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Artificial intelligence (AI) appears to be the wave of the future – assuming it doesn’t go the science fiction route and destroy us first.
There’s already speculation about what industries are likely to profit from the refinement of today’s phase-one AI projects (healthcare, financials) and which are the most vulnerable (media, customer support).
But here’s a bit of a surprise. The beleaguered green energy business, which has been in a downward spiral since interest rates started to rise, may be one of those saved by the rapid growth of new AI technology and the data centres needed to support the systems.
That’s because AI requires power – lots of power – and existing generating systems don’t have enough resources to meet the growing demand. That helps explain why Brookfield Renewable Partners LP (TSX: BEP.UN) saw its price jump by almost a third in the first 10 days of May.
A recent research note from RBC Capital Markets drew attention to this connection. Written by Nelson Ng, Trevor Bryan, and Shelby Tucker, the RBC report concurs with Brookfield’s view that demand for green energy will increase at an exponential rate for years to come.
“(Brookfield) Management sees far more demand for clean power than there is available projects and expect this dynamic to play out over the course of years,” the report says. “We believe that the company is uniquely positioned to capitalize on this trend due to its development capabilities and access to scale capital.”
Earlier this month, BEP signed a landmark renewable energy framework agreement with Microsoft. Under the plan, BEP expects to deliver over 10,500 megawatts of new renewable energy capacity in the U.S. and Europe between 2026 and 2030.
BEP describes it as a “first-of-its-kind agreement,” and says it is almost eight times bigger than the largest single corporate power purchase agreement (PPA) ever signed.
“It will assist Microsoft’s data centre growth and support its investment in AI-powered cloud services,” BEP said. “The agreement positions us well to deliver over 7,000 megawatts of new capacity annually through the end of the decade.”
The agreement includes provisions to increase its scope to deliver additional renewable energy capacity within the U.S. and Europe, and beyond to Asia-Pacific, India, and Latin America.
“The partnership is a testament to our differentiated offering which is characterized by our significant access to capital and credibility to deliver scale clean power solutions from our extensive pipeline of advanced stage projects, which are well positioned from an interconnection and permitting perspective in many key data center markets globally,” Brookfield said.
“We are uniquely positioned to be a key enabler of growth for the largest technology players through similar arrangements. Our access to scale capital, sizeable development pipeline, and ability to commission significant capacity concurrently to meet this demand differentiates us as a partner.”
BEP released first quarter results (to March 31), which showed a revenue increase of 8.8% over last year, to just under $1.5 billion. The company posted a net loss attributable to unitholders of $120 million (-$0.23 per unit), compared with a loss of $32 million (-$0.09 per unit) in the prior year. Funds from operations (FFO) were $296 million ($0.45 per unit) compared with $273 million ($0.43 per unit) in the same quarter of 2023. Note that the company reports in U.S. dollars.
The company ended the quarter with $4.4 billion of available liquidity to deploy “into a very attractive investment environment.”
RBC rates BEP as “outperform” and raised its target price to US$31. The shares closed on June 25 at $35.61, US$26.07. The units pay a quarterly distribution of US$0.355 (US$1.42 a year) to yield 5.3%.
One more interesting point. The BEP-Microsoft deal may have been the catalyst for a modest rally across the Green Energy sector. Between April 30 and June 25, shares in Quebec-based Boralex Inc. (TSX: BLX) saw its share price jump by 16.2%. Innergex Renewable Energy Inc. (TSX: INE) gained 12.6%.
The units of the BMO Clean Energy Index ETF (TSX: ZCLN), which invests in green energy companies from around the world, were up 4.5%. For the year leading up to May 30, the fund was down 16.9%, a stark indication of how these companies have been battered by rising interest rates.
Perhaps this is the start of a turnaround.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/PhonlamaiPhoto
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