Brookfield Renewable Partners L.P. (BEP) Q4 2016 Earnings Report, Transcript and Summary

Thank you for standing by. This is The Chorus Call conference operator. Welcome to the Brookfield Renewable Partners LP Fourth Quarter and Yearend 2016 Conference Call and Webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions [Operator Instructions]. At this time, I’d 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 this morning for our fourth quarter conference call. Before we begin, I’d 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. In 2016, we achieved a total return of 20% for our shareholders in access of our long-term targets. We deploy approximately 1 billion of equity into hydro, wind, and solar based initiatives. We advanced 300 megawatts of projects through construction and late-stage development and continue to expand our geographic reach. Looking ahead, we see a positive investment environment in all of our core markets and believe that our patient approach to acquiring wind and solar assets over the last five years is starting to bear fruit and will lead to significant opportunities for the business overtime. Hydro, wind, and solar portfolios continue to trade hence at premium valuation across our core markets. The level of that which these assets are transacting speaks to the continued value proposition of renewables while highlighting the intrinsic value of our own portfolio. In that environment, we are being highly selective in pursuing those investment opportunities with the strong return potential and where we posses competitive advantages. We remained focused on opportunities that require operating and development expertise, access to large scale capital; restructuring capabilities in a long-term countercyclical investment approach. The recent U.S. election has highlighted a number of issues in the renewable power sector that could evolve over the next four years. This includes the potential cancelation of the Clean Power Plant, breakaway from global initiatives to establish carbon targets such as the Paris Agreement, and cutting of federal subsidies for wind and solar. We don’t expect the first two changes to have a meaningful impact on our business, as U.S. renewable policy is largely set at the state level and participating in global initiatives such as the Paris Agreement will not change the long-term trend of de-carbonization globally. Reductions or cuts to federal subsidies for wind and solar however could change the investment prospects for these assets, making them more attractive to investors like ourselves at the expense of low cost of capital, financial or tax driven investors who were previously actively pursuing these assets. U.S. federal subsidies for wind and solar are expected to diminish by 2021 and 2022 respectively, unless policy makers decide to extend them as they have in the past. These subsidies have generally had the affect of providing additional compensation to an asset class that was not naturally competitive, and therefore facilitated the replacement of thermal coal generation with non-carbon emitting technologies. For example, it was only a few years ago when installed utility scale PV solar cost exceeded $3 per watt prior to incentives. Today utility scale PV solar cost have declined to approximately a $1.10 to $1.20 per watt in the U.S., making the technology cost competitive with traditional thermal generation, meaning that federal subsidies are not needed as much as they used to be. Looking ahead, we believe that installed solar cost will continue to decrease, trending into the range of a $1 per watt, by the end of this decade. This is relevant for two reasons. First, as mentioned earlier, it will mean that even without politics subsidies will likely naturally fed away. Second, without subsidies investors who will generate the greatest risk adjusted returns will be those who can enhance margins through operational expertise rather than chasing government incentives. It is in that environment that we're best suited to invest capital, and as a result, we expect wind and solar to be areas of strong future growth for us and in natural extension of our generation diversification strategy. We have spent the better part of the last two years looking at a number of wind and solar opportunities to begin our growth into these areas. One such opportunity which materializes from capital market volatility and balance sheet stress was TerraForm Power. Over the last year, we and our partners acquired an interest in 34% of the public float of TerraForm Power, as its sponsors, SunEdison, filed for bankruptcy protection. TerraForm Power, and its sister company TerraForm Global all-in operate nearly 4,000 megawatts of contracted wind and solar across the globe with the bulk of the assets located in North America. We're currently working with the Board and management of both TerraForm Power companies under exclusivity arrangement to help the companies, there employees and all stakeholders to move forward with a growing viable business once again. We believes these companies partnered with Brookfield can stabilize their operations, strengthen their balance sheet, restore access to capital and commence growing again in what we believe will be an improved investment environment for operationally focused and broadly diversified power companies. Turning to South America, we continue to see gradual improvement in the Brazilian economy, the pace of GDP contraction has slowed, and we believe the economy will resume growth in 2017. In addition, monitory policy is easing as inflation comes under control, and investment is now starting to take hold. From a power market prospective, we expect demand to began rising again at approximately 1% to 1.5% annual and wholesale market prices to continue to rebound. Current spot prices in Brazil are in the range of BRL150 to megawatt hour versus the lows of approximately BRL50 megawatt hour, observed in early 2016. With the currency is still week and capital scares, we continue to see a very attractive investment environment in that country. In Colombia, the government has begun implementation of our revised peace agreement with the FARC that should further improve the security environment and accelerate investment in growth. Our GDP growth has slowed recently, it remains positive despite low oil prices due to the country's strong economic foundation. Furthermore, inflation has fallen shortly recently, which will support continue interest rate cuts, stimulate demand and boost investment. In Europe, we continue to look for tuck-in operating or developing stage wind, solar and hydro opportunities to take advantage of our operating scale in that market. Returns for operating assets reflect a very lower environment, and as a result, we remain focused on building out our win development pipeline and opportunity that again require substantial operating expertise. Looking ahead to 2017, we are well positioned to continue growing the business in a prudent manner with the focus on the long-term. Accordingly, our strategy remains the same to deliver 12% to 15% total returns on per share basis overtime. I will now turn the call over to Nick to discuss our operating results and financial position. Nick?

