Brookfield Renewable Partners L.P. (BEP) Q3 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Brookfield Renewable Partners L.P. Third Quarter 2017 Conference Call and Webcast. As a reminder, all participants are in 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.

Thanks you operator. Good morning everyone and thank you for joining us for our third 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 Web site. 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 are encouraged to review our regulatory filings available on SEDAR, EDGAR and on our Web site. Our business continue to perform well in the third quarter, above average generation, high availability across our fleet and the advancement of our organic growth initiatives, all contributed positively to financial results during the quarter. We remain on track to deliver 8% to 10% FFO per share growth over the last five years. We made significant progress on growth initiatives during the quarter and shortly after the quarter end, we also closed the acquisition of a 51% controlling interest in TerraForm Power. TerraForm Power has 2,600 megawatts of high-quality diversified solar and wind assets located primarily in the U.S. The acquisition is expected to contribute 6% accretion to the partnerships FFO on a run rate basis and generate long-term returns in line with our targets. More broadly, this transaction establishes us with scale operations in solar and deepen their presence in wind and provide the platform for future growth. During the quarter, we also closed two acquisitions in Europe. The first was our 25% stake in First Hydro, which is the U.K's largest, most flexible, and efficient pump storage portfolio. It has 2,100 megawatts of capacity across two plants that are co-owned with the European utility. We also completed the tuck-in acquisition of a 16 megawatt wind farm in Northern Ireland. These transactions mark the continued momentum of our European platform as we capitalize on our deep wind expertise and establish hydro footprints in the region. In aggregate, these transactions deployed $280 million of partnership equity and are expected to deliver approximately $50 million of incremental FFO to the partnership on an annual basis. We also continue to progress the acquisition of 100% of TerraForm global with a shareholder vote scheduled for mid-November. We invested considerable time and resources over the last few years positioning the business to have embedded organic growth, scale to operating developed projects across multiple geographies, and expertise across multiple technologies. We now have almost $30 billion of long duration hydro, wind, solar, storage and distributed generation assets around the world, all producing carbon free power at a time when countries are actively moving to reduce pollution and decarbonize the global economy. All of our facilities are supported by dedicated in-house operating teams to enhance operations and ensure cash flows are both stable and growing. We continue to operate a very stable fixed rate finance portfolio and have access to multiple sources of capital to further enhance the value of the business over time. We believe the scale and diversity will be beneficial to shareholders over the long-term. It should allow us to further reduce operating costs and expand margins over time, pursue repowering opportunities across our fleet that provides long-term embedded growth and advance our 7,000 megawatt development pipeline with little incremental cost given that we can tuck assets into our operations. Accordingly, we are well-positioned to deliver per share FFO growth over the next five years in excess of our 5% to 9% distribution growth targets from contracted revenue escalation, margin expansion, and development activities alone. Finally, we have the benefit of being able to deploy capital around the world to markets where it is scarce, so that we can continue to invest on a value basis. We continue to progress our $435 million development backlog. Having already commissioned almost 60 megawatts of construction assets in 2017, we are advancing the development of a further 265 megawatts largely in Europe and Brazil. In total, these projects should add $45 million to $50 million to our annual FFO over the next three years. In Europe, we commissioned the 15 megawatt wind farm last quarter and we are making good progress towards completion of an additional 65 megawatts of wind which we're on scope, schedule, and budget. In Brazil, we expect to commission a 30 megawatts small hydro project later this year with an additional 20 megawatts on schedule for commissioning in 2018. In addition, we are preparing to bid another two Brazilian hydro development projects totaling approximately 40 megawatts into the upcoming auctions in the fourth quarter, which if successful, should make them ready for construction. From an M&A perspective, we remain very active in all of our key markets. As decarbonization continues to take hold around the world, we believe we are well-positioned with our global operating and development capabilities, our investment expertise and our access to capital to pursue continued long-term growth of the business. As a result, we expect to be able to continue to meet our annual target of deploying 600 million to 700 million of equity into growth opportunities. I'll now turn the call over to Nick to discuss our operating results and financial position. Nick?

