set to bring it to the market and we had a good team there in Columbia who could execute on that strategy.And I'd say now that we're 3 years in we've seen that thesis play out. We've seen customers really like the certainty of longer price [indiscernible]. It helped that hydrology has been really volatile in the country. It's helped that gas has not been readily available in the country, and it's helped that GDP continues to grow and power demand continues to. So I think all of those things have worked in our favor.The economics I would say are not as black and white as you're suggesting. We signed many contracts 2 years ago when there was a shortage of water at significant premiums to the current market price because, candidly, people were nervous about the availability of water and demand growth and therefore were just looking for certainty. I'd say [ but ] overall as a trend we value duration more than we value short-term profit, because with duration you can match fund the asset, you can get a lower cost of capital and you can drive a higher return to shareholders. And therefore we will always forego a little bit of income on the front end if we can drive for capital efficiency and a better return. And you should just think of it that way [indiscernible].
Okay. So just to clarify, so over time you would expect that 30% of contracts greater than a 5-year term to just gradually increase, but there's no kind of sweet spot in terms of where you want that 30% to be.
Yes. We are not proposing that we would increase it beyond 70%, and there's reasons for that in terms of just our own management of reservoirs and having some optionality available to deliver highly valued, storable power in a [ scarce] market. So I think you should expect us not to go beyond 70%. But from that 30% we're at today we would comfortably move that up to 50% [indiscernible].
Okay. Got it. And then while we're still in South America, quick question on Brazil. You had 3 pretty good quarters in a row of I think slightly above-average generation. Could you just comment on the reservoir levels? I presume they're still below average, but have been improving. But can you just give a bit more color there?
Yes. Your observations are absolutely correct. Reservoir levels still below the long-term average. [Indiscernible] just given that's about [indiscernible]. But they're improving. Power demand has been largely flat, which has allowed the recovery to occur faster than if the economy is running [full tilt]. And I'd say we're just seeing, as a result of those factors, seeing our overall generation continue to be at or above.
And our next question comes from Rupert Merer with National Bank Financial.
Looking at the M&A landscape and your strategy on M&A, are you looking at any assets that are outside of renewable energy today?
Not in any direct way. I'd say we are always paying attention to new technologies in the [indiscernible] and decarbonization space. And we're always looking at ways and how companies solve for decarbonization of their existing infrastructure business. But at the end of the day from a bulk investment perspective, today we continue to be focused on generation.
Great. Thanks. And then moving over to the wind results in the quarter, you had some softness in North American wind. And you mentioned that some of the softness was from maintenance outages in the U.S. Can you talk about the results in the quarter, how much of the weakness was from a low resource and how much was from outages that you referenced in the U.S.? And how much of that came from curtailments? I think we typically are seeing curtailments in Canada these days.
Thanks, Rupert. It's Wyatt here. So on the maintenance point, I think the reference here is towards our TerraForm portfolio where, as you likely know, they're transitioning to an O&M contract with GE. There were certain upgrades attached [indiscernible] and so that was really isolated this quarter, putting that portfolio in place to then benefit that O&M contract going forward, significant cost savings that it provides. And so production guarantees are being [ guaranteed for ] that contract as well.In terms of overall wind resource volume I would say you've seen this across the sector. Generally North American wind was down. But that really shows why we've been focused on diversifying our business, [ especially ] diversifying outside of North America -- Europe, South America, as well as diversifying across technologies -- solar and hydro. And we think that by layering in that diversification of our portfolio we're really well protected. And we really are a [unique] portfolio [indiscernible] not exposed to the [indiscernible].
And I assume you're seeing some curtailment on your Canadian assets. How do you account for that curtailment? Is the number that you present your actual generation? Or is that what you're compensated for with compensated curtailment?
Yes, Rupert. We haven't seen a material amount of --[Technical Difficulty]
Hello?
Hi. Can you guys hear us?
Yes. It did cut out, though.
Okay. I think -- sorry. We cut out there as well. I think what you may have missed is we have not experienced material levels of curtailment in our Ontario fleet of [indiscernible].
And our next question comes from Moses Sutton with Barclays.
Thanks for taking my questions and congrats on the strong quarter. Brazil's been mentioned but hydro performance in North America has been well above the LTA for 3 quarters now. We calculate 8% capacity factor higher than the LTA. Any visibility into expectations into 2H? Has some of this been due to how you've been managing operationally? Or is it more or exclusively due to just hydrology conditions?