Thank you, Sachin. We reported adjusted EBITDA of $1.5 billion and FFO of $419 million during 2016. While our assets in North America continue to perform at industry-leading availability rates, inflows in the United States were below average in 2016 disproportionately impacting results. The impact was partially mitigated by our Canadian portfolio, which performed in line with the long-term average. Over the last 10 years, generation from North American portfolio has been at within 1% of the long-term average. Generation variability is a normal part of our business, and we continue to manage our operations, capital plans and growth based on how the business performs over the long-term. And as a result, we're able to grow the business while maintaining a strong balance sheet and healthy liquidity position. Assuming normalized long-term average generation, EBITDA and FFO would be $1.6 billion and $527 million respectively. Results going forward will be further enhance by full year contributions when 2016 growth expected to contribute approximately $30 million in incremental FFO in 2017, and the build out of our development pipeline expected to contribute an incremental $45 million to $50 million to FFO when commissioned. We currently have 300 megawatts of assets under construction or in late stage development representing additional approximately $700 million of growth capital or approximately $240 million of debt equity on a proportionate basis. These projects are spread across North America, South America and Europe. Currently, 150 megawatts of these projects are under construction scheduled to be commissioned by the end of 2018. All projects under construction are progressing on scope schedule and budget. In Brazil, we have now commissioned the 25 megawatt hydro facility and continue with the construction of two other hydro projects totaling 47 megawatts. In Europe, we continue to advance two wind projects totaling 43 megawatts in Ireland and are also moving our first 19 megawatts of wind in Scotland and a further 90 megawatt wind project in Republic of Ireland towards the construction phase. In addition, in the fourth quarter, we agreed to acquire two early-stage greenfield solar development projects in North America representing an aggregate 120 megawatts and continue to advance a 100 megawatts of early stage development in Colombia. Our operating platforms outside of North America also continue to deliver strong asset performance and advanced revenue growth initiatives. In Europe, our wind assets performed well in 2016 with production at 95% of long-term average. During the year, we continue to progress our marketing business and to the power supply agreement with Facebook, and we remain in advanced with other major global companies to supply them with the green energy. We are also advancing with the potential sale of approximately 130 megawatts of contracted wind farms from our average portfolio. These projects were far of the development pipeline that was secured during our acquisition of the 700 megawatt Bord Gais portfolio in 2014. We are advancing plans to sale these assets at compelling returns and recycle most of the capital into new growth opportunities. In Brazil, our operations are performing well with hydrology continuing to improve and wind generation exceeding the long-term average for the year. We are seeing a gradual improvement in the Brazilian economy, which we expect to be reflected in the rising power demand and wholesale market prices. We are patiently looking for opportunities to capture premium pricing from the uncontracted portion of our output and continue to engage with many commercial industrial customers seeking contracting opportunities. Over the course of the last year, we signed 15 contracts to sale power at prices in the BRL200 to BRL270 per megawatt hour range for the next two to three years. It has been a year since we made our initial investment in the 3,000 megawatt Isagen portfolio, and we are extremely pleased with the quality of the assets management and operating teams. In our first two year of operations, we were able to increase our consortium's ownership to close to 100%, and it started process of delisting the Company from the Columbian stock exchange. Results have modestly exceeded the Company's budget and our underwriting expectations. Turning to the balance sheet, we maintained high levels of liquidity throughout the year and ended 2016 with approximately $1.2 billion of available liquidity. In 2016, we successfully access the debt on equity capital markets raising $1.2 billion in new funding and completing over $2.7 billion in non-recourse financings. This included successfully refinancing all of our outstanding 2016 debt maturities. We have extended the duration of our debt portfolio and locked in rates in this continued low interest rate environment. With our predominantly fixed rate financings and a weighted average duration of approximately nine years in a proportion of basis, we are well insulated from interest rate fluctuations. In light of the significant potential growth in front of us, we have increased the dividend by 5% to $1.87 per unit and will assess our dividend rate throughout the year based on the success of some of our near term growth initiatives. That concludes our formal remarks. Thank you for joining us this morning, and we will be pleased to take your questions at this time. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instruction] The first question today comes from David Noseworthy of Macquarie. Please go ahead.