Thank you, Sachin, and good morning, everyone. In the third quarter, our business delivered strong results with adjusted EBITDA of $378 million and FFO of $91 million. The results were supported by above average hydroelectric generation and high fleet availability. We continue to maintain a largely contracted portfolio and are focused on select contract -- contracting opportunities across the business to generate further upside. In North America, hydroelectric generation was 6% above the long-term average due to higher precipitation in New York, PJM, Ontario, and Quebec. We actively managed our assets to minimize spills and capture peak pricing. Our reservoirs ended the quarter in line with long-term average, leaving us well positioned for the fourth quarter. Average revenue per megawatt-hour in the quarter was $70 supported by our long-term contracts. In Europe, the business continues to deliver strong operational performance with generation in line with the long-term average. Our operating expertise in the market has enabled us to advance a number of organic growth initiatives both with regards to building out our development pipeline and advancing corporate contracting initiatives. In Brazil, power prices remain well above historical norms as weak hydrological conditions and low reservoir levels persist. We have been able to capture higher prices and benefit from the volatility through the implementation of a successful hedging strategy. We have signed ten PPAs totaling 139 gigawatt-hours per year at an average price of R$230 per megawatt-hour, roughly $70 per megawatt-hour for deliveries up to 2021. This reflects a 3% to 6% premium to existing contracts over this period. In Colombia, the combination of above average hydrology and the ability to draw on our significant storage capacity resulted in hydro generation at 2% above the long-term average. We also ended the quarter with reservoir levels above the long-term average, positioning us well for the upcoming dry season, which typically lasts from December to April. System power prices remain low this quarter. However, recovery and market demand combined with an expected return to more normal hydrology should support increase in prices in the coming months. Our contracting strategy in the country continues to be focused on securing and renewing contracts with distribution companies and creditworthy industrial consumers. We were awarded several medium term contracts with distribution companies and renewed four contracts with the industrial off-takers at prices in the range of COP190 per kilowatt-hour equaling roughly US$65 per megawatt-hour. Our investment in TerraForm Power -- sorry, the -- our recent investment in TerraForm Power, the results of that company has performed in line with expectations so far in 2017 as we look forward we would expect the investment to add approximately $40 million to Brookfield Renewable's FFO in 2018. The opportunity to grow cash flows organically through margin expansion and asset re-powering, we are expecting these assets to provide a meaningful ongoing contribution to our business financial results and support our annual FFO growth targets. Our liquidity position, pro forma for the above mentioned closed transactions, remains strong at $1.7 billion. This leads us well positioned to pursue further growth opportunities in the months ahead. As we look forward, we will be focused on advancing our development and acquisition pipelines, optimizing and enhancing our existing operations, and preserving strong liquidity and access to multiple sources of capital. That concludes our formal remarks. Thank you for joining us this morning and we'd be pleased to take your questions at this time. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question is from Nelson Ng of RBC Capital Markets. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Nelson.

Good morning.

Just a question on TerraForm Global. You mentioned that the shareholder vote is in mid-November. Has the various litigation items been settled and do they have to be settled before the vote?

Hi, Nelson. So they haven't been settled, and they don’t have to be settled prior to the vote. The company continues to work on them and really the ball is in their collective courts around path forward.

Okay. So you can have the vote and then settle the litigation then close the transaction, is that the thing?

Correct.

Okay, perfect. And then, just in terms of organics development activities they are focused in Brazil and Europe. I guess, with -- like after closing the transaction and with the pending global acquisition, do you see a shift in development or at least development resources more towards North America or Asia?

I would delink the two of those things. I would say that we’ve always looked for development in North America, irrespective of owning TerraForm and we’ve always looked for great investment opportunities in Asia. We’ve been looking at India for over three years as you know and so completely untied to TerraForm Global. And if we find them, then we will move forward with them and we will do then. I'd say that the economic dynamic is just different in each region. North America it's pretty tough to do development today. Power prices are very low. Its -- that’s difficult to get long-term PPAs, and so I would never want to overstate that development for any buddy in the U.S and Canada is a real challenge on the wind and solar side, given just the state of the power markets. Hence why TerraForm Power was such an exciting transaction for us, because you could acquire at scale projects with returns that looked a lot like what developers or in fact exceed what developers are earning just to do that same work in the market in the U.S today. India is probably different. India is a market where a lot of development exists. We looked at a lot of development and candidly I would not be surprised if in the next couple of years we have a very meaningful development program in that country.

Okay, thanks. And then just one housekeeping item. In terms of TerraForm Power and Global, how will that be, I guess, reflected in Brookfield Renewable going forward? Like will TerraForm -- like it will be consolidated in the adjusted EBITDA line or will it be its own separate item or will it be the assets fee kind of allocation in the various geographies and generation types?

Hi, Nelson. Its Nick. So TerraForm Power given the ownership structure will be equity accounted into the financial statements. But we will try to break out the performance into the statements that we reflect, but it will be equity accounted. Global will be consolidated in line with how we’ve done previous investments, but again we will try to break out the assets by technology and geography to give you the segment review of performance, but Global consolidated and TerraForm equity accounted.

Okay. Thanks, Nick. I will get back in the queue.

The next question is from Ben Pham with BMO. Please go ahead.

