Is Brookfield about to go big on batteries?

BY RICHARD HEAP:

  • Brookfield has sold two wind portfolios to recycle capital
  • The company currently has 2.7GW of storage, mostly hydro
  • We expect solar-and-storage to feature in its upcoming deals

Brookfield Renewable has done two deals in the last seven days that suggest a greater focus on battery storage is coming.

Last Friday (16th April), Danish utility Ørsted revealed it was buying the Irish and UK onshore wind business of Brookfield Renewable for €571m. Based in Cork, Brookfield Renewable Ireland has 389MW of onshore wind operational or being built, as well as 149MW in advanced development and over 1GW in early development.

Then on Monday (19th April), US giant NextEra announced it was buying a 391MW Brookfield Renewable portfolio of four wind assets in US states California and New Hampshire, for $733m. Coming so soon after the deal in Ireland, this has prompted head-scratching about why Brookfield is selling.

So why is it? Simply, so it can buy.

Brookfield is looking to take advantage of high levels of investor demand for working wind farms by selling out now.

As Connor Teskey, CEO at Brookfield Renewable Partners, said in the firm’s fourth quarter earnings call in February: “We’re seeing offers from that increasing amount of renewables capital that far exceed the value that we believe the business has if we hold it within our own platform.”

It is then looking to reinvest in assets that offer higher returns, such as solar, which it has been targeting. For example, in December, Brookfield Renewable and institutional partners agreed to buy Exelon’s US solar arm for $810m.

The acquired business has 360MW of solar assets in operation and more than 700MW in development, and the deal is due to conclude by the end of June.

We believe investing in solar will go hand-in-hand with deals for big batteries.

Battery potential

Batteries are currently a tiny part of the Brookfield Renewable portfolio.

The company has more than 19GW of operational renewable energy and storage in North America, Europe, India and China. This portfolio is made up of approximately 7.9GW of hydro; 4.7GW of wind; 2.7GW of storage; 2GW of solar; and 900MW distributed generation.

Almost all of those 2.7GW storage facilities are pumped hydro, made up of almost 2.1GW in Europe and the 600MW Jack Cockwell plant in the US.

By contrast, batteries are literally a footnote in the company’s 2020 annual report: a 10MW facility in North America. But we expect this to grow rapidly as the company seeks to scale up its 2GW solar portfolio. Solar-and-storage are becoming a double act that are as popular in the US as burger and fries.

The statistics tell us that much.

In February, the US Energy Information Administration published its Annual Energy Outlook for 2021, where it forecast the proportion of renewables in the US electricity mix would grow from 21% in 2020 to 42% in 2050. It also predicted solar would grow from 16% of the US renewable electricity mix in 2020 to 47% in 2050, and said solar-and-battery projects are a vital arbitrage tool to match solar supply and demand.

The report highlighted the importance of standalone storage projects too.

This followed research from Lawrence Berkeley National Laboratory and the Electric Power Research Institute in 2020 that said 4.6GW of utility-scale renewable hybrid projects were online last year; 14.7GW were in immediate development pipelines; and 69GW more were in interconnection queues. Storage is increasingly seen as integral to helping smooth out intermittency caused by solar and wind farms.

This means hybrid solar-and-storage projects are on the rise, and we see no reason to suppose Brookfield will ignore this trend as it progresses with the development of its 23GW pipeline of renewables projects.

Finally, a move into batteries tallies with the company’s previous statements.

In August 2017, the then-CEO of Brookfield Renewable, Sachin Shah, told an earnings call that the company saw investing in batteries as an R&D exercise, and a “more meaningful investment” was “still five years away, at least”.

We’re now three-and-a-half years on from that comment, and the battery market has been picking up momentum. Costs are falling and utility-scale batteries of a scale unthought of in 2017 are being commissioned.

We wouldn’t be surprised to see the company make big commitments to batteries before that notional five years ends in August 2022.

Freeing up the capital to do so is an important step.

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