So just maybe starting off with your comments on TerraForm, can we take from those comments that with regards to the TerraForm opportunities, is there any preference amongst the various stakeholder to see Brookfield as a sponsor for these companies as oppose to an outright take-out?

Hi David, It's Sachin. I'd say obviously different constituent have different preferences, I think the most important part and really all I can say given that we are in a process here is that we are highly flexible. We as an organization have always demonstrated significant flexibility and are able to and prepared to move under either scenario, which is why as you have seen in from a public discloser perspective, we have a number of different alternatives opened and the Board to assess. And the Board will have to assess them taking into account all of the various constituents who have a say in the process.

Okay, fair enough. And then in terms of the process and the timing itself, is there an expectation that an agreement can be reached before the expiration of the exclusivity agreements? Or do you anticipate those agreements to be extended as needed?

Yes, look I think we are all working very hard to make progress prior to the end of the exclusivity agreement and obviously that’s the objective it's there in front of us. So I would say we are working to having finalization and clarity prior to exclusivity terminating. And I think I give credit to the Board and management as well, everyone is working on the same page and we are all trying to get there as fast as we possibly we can. So, I think the answer is yes and obviously there is a lot of work to do.

Fair enough. And then with regards to the 770 million of financing associated with hydro and wind in North and South America, how much of that was incremental to what you previously had those projects, i.e. just refinancing versus taking cash out of those businesses to be redeployed elsewhere?

Hi, David, it's Nick. I would say that we probably up financed in those specific projects about $100 million, net to brut that was able to be recycled into growth in the year.

And has that cash already been account for counting or is there some of that ready to go for future needs?

That would have deployed largely last year for growth.

And then looking forward, what's the expectation in 2017?

I think we continued to benefit in our portfolio where we have seen, in North America, we have seen rising capacity prices more favorable investment community of the debt side and the institutional market and for hydro investment. I think we have seen the successful progress placement of our safe harbor American facility last year which was BBB rated loan. And it was very well received by the rating agencies and by the institutional investors and we are seeing posted environment. And so we should be able to as we look to refinance our maturing loans this year. We should be able to raise incremental debt. The exact amount not sure but it could be in the range further 100 million that we could raise in the next 12 months.

Perfect, thanks. And then one last question. With regards to -- you made mention of Facebook and entering a supply agreement. I was wondering in that context, can you talk a bit about your recontracting outlook over the next five years, specifically northeast US? And perhaps how some of these agreements, whether it be with Facebook, I know that was more Europe, how you see that playing into the recontracting strategy.

Sure, I think it's not a surprise to anyone on phone that corporate procurement of renewal power is starting to grow as a trend and almost a requirement from any companies based on their own sustainability policies, based on their customer base or their shareholder base who demand a high level of renewable content in their own power consumption. And it's all part of the global trend, we talked about de-carbonization and nearly society demanding. So, you are seeing a lot of companies that just five years ago would have not even thought about where they buy their power from, all of a sudden establishing procurement departments, setting policies and targeting green power as a way to service their businesses. For us, we think that’s a great potential growth avenue, we have obviously established a number of relationships with larger corporations and we have the benefit in the broader Brookfield where we already have preexisting relationships with many corporate because we are in the large scale power business, we have large scale real estate business where often many of them are tenants. And so, there is many touch points across the broader Brookfield organization where we have already pre-established relationships, and I think where we have been spending timeline is trying to work with these organizations to help them procure long-term green power that can meet their sustainability policies. And obviously, it's still early days but the Facebook contract was really just one indication of the able to do something. That’s a little bit more bespoke for an organization leveraging our region where they were making an investment into, in Ireland with the data center. I would say that I think you should see this as something that’s a trend that will grow and we are really well positioned. I think in the next five years given our combination of technologies, our combination of base load providing green power to hydro, our storage capabilities of reservoir and storage and then obviously with wind and solar providing, sort of newer forms of intermittent green power. We can kind provide the full board to suite to companies, to meet that requirement and that’s going to be one of the differentiating features of this business longer term. But it's still early days.