Moses, it's Sachin. I'd love to take credit, or our team would love to take credit, for operational changes. The reality is we've been in hydro for 30 years and we've noticed for a long, long period of time is that above and below long-term average cycles are long. So you could have a couple of years of below, you could have [ a couple years ] of above. In particular, our assets that are fed through the Great Lakes, we've always seen [ longer-gated ] cycles in those. It's why we make it a point not to adjust our guidance or in fact adjust our dividend based on variability of the resource. And I know we've had a good run recently with above-average, but just a few years ago we were below and people would get down about that.So I would say we've been in this long enough to know that we plan our business on very long cycles. We measure water inflows, electricity generation, reservoir levels and [indiscernible] in a really detailed way. And over the last 30 years we feel really strongly that our long-term average is a good reliable indicator of future earnings power for the business.And, yes, on the margins obviously we manage the operations of around things like storage, reservoir levels, outflows and regulatory strengths, but in the end simplification really has been a [ fact ] leading to [indiscernible].
That's very helpful. And then, any color on the strong Canada hydro pricing? Dollar per megawatt hours were up double digits year over year. And then looking toward the rest of the year, on a USD basis would you still expect high 60s per megawatt hour?
Yes. Look, some of that is because we were benefiting from contractual increases in TPAs in Canada at well above [indiscernible] rates. So we had a 3% increase per year in contracts in Ontario on our hydro fee. So therefore if you take that combined with currency movement it's showing up as a meaningful increase in the per-megawatt-hour revenue that we're earning. But I would say for the most part our business in Canada is fully contracted. We don't have merchant exposure. We have contract term comfortably over the next 10 years in Canada and therefore we don't expect to see a lot of variability in that market and any increases will come from contractual escalations there.
That's very helpful. And last from me before I jump in the queue, can you quantify the above LTA performance in terms of its contribution to FFO? We calculate about $30 million or so. I'm just wondering if you could throw a number out there.
I think maybe what we can do is Wyatt or somebody from our team will call you after the call with the exact [indiscernible] do that.
And our next question comes from Ben Pham with BMO.
When you think about adjusting this long-term average -- I know last few years it's been below and now it's above and so there's a little bit of normalization to think about. And then you add in the acquisitions you've done and then this 500- to 800-megawatt pipeline. Are you directionally heading towards the upper end of your 6% to 11% growth rate the next 5 years?
So first of all I would say a few things. Just conceptually, the 6% to 11% has nothing to do with hydrology or variability of wind, solar or hydro. We always assume that long-term average. And if we're below then that's a miss in the year and if we're above that's found money and we don't pay that. So I want to make sure that principle is clear.And then as it relates to the 6% to 11%, where I think a year ago or 2 years ago we gave some visibility that the next 4 to 5 years we had very strong conviction that we would grow FFO per share at that rate in light of cost reductions, new contracts, development that we'd add. Absolutely it's our job to keep replenishing that and build that out in time. So when you see us make investments like we made with X-Elio, the build-out that we've [ been doing ] with TerraForm, the PPAs that we're signing, cost reduction initiatives that we have in Latin America, the build-out of our business in India, it's absolutely with a view of growing or maintaining that 6% to 11% FFO growth rate as we make the investments. But then we have a business plan that we carry out to actually drive cash flow growth.So what we want to make sure investors understand is that our objective is to invest capital accretively on day 1, but more importantly is to surface value for those investments over time because of the strong depth of our operational capabilities. And that is -- when we find investments that allow us to both buy for value but also extract value over time, it tends to over-perform even our 12% to 15% return threshold.So that's a long way of answering, yes, of course we're trying to continue to build out the runway of that 6% to 11% growth.
Okay. Yes. I was just going through just in that plan you had said you only needed 1,000 megawatts of development and you're already moving 200 megs. And you add this 500 to 800 megawatts and that doesn't even consider acquisitions you've done and will be doing going forward. So it just looks like you've really solidified that target that you highlighted last Investor Day.On the payout ratio then, you also had a target of 80% FFO by 2022. You're pointing to 75% this year. And absolutely agree you've got to adjust for long-term average. But doesn't it look like you're heading ahead of plan on the payout ratio?
Yes. Just to be clear, we pointed to 85% annualized. I think the 75% came from somebody's research at Credit Suisse. I think it was Andrew [indiscernible] said 75% this year. But we've put out 85% on an annualized basis. Yes, we are tracking ahead. Look, on the payout ratio I think -- and I've talked to many of you and Wyatt's talked to many of you -- we have the strongest balance sheet in the sector, have a significant amount of liquidity, very strong sponsor who [indiscernible] lot of shares in the company. And we have one of the most diverse sources of access to capital relative to any peer in the industry.So we've never been overly worried about payout ratio. Whether it was 98% or now 85% we've always been comfortable that we had the financial flexibility to deliver. However, we got a lot of feedback, and we respect that feedback, that we need to bring it down and we need to make sure that the investor community feels comfortable with it. So we've been bringing it down. And we've doing it simply by surfacing value with our existing [ assets ]. So we're at 85%. We're far ahead of the 2022 target that you pointed out. It's good. I think it's being reflected now. People are taking more interest in the stock, which is also good. And I think we see a really credible path to getting into the 70s within that same time period [indiscernible]. Once we're in the 70s again I think combining that with all of the other things we've said, we have really, really strong firepower.
