Utilities

Report by Veritas Investment Research

BEP signs a landmark Hydro Framework Agreement with Google, representing the largest-ever corporate hydroelectric power deal. However, Veritas estimates the deal’s initial pricing of $56-76/MWh is below BEP’s current US hydro average of $83/MWh in 2024, contrasting with management’s expectation of ~2-4% annual FFO growth from hydro recontracting. Furthermore, BEP faces significant barriers to scaling beyond the initial 670 MW, including long-term contractual commitments and geographic mismatch between available hydro capacity and Google’s priority markets (PJM & MISO). Despite the market’s positive reaction to the news, Veritas maintains their Sell rating and TP of US$20 (30% downside).

Utilities

Report by Veritas Investment Research

Veritas highlights the elevated risks inherent in BEP’s business model and explains why strong growth prospects do not always translate into increases in unitholder value. Their analysis indicates that BEP's ROIC and ROE are not sufficient to cover its cost of capital. These returns become considerably lower when gains from asset sales, which have become a material contributor to reported returns, are excluded. With equity returns being driven by asset monetisation, BEP's strategy bears significantly more risk and investors should require an equity risk premium above regulated utility peers.