The next question comes from Ben Pham with BMO Capital Markets. Please go ahead.

I wanted to ask about the dividend increase. The thought process, the interpretation I had from your investor session a few months ago was that you felt confident about delivering to the midpoint of your range. It's still early in the year, but has anything really changed the last three months that you have less conviction in the point out range for this year?

No Ben, if you look at our comments no change. Look, the difference between five and seven is pretty material broadly, I think the difference that we have right now, is we just have a lot more growth in front of us. And we just want to be able to insure that we see clarity through the balance of the year, on how much growth is successful, how much growth doesn't happened and then as we've said we will revisit our distribution right at that point in time. And if we're successful and we have added cash flows, we're going to continue to grow the distribution and if we don’t at least we have some caution in some room to assess what our distribution growth rate for the year is.

Are you perhaps anticipating may be below average conditions this year, I know that you think more longer term, but at least for near term as that, the consideration and how you think with the dividend?

No, we don’t look at generation, I would say, it's obviously early in the year, we only had one month, so far the year looks very normal, reservoirs are at normal level, the draw down are normal consistent with the early part of the winter. So we don’t have any preview into what generation will look like and nor do we plan for that or factor that into a distribution. Like I said it's largely a function of having significant growth in front of us and recognizing that with that growth, we wanted two things, we want to retain cash right now, to make sure that we can fund all of that growth in the least diluted manner possible i.e., not having the issue equity or not having to deep into our liquidity in any meaningful way. And to making sure that if there is growth that then we can reset the distribution, if it's warranted at that time.

Okay. And then my second to last question is on TerraForm Global, wondering your thought process of concluding that in your potential acquisitions. There's country there, they operate in Brazil, China, India. You mentioned that before in terms of what you're looking at, but there's also assets in South Africa, Uruguay and Malaysia, which you have not really talked about before. So I'm curious about why that was included in the overall acquisition analysis -- or targets.

So, on TerraForm global, I would say, those are the countries that are there. I think we're uniquely position to be able to actually make investments in all of those markets and if you actually look at the companies disclosures, the substantial portion of its investments are in Brazil and India. Two markets there we're currently in from a broader Brookfield prospective, we're obviously a very large investor in Brazil. So, we understand that market. We understand the challenges of that market. The nature of that market needing to take a very long term view and we understand that, with wind in the market and solar in that market, there are certain local requirements that you need to have a local presence on the ground. So we think that we're ideally suited to put our arms around the Brazilian business the India business, like I said we've a large office from Brookfield prospective in India. We’ve substantial investments in India. So, again we'll be able to bring operating expertise to the assets in India and the other markets are generally pretty small. But given that we have a footprint really globally today having operating people in those markets for what is arguably a very portion of that business is non-instrumental task first and something that we think we can do fairly easily.

The next question is from Sean Steuart with TD Securities. Please go ahead.

Thanks, good morning. Guys just a few questions. 2016 overall aggregate generation was 15% below LTA. But, Sachin, in your comments in the shareholder letter, you suggest that adjusted EBITDA would have been just 100 million. The EBITDA variance is about 100 million, which would suggest about a 6% gap. Wondering if you can reconcile the below-average generation this year with the EBITDA gap you referenced there. I would have thought it would have been a little bit wider.

Sure, Sean, why don't we do this, why don't we call you afterwards and walk you through the reconciliation just because obviously involves stuffs going through the map which is probably better constructed for our conversations outside of this call.

Fair enough. On the 120 megawatts of North American solar you're looking at, can you give us a little more context on location and potential development timeline for that capacity?

Sure. So, this is a development portfolio that we've been able to secure in the Northeast close to hydros that we have also in the Northeast in the PJM market. It's a good portfolio, it's one where somebody I think it was David who asked earlier about just contracting and corporate procurements. And this would be an example of again one of the unique things we have as an organization is the ability to do development to bundle products where we can bundle solar and hydro and provide a more of an all-hours product to the market and corporate customers. So, as we think about development and development of solar and wind, there is a strategy that we are pursuing where we're making sure that there is some synergies that we can bring from the regions that we select between our existing hydro and potentially new development opportunities for wind and solar that are I markets we like and markets where we can then provide products to either corporate customers utilities low serving entities or governments. And that just gives us maximum flexibility. So this 120 megawatts that we are able to secure that would fit the bill, it's in PJM, it's very high quality site, it's one that's close to our hydro generation and one that we could bundle together to provide an all ours storage based product to customers.