And then, just to clarify, we're at 75% payout on an FFO basis year-to-date. But we do have a seasonal business and so we've said on a, like, annualized basis [indiscernible] 85%.
And our next question comes from Andrew Kuske with Credit Suisse.
You've managed to buy or are in the process of buying a pretty big solar pipeline of opportunities. So if you should go ahead and actually start building some of the solar facilities, do you anticipate a bit of return enhancement versus some of the facilities you've built in the past such as wind and hydro that just, frankly, take longer to build? And would the solar, should you build them, you have a faster capital recycling trajectory? Is that true? Am I thinking about that the right way?
Yes, you're hitting the nail -- that's exactly right. Being able to quickly build these things [indiscernible]. The [ permit ] side of it -- the supply chain side of it is really deep today, so you can get converters, [indiscernible,] connections structured very quickly. And there's a bit of a flat supply side [indiscernible]. So I think we'll go back to a little bit of that earlier [indiscernible] we bring [indiscernible] discipline and opportunities to this business that I think is valued by our partner and by the management team there. And just think that could be a really creative way to grow elements to this as [ opposed to ] betting on [ price to ] --
Would you care to quantify the return enhancement?
Sure. I mean, look, if we're building at U.S. dollars at anywhere from -- let's just use our 12% to 15%. Let's assume [inaudible] project. Right? And so we'll have some 18s and we'll have some 10s. So let's say we're blending around that 12% to 15% and we're monetizing -- and that's in U.S. dollars. Typically today you're monetizing these same projects at 7% to 8% to the financial investor. So if you think about the opportunity for accretion -- and let's just say you're not monetizing 100% but you're monetizing partial interest -- that could be anywhere from 400 to 700 basis points of accretion for every dollar you invest. On a very quick timeframe [indiscernible] build and rotate very quickly. So it's a highly, highly accretive business if you run it well and if you have the expertise.
That's helpful. And then maybe just a different track for the second question. And it really relates to the changes we saw in Alberta. And I'm being cognizant it's not even been a week since the government announced the intention of an energy-only market versus the prior government moving towards a capacity market. How do you think about that in relation to your underwriting of the portfolio purchase you have there and the investment you have with TransAlta.
Yes. Good question. Look, I think -- and everyone can see this -- you can see energy-only markets in [ North America ]. You can see capacity markets in [indiscernible]. And, in the end, deregulated markets are meant to provide a price signal to incentivize new supply to come online. I think what we've seen traditionally is markets, particularly in the U.S. Northeast, where strong capacity bid or a strong capacity option really incentivize -- typically incentivize -- gas-fired [ generation. ] And when you have a strong energy market, you get a bit of a tilting towards more renewable investments because they don't qualify for capacity payments. You can't build a wind or solar farm today and bid it into a capacity [picture]. You get no rating credit for capacity.So, I think you project that dynamic onto Alberta as just a base case working assumption. And from there say, okay, well what does that mean? It potentially means a bit more intermittency in that market as [indiscernible]. And it means that assets where you have embedded storage could have more underlying value. And then if you take that to our underwriting, why do we like that hydro portfolio? It has a significant storage capability and it has significant ability to provide stabilization services to the grid, all of which become valuable either in the near term or in the long term, as thermal comes out of the supply stack as [indiscernible]. So, I don't want to speak on the company's behalf, but I think that's a framework from within which to think about it. And I think, from our perspective, for us it's a net positive.
[Operator Instructions] Our next question comes from Mark Jarvi with CIBC Capital Markets.
I want to go back to X-Elio and the development opportunities. How do you guys see about securing off-take and types of contracts with those development projects? And maybe talk about any expertise on origination that that team might bring that Brookfield doesn't have existing.
That's a great question. That is what we like about the management team. They have a long history of signing PPAs, of securing customer relationships and securing all of the permitting and interconnection requirements of solar development. And we have that in our organization, but I would say this management team is very strong, has shown a track record of being able to do it in a way that creates value on a simple buy-and-hold-to-maturity basis. And we think that we can obviously leverage that team and provide assistance where needed with our own existing operators and our access to capital that can only make the team's ability to [indiscernible] value over the long term even better.So we're really happy with the team. Our partner, KKR, has been in this investment for a number of years already so we feel like we have a like-minded partner from a value creation perspective. And we feel like we had a good ability to meet with both our partner and the management team's diligence, yet comfortable that their track record [indiscernible] the future.
Okay. And then is there a belief that storage is going to be increasingly key to building out that solar pipeline and the type of contracts you'll be looking to procure?