Thanks. Good morning. On the TerraForm, the $40 million that you’re anticipating in FFO, is that -- is there anything you needed to do there to get to that number in terms of financing or cost reductions or is it pretty much in the back for you guys?

No, that’s the going in number, obviously, assuming normal hydrology in the business just operates the way we underwrote it. But -- I’m sorry, normal wind and solar, but -- and hence why we gave a little bit of a preview for the year, they are tracking in line with what we thought and we don't expect anything to deviate from that, other than the resource. And then I'd say long-term it actually gets better, because there is an aggressive cost-cutting program that’s going on there as we in-house operational capabilities. There is going to be a growth program that we can put in place with its cost of capital that we think will be unique to the company. There's obviously a lot of repowering. That's a strong option in the company to continue to grow its fleet or preserve its fleet. So the 40 is a kind of a going in run rate and then there is meaningful growth thereafter.

Okay, great. And on -- you mentioned storage quite a bit on your Investor Day and you’ve now added a segment with storage, your recent first hydro transaction and you look at kind of some of the [indiscernible] you’ve done with co-gen, you kind of just tuck-in another or so, [indiscernible] to see storage sit by itself, so is it more in line with your bullishness on that factoring and its really going to be a big focus for your near-term and over long-term?

Yes, look, I think we’ve always -- if you want to contract to co-gen, which is kind of an interesting way to look at it. Co-gen is something that we’ve always looked at, but really struggled with the economics longer-term unless you can find a very unique situation where you're buying into and tolling arrangement for example. Whereas I'd say storage, the reason it's interesting for us given our large footprint in hydro, wind, and solar, batteries or pump storage have a unique ability to enhance the value of what we already own but then become a critical service for the grid. And so we just see it as a much stronger growth area for us, for those two reasons. And one where from a service to the grid perspective, we have very, very strong capabilities through our pump storage asset in Massachusetts, now with the facilities in the U.K., because the services you sell whether it come from a battery or pump storage are largely the same. In fact, pump storage you sell more services to the grid, then you could out of a battery today, so I'd say we're really well-positioned once batteries become economic and scaled to take our in-house capabilities and use that to drive value through the sector.

Okay. And then, lastly, on -- maybe if I can ask some of the credit rating commentary more recently and just wondering your thoughts on that and how you plan to react to other, think about that from just a -- be a balance sheet perspective?

Yes, sure, Ben. I mean, I think we’ve always stated that we are committed to solid investment-grade and we’ve been solid investment-grade obviously since inception. We remain committed to that and I think BBB flat, BBB plus, we are comfortable in that space. Our funding plans don’t really change based on what the agencies recent note. I’d say that they’re reacting to two years of adverse hydrology, which is varying. I think if you look at their note, they’re saying that they’re waiting to see a return to long-term average, which the business is proving out now. We're going to work closely with them to understand their concerns and work with them to make sure there is no ongoing issues and as it say we remain committed to investment grade and this doesn’t affect our funding plans for the business at all.

Okay, all right. Thanks, Nick. Thanks, Sachin.

The next question is from Rupert Merer with National Bank. Please go ahead.

Hi, gentlemen.

Mr. Merer, your line is open.

Thank you. You acquired a 16 megawatt wind farm in Northern Ireland in the quarter. We had assumed assets in Europe would be too expensive and you might be sellers rather than buyers in that market. Has that changed and can you comment on how the deal came together or what the return profile looks like?

Sure. No, it has not changed. Your baseline assumption Rupert is a 100% accurate. Single asset acquisitions are often too expensive for us. We just have a real local presence in Ireland, given our strong development history there through Bord Gáis [ph] and fortunately the country still has a strong feed-in tariff regime. So this would be, I'd say, more of something that we are able to secure through years of bilateral relationship building. I wouldn't look at this as sort of anything in the underlying economics in the country having changed or in the continent having changed. And it's just a function of having developers in the ground, operators on the ground, every once in a while somebody wants to deal with you because they see you as a credible counterparty who can move quickly, who is good for their word and can do a lot with us in the future. And often the reason developers come to us bilaterally as opposed to going to auctions is they may have 10 other sites and they want to know if they are building a relationship with somebody who will always be there to acquire their projects.

Could you possibly see more opportunities in Europe on the acquisition front?

We actually have a pretty healthy pipeline in Europe today along the continent. But again, there are always situations that are, I'd say, a little bit unique and not your traditional auction situation. So we have a good pipeline. We have a large M&A and development in operating team there now after four years of building that capability out. And -- but I would say you shouldn't expect us to be entering all the options and just paying the most for projects.

Okay, great. And then, secondly, on TerraForm. You talked a little about margin expansion potential. Can you talk a little about the scale of that potential and the timeframe for realizing the benefits? And then also the go-forward plan for TerraForm? If you could give a little color on what we might see in terms of drop-downs in the future?