Got it. And then lastly I want to revisit Brazil. You mentioned all the other reasons you remain positive on the market over the long term. But the government canceled a wind and solar auction in December due to the ongoing surplus, I guess. Have your thoughts changed at all on the margin with respect to that market, just in light of how tough it's been over the last few years now?

No, look I think investing in Brazil as long as we have. We've recognized cyclical market. They have had a very deep recession and that was then exacerbated a very long and protracted draught. And I guess my view would be that if you look at their long-term supply of power and the population of that country. And even modest demand growth on energy is correlated is modest GDP growth in that growth. There is no scenario where they have an excessive power or even enough power to service the country's needs over the long-term and grow the economy at the clip that they want to grow it. And on that basis, they might cancel and option, because they’ve got high gross coming online in 2017 and 2018. But the bottom-line is the country needs power long-term. So a year or two for us has never been something that we’ve an overlay trust about. And we continue to take a very long view on the country, recognizing though that it is cyclical.

The next question is from Nelson Ng with RBC Capital Markets. Please go ahead.

Great, thanks. A follow-up question on TerraForm, or Terrapin, Global. Can you walk us through the timetable in terms of -- you guys are doing due diligence to confirm your price prior to the exclusivity period. And then if you do that, does the Board make a recommendation to shareholders? And then is that the process?

Nelson, all I can say is what’s public, which is we have an exclusivity period for TERP that goes until the end of February. We have one for global that an additional two weeks beyond. We made that public, but we really can’t speak to the timeline to the board has set. We can’t share that kind of information externally given that we are subject to a CA.

Okay. Are you able to provide any color to why there’s two different exclusivity periods?

No we can’t. They’re separate companies and they have separate boards and they have separate fiduciaries, and so recognizing that, they are going to make their own decisions.

Okay, I see. And then another follow-up question on the payout ratio. When you look at the payout ratio and the normalized FFO, even adjusting for let's say 50 million of FFO uplift in the future, the payout ratio still seems pretty high, like somewhere in the 90%s compared to, I think your long-term target is around 70%? I was wondering are you relying on higher merchant power prices to bring down the payout ratio longer term?

Yes. So Nelson, what we’ve said in the past and that we continue to say that if you factor in normalize generation fully or contribution of growth that’s already occurred and the normalized contribution of element pipeline that’s underway today, the under construction assets. We can show you the math on that. We’re generally coming back to kind of mid-80s as a payout, which is higher than the 70% we target and what we’ve said is that we are going to run in the 80s, while power prices are low. Obviously, as you read in previous letters, power prices have stay lower longer than we would have ever expected. I don’t think, if you would ask just five years ago, but we would have thought power prices would have been bit slow and so that’s not something that we are anybody have been able to accurate forecast. With that being said, we’re still pretty comfortable being in the 80s during this period and we have an ample amount of cash, a very strong balance sheet, we’re investment grade, we’ve got over a billion of liquidity. And it’s never really been a problem for us to fund grow fund the CapEx and continue to build up the business. And longer term would we like to be in the 70 range, absolutely. But we’re going to do that once power prices normalized in our view. And we continue to assess the ratio with all of those facts in mind.

Okay, thanks. And then a quick question on Brazil. I think in the first nine months you guys were tracking about 8% below average, whereas in Q4 it was about 42% below average on hydrology. I was wondering whether there was something that took place in Q4, anything specific? Or was it government-related or anything?

No. Nelson, it's Nick. So in Q4, we had an outage at one of our large hydro facilities that largely would have contributed to most of inactive. If you back that out, actual generation was, I think 93%, 94% of LTA when line in the rest of the year. And for that outage, we actually expect to receive business interruption insurance so most of that loss will be recovered in 2017.