No. We're not banking on batteries or storage as part of our underwriting thesis. Obviously, storage is needed around the world and then batteries are one option for storage. But they're still far away. They're still expensive. There still isn't a global leader when it comes to electricity battery production. You're starting to see the auto manufacturers get into this in a big way for their own businesses. But you're not seeing what we saw in wind and solar [ where ] manufacturing with specific focus on the electricity supply side starts to get created. So, I think we're not betting on it and it's not part of our thesis [indiscernible].
Okay. And maybe just turning to pump storage in the U.S. And I know you guys have had some projects sort of quietly in the background. You haven't been too vocal about it. What do you see in terms of the current prospects for that, whether it's permitting or support by FERC? Or where do you see opportunities or is it still a bit of a ways off?
Yes. We have a handful of pump storage sites, the bulk of which are in [indiscernible]. And these are small-scale storage sites. We have some expansion opportunities [not the least] one of which is with our Bear Swamp facility that we're actually in the middle of pursuing currently and close to delivering -- and in Ontario, candidly. Pump storage is one of those where because of the cost to build, you need a PPA. And I'd say, at this stage, we still don't see a willingness from utilities or regulators to provide the necessary compensation to deliver it. And if you don't have a PPA, you need -- either you need existing embedded infrastructure, like we have at Bear Swamp where it's just an expansion aligned with a capacity market like you have in New England. That can make the economics work. So, doing it in New England, doing it with Bear Swamp, but I would say the other projects are still on hold in anticipation [indiscernible] value.
And our next question comes from Frederic Bastien with Raymond James.
Your pipeline of opportunity seems to have grown exponentially in the past 12 months, at least to me, which I guess is a good problem to have. But just wondering how you reconcile the opportunity to invest in certain assets versus others and, probably more importantly, the size of the equity check that you decide to write against these assets.
Thanks for the question. Yes. Look, I think your observations are bang on. We spent the last 6 or 7 years trying to globalize the business and broaden out the technology perspective so that we could be in exactly the position we're in today, which is having many, many opportunities to parse through, such that we can pick the best opportunities. And to your question of what makes an opportunity the best, I'd say we start from a risk/reward perspective, opportunities where we see the highest potential return and the lowest risk. And risk is both from the development, from a geographical perspective, a currency perspective, and return is what we can surface from those assets by buying well and then operating well. And so we -- that is our criteria.We also have strengths, where even if we see very, very meaningful emerging market opportunities but that would skew the nature of the business, we're going be very careful about them. We've said to investors and to our analysts that we want to keep the bulk of our investments in North America and Europe and we want to have 25% to 30% of sort of emerging market exposure and we want to have more countries in that emerging market bucket so we can select from there. We're not changing that strategy or that [indiscernible]. So, that's the overlay when we look at how to pick investments. But in the end, it's about risk and reward and what we can [indiscernible] most accretively to our investors.From an access-to-capital perspective, we've also prioritized keeping our balance sheet strong. Again, having a BBB high balance sheet is unique. But it's not just a flag that we can wave. It also gives us tremendous financial flexibility. As Wyatt said earlier, we have ample up-financing opportunities in Brazil, in our various wind and solar farms where our financing structures are much shorter dated than our PPA term, and in our hydro portfolios where we have contracts rolling over and refinancings coming up where we can up-finance the business. So, today, I would say we probably have close to $1 billion of up-financing opportunities. We have significant asset recycling opportunities. And all of that is the function of keeping a strong balance sheet and having the financial flexibility [indiscernible]. So, I don't think the strategy is going to change and we'll just continue to grow the business [indiscernible].
Thanks. And as of July 31, which technologies do you believe present BEP with the best risk/reward opportunities?
That's a good question. Look, hydro is still, I'd say -- when you can find hydro for value, it is still an incredibly stable source of cash flow that typically grows over time in value and the intrinsic value of business. It really supports the underlying intrinsic value of the business and the perpetual nature of it is a nice match to our perpetual equity that we issue. Wind and solar, I'd say now that the costs have come down, are really good asset classes. They have a meaningful amount of growth in front of them. The technology has gotten a lot better. The costs are there now that they don't need subsidies, which was always something that we worried about. So, I'd say those 3 technologies, which are now considered alt power technologies, are really strong. They underpin our growth.And we said at an Investor Day maybe a year ago that if the world moves to 25% renewables, in the markets where we're an investor it is somewhere in the range of $5 trillion to $6 trillion of growth opportunities for this asset class in this sector. We are a very, very small piece of that. We think we're a meaningful piece and we think our business has an incredible runway of growth for the next decade, just given what's happening on the planet from supply transitioning to [indiscernible].
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Sachin Shah for any closing remarks.
Okay. Well, thank you everyone again for your support and your continuing interest in the company. We wish you all a great balance of summer and we'll talk to you at the end of the third quarter for our next quarterly update. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone have a wonderful day.