Okay. That’s good. And quick question on Irish wind. You mentioned that you are looking to sell 130 megawatts. How big is your entire Irish wind portfolio and I was just wondering, how you settled on 130 versus the --

Sure. So first of all today if you take Ireland, the Republic of Ireland and Scotland, which really makes up our region that we invest in. We have almost 2,000 megawatts of either operating or development based assets. And when we started in Ireland, we had about 300 megawatts operating. So, first in foremost, we are absolutely committed to the region. And it's a region that we think is highly attractive given its proximity to obviously Landon and the huge power demand that comes out of the population based in that market. And over the last four years, since we have invested in that region, we have built out probably another 300 megawatt to 400 megawatts through construction and bringing them online. We currently have another 50 year or so that’s in advanced stage development. So I would say that we are just building out that region, we are committed to the region, we think it's a great place to invest Ireland in particular because we have a interconnector that gets -- allows us to sell power into the UK. It's a market that we find very, very attractive. Selling a 130 is really just to us being opportunistic in this environment to see if we could secure some value to continue to realize proceeds and recycled that capital back into further growth in that region, then we should do it. If not, it doesn’t move the dial for us, but it's something that we do from time to time as another way to source capital, but also to show shareholders and to show realization of value that we can secure through like development oriented activities, because we do prior ourselves and being good developers and it's something that if we can then surface some value, we think is a good use of shareholder time in mind.

I see. And then just one last question just to follow up on the divesting wind, I think in the past you mentioned that you are also looking to divest some wind in Canada, but you didn’t mentioned it in this last later, I wondering whether things have changed in Canada, or you have only highlighted Ireland because that’s newer?

No, we have only highlighted Ireland currently because it's one that we are working on currently. On Canada, we had contemplated, we had looked at it, I think we are still assessing it. We have had some interest in the portfolio and values that I think we would be comfortable transacting at, however at this stage we still think that there is more value to that portfolio and we believe that holding onto, it would make more sense. So, at this stage, I would say we are still assessing it. But we are talking to various counter parties and expressed strong levels of interest in some of our Ontario wind assets in particular.

The next question is from Jeremy Rosenfield with Industrial Alliance Securities. Please go ahead.

Just a couple of follow-up questions. First, on the greenfield solar opportunity. Curious if you can offer an estimate of the potential size of that investment, what it would be and the timeline for when you would like to begin construction potentially put that in operation.

Yes, Jeremy, Sachin here. It's still a lot fairly early stage greenfield project. There is permitting work to do, there is site assessment. So I would say that it's still a few years away from getting to the advance stage. And there is a lot of work to do. But this would be one in those where it's in more greenfield stage, and we obviously need to do work to advance it along the various development phases before we can even consider construction. Most importantly, we are not even thinking of the PPA at this stage. We are looking to still continue to get permits and get it to the right stage where we can then secure financing and get a PPA.

Okay. If I can turn attention to then the construction-ready projects, which are much closer to development or closer to operation. Do those specifically need PPAs and that's the last remaining hurdle prior to making a final investment decision on that?

Yes, that’s largely the only remaining requirements if you look at them they are mostly in Brazil we have one North America the one is brazil are ready to be sold into the auctions. And we are always pretty patient around the auctions if we feel the auctions are not going to clear at levels we are happy with, we just wait. And the one in North America again we would look to secure a longer term capacity contract for new build which does it qualify as and once we have those contracts secured then we would line up in and get ready to start to build those assets out.

And in terms of the size of the investment were those included within the 300 megawatt portfolio and the total 700 million of broke CapEx is that part of that?

Yes, that would be our backlog of what we call development or under construction assets. Correct.

Okay, perfect. Just one final question, I think typically you usually set offer up where you think the Brazil reservoir levels are. I'm curious if you can add that comment here.

Yes, sure. So, we are still in the mid 30s in the southern part of the country where most the load, which is why we continue to see volatility in pricing. The rainy season has been average, I'd say so we are not seeing a significant amount of increase to the reservoir levels. But its far, far better than the 12% to 15% to 17% we saw on the last year. It's double what we saw in the last few years and that gives us a lot of confidence that the year should shape up to be reasonably good from the generation perspective.

The next question is from Frederic Bastien with Raymond James. Please go ahead.

You reaffirm your constructive view on power prices longer term, but I would welcome any comments you may have on pricing dynamics for the next year or two. And the big question is when would you expect power prices to normalize?

Yes, I think. Look, I think pricing for the near term will continue to be low and we don’t see any real major catalyst for significant upswings in pricing. And when I say pricing I mean energy pricing, what we are saying is the capacity pricing has gone up over the last couple of years and since stated elevated levels. So, when I think about all in pricing I would say if you take energy and capacity, we are generally earnings on any of our merchant facility somewhere in the range of $60 a megawatt hour and we would have underwritten these on and all-in basis in the mid 40s. So, we are definitely seeing an improvement over where we acquired most of the merchant facilities that we have in last few years. But it's largely a function of the fact that -- although energy prices have actually decreased during that period because of very, very cheap gas capacity prices have gone up in the markets that we operate in. And that all in price that we are getting is slightly better than what we were underwritten that. I think the catalyst will continue to be a little bit about my prepared remarks where if we see wind and solar start to move into the normal wholesale market environment without the benefit of subsidies. And you start to see even have to compete, based on wholesale market pricing. I think that will be a catalyst for pricing to improve, because people will need to bid this assets into the market. Obviously, gas is always a large driver of power prices and if gas prices go up as we've seen in the last six months, modest increase in gas prices then that will be a driver. And if you start to get more pipeline approved in the U.S., you start to get gas flowing into off shore export terminals, all of that will be additive to gas demand and obviously gas pricing. And you should start to see a new floor pricing on power. But we're not predicting a short quick uptake in power pricing, we think this will be gradual and it will take time. And the last thing I would as is, obviously interest rate matter in a low rate environment, cost to capital is cheap, it keeps prices low. And if rates start to go up in particular in the US, again, you will see added pressure from a cost of capital prospective, which will drive higher return requirements across the board for people who invest in power, in gas, in renewable. And we think all of that will then drive a higher pricing. And we've always said about our business is that what we were trying to build was a real return business, that if those prices due go up and that cost to capital goes up our shareholders will get the benefit of that from the option that we put in place in the business, where we can capture that rising price environment. And so what we think is well insulated from increasing cost and increasing interest rate because we will get the benefit of rising revenues in that environment.

Thanks, Sachin, that's helpful. You also gave some color on reservoir levels in Brazil, but I was wondering if you could give us any indication on how wind conditions and hydrology are so far in the quarter, particularly in North America.

For the first month, they have all been at normal levels, what you would normally expecting North America is that most hydro assets, you would start to actually draw down the reservoirs in the first few months of the year to make room from water, from melting snow and from rain in the spring, so that you can replenish your reservoirs. So at this stage, we're drawing down our reservoirs normal course, because we’re seeing a pretty normal course environment. There is nothing to suggest that we don’t have the normal level of precipitation that we can forecast, but it's one month. So, I don’t want you to take a lot of stock in that. It would be hard to sort of extract one month into the boarder year.

The next question is from Andrew Kuske with Credit Suisse. Please go ahead.

My first question is probably for Nick. It relates to the supplemental and the contract profile on page 13. You could give us some clarity on any FX hedges you have or the composition of the contracted generation when we look out the next few years.

Sure, our FX hedging program Andrew is largely unchanged. We continue to hedge the Canadian dollar and the euro, and I believe euro we're at 80% hedge for roughly two years that are about between 113 and 114. And Canada we're about 40% to 50% hedge for the same duration at around 127. We have this FFO hedges, our hedging approach to Brazil really hasn't change. We don’t see any advantage from a cost prospective of hedging, and we have the natural protection in that country through the inflation linkage in our contracts. And the same here would be for Colombia. So, our approach to hedging really hasn’t changed. As we look at our contract profile, as it rolls out, I think the main -- as we’ve discussed in the past the main contract we have maturing is the Lievre [ph] contract at the end of 2019-2020, that's a contract Lievre in Quebec. They sell most of it power into New England, so that contract to deal would be around $50 and today that contract is with proof of asset management. And today you're probably making money to breakeven on that contract. So, whilst as you see a dropdown in the contract profile as we look out, we wouldn't see any potential impact to our revenue profile, you would expect to be able to breakeven or exceed that price in the open market.

Andrew, just to be clear on that contract that we have with them, that contract is a Canadian dollar contract. But if you look at it in U.S. Dollars, it's in the low 50s as Nick said. But it's for all energy capacity and other ancillary so it's all-in price. And so our view would be as if today you're likely going to do better if you were to sale those power plants, power and various products into the wholesale markets.

Okay, helpful. And then here is the bigger broader question on the balancing act between building new stuff and then capital recycling. Philosophically, what's the pivot point on that decision process and what are some of the drivers? You're bringing on about 150 megs of power right now. You've obviously got a big pipeline of opportunities you can do. But to the degree that you capital recycle, it effectively lowers your overall portfolio size. How do you think about it? Is it more opportunistic on we have a financing need? Or we want to prevent going to the equity markets so we'll capital recycle at a healthy price versus expanding the overall size of the portfolio?

Yes, it's a great question Andrew, and it's something that we're always mindful of and recognize that there is a balance to it. I'd say we're largely opportunistic we view capital recycling as a way to source capital as long as we believe that we can sale assets at a multiple that's greater than what we could issue our equity at. Obviously, we think of issuing our equity is the last and highest cost of capital that we have in our capital stake. And so we know and we recognize there are certain assets in our portfolio today that could command a higher valuation than our implied equity value. And we see that with private market transactions and public market valuations. And in that context we try to take a very balanced approach by taking selected assets that we think will attract that cost of capital and allow us to use that to source funds at a way that will be more accretive to shareholders and just simply issuing stocks. So it is a balancing act, but for us it’s a nice feature to have versus just issuing debt or issuing equity which we don't want to do unless we absolutely have to.

Next question is from Robert Catellier with CIBC World Markets. Please go ahead.

I just have a couple of questions on the US. I wanted to follow up on the comments you made during your remarks, Sachin, on the US market here. Do you see a risk? Or what is the risk that a weakening federal support for renewable policies will ultimately weaken support at the state level? And then what impact that might have on investible opportunities.

Sure. So, if you look at the space and this is even before the elections. They were all different in terms of their policies. California was very aggressive and the highest renewable power standard has moved to a 50% carbon reduction target by 2030. And you saw really California and states in the Northeast New York say various states in New England moving to higher renewable power standards that were all state driven. And then you see you saw other parts of the country like Texas like the Mid-West certain Southeast States taking their own view and recognizing they have very large coal industries and they have their own stakeholders that they had to manage and their targets were far less aggressive. So our view is none of that has really changed and federal policy won’t actually changed what’s going on to state level, because certain states will already far behind from willingness or desire to adopt stringent carbon reduction targets largely because of the base of technology they had the amount of jobs that were reliant on coal or other thermal assets. And if anything they will continue to be behind. And if you look at how we’ve constructed our portfolio over the last decade or 15 years, we’ve primarily focused in the U.S. on those states where we felt they had the strongest carbon reduction targets and where both of the population lived. So we were always focused on the costs. First and foremost, because there was a lot of load there driven by both industrial demand and residential demand. And at the same time, those places happen to be where, they were also the furthest advanced in terms of their carbon reduction targets and we don’t think that will change. And in fact a lot of the CapEx you would have seen being pulled away from coal in the last five years has really meant that a lot of that coal wouldn’t come back online in any event, because companies and utilities in particular having really support of that asset class in those regions for too long of a period.

Okay, that's helpful perspective. So outside of TerraForm, are you more likely to make acquisitions in the US or develop greenfield? You mentioned large-scale opportunities where operators shift the house, but also at same time you see financial players disadvantaged by some of the evolving market trends. So how do you see, really, the distribution between greenfield and acquisitions?

Look, I think we see a great opportunities for both. I think on operating wind and solar, we view that market, it’s pretty mature market. There is been a lot of operating wind and solar built in the U.S. and in Canada over the last five to seven years. And we think that overtime, people who’ve made investments in those assets, want to take capital off the table, want to recycle capital themselves to go back into their core business. So as I said many of investors went into that or either financial or tax driven. And we’re not natural owners of these assets long-term. So we think there will be a good opportunity to acquire those assets as an owner operator. And on the development side given the wind and solar still represent a very small portion of the overall supply stack in the U.S. You still have close to 40% of supply in the U.S. coming from coal assets. There is obviously going to be a very long-term trend to build out wind and solar and that will require development expertise and long-term ownership expertise. So, we think both as really viable growth markets for us. And don’t think one will overtake the other in any matter.

But pretty balanced right now.

Yes.

So final question here. What's the right level of liquidity for the Company in light of everything that's going on? Obviously 1.2 billion seems like a lot, but you're also very active and you've commented about seeing the market move in your favor. Any change to review as to what you have to have in terms of liquidity?

Hi Rob, it’s Nick. No. I think our view of liquidity, I think if you look throughout last year, we maintained around %1 billion available liquidity and that was as we invested consider or most of actually through the year in large transactions. So, I think as we go forward, we’re looking to be in that range of hundred of billion dollar of available liquidity, which allows us on the operational site to absorb any short-term fluctuations hydrology. But also gives us a comfort that we can pursue the growth that we have in front of us.

This concludes your time allocated for questions on today's call. I’ll now turn the call back over to Mr. Shah for closing comments.

Okay. Well, once again, thank you everyone for joining us this morning. We always appreciate the support and interest in the Company. We look forward to talking to you again during our first quarter update early in the New Year. Thank you everyone.

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