Sure. So first on cost reduction. So, TerraForm, we left it public. It now have a management team [indiscernible] by the CEO has been pretty open and active in terms of articulating to the market, our cost reduction program coming from both G&A improvement and in-housing operation. So, what I would suggest is you should spend some time on their Web site and look at their public material that I wouldn't want to sort of preview that in advance for people. But it's not a secret that were going to reduce G&A and improve the operational capabilities there and we’re going to see meaningful margin expansion over and above our going in returns. I'd say from a drop-down perspective, we've taken great care to ensure that drop-downs are only to the extent that Brookfield Renewable decides -- we are going to sell something that we just have another buyer in TerraForm who has a ROFO and that doesn't preclude us selling out in an option to a third-party. And so it's a tool that we have -- that brings in another capable low cost of capital buyer, but it's not a call that TerraForm has on Brookfield Renewable and that’s a pretty meaningful difference compared to other yields goes in the market. So you should look at it from a broad perspective as through the extent we decide we’re going to sell projects that are mature, we’ve a good use of proceeds, we are going to use the proceeds to continue to grow our business. All we've done is really added another buyer to the mix, which is great. It's just more competition.

Okay, excellent. Thanks for the color.

Yes.

The next question is from Rob Hope with Scotiabank. Please go ahead.

Good morning. Maybe turning your attention to Brazil, there were some commentary about instituting a new hedging program. It looks like you did successfully entering to some PPAs. Can you just add some color on is this just opportunistically given where the pricing was or is this more of a structural change there?

Hey, Rob. No, I’d say about 3 to 4 years ago when we started to see reservoir levels declining in the country even prior to the recession, we brought our contracting levels way down into the mid-70s, high 70s percentage for two reasons. One is we had a view that water levels in the country would be low and we may not have as much power to generate, so we didn’t want to get caught short. And two, we thought there would be tremendous volatility in the country just by virtue of the growth rates on power demand in the country versus how much reservoir levels were growing. And both prove to play out for us and all the recession did was turbo charge that entire dynamic. And so I'd say for the last three years our position has been to maintain a lower level of contracting and then be very highly opportunistic. So all of a sudden this year as the rainy season was modest at best and the economy is starting to grow again with around 1% GDP growth, we're seeing power demand come back and power prices get very, very elevated very quick. So we’re signing up PPAs again at prices in excess of the mid R$200 per megawatt-hour and we're getting duration of 8 to 12 years on those contract. So it's a very good time right now in Brazil for our business to be signing long-term deals and we’re taking advantage of that.

All right. That’s helpful. And then just adding on some of the commentary earlier in the call just about your ability to allocate capital to different geographies. You did mention that Europe could be looking a little expensive. Where are you seeing the best opportunities right now, either M&A or organic?

So we continue to see opportunity in Brazil. North America continues to be very active for us, more in sort of the category of large complicated things. And Europe, as I said in the earlier commentary is expensive, but we are continuing to find a way to look at bilateral opportunities, which are compelling. I'd say moving to Asia, India is a strong market and we're pretty active there. We have been for a few years and we're just being careful and opportunistic and we will pick our spot. I wouldn’t say one market is better than the other. I think the luxury we now have as an organization is that in every market we’ve got people on the ground who invest on a value basis and have been with us a long time, and our pipelines in all of our markets are quite good and active.

That’s helpful. Thank you.

No problem.

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

Thanks. Good morning, guys.

Good morning.

Couple of questions. The North American wind generation was the low LTA, which, I guess, it's been a running team not just for you guys, but for a lot of the industry. And Sachin, I guess, I'm wondering on when we’re thinking about the ROFO pipeline and the timing towards executing on that, how much does relatively weak generation on the wind side play into your thinking on the pace of which we might see those drop-downs and how that affects your thoughts on valuation parameters might be willing to move those assets on?

Sure. And Sean, it's a good question. I think I’ve said on previous calls, one of the benefits we have on the wind side is although I fully knowledge the wind levels have been lower on a regular basis. Virtually all of the wind we have in North America setting aside TerraForm, we built ourselves and other than I think for a 100 megawatts of it. And being -- this is where being a developer and building your own projects is a real advantage. We were able to build and underwrite at mid to high teens U.S dollar return, supported by utility grade PPAs. And so, what that means if you’re a Brookfield Renewable shareholder is that, if we targeted 16%, 17% return and the wind isn't blowing to the extend we thought, maybe you’re making 14, but we didn’t buy at 8 and are making 6. And that’s a really, really important distinction that I think people need to keep in mind. So from our perspective, having these wind farms generate sort of 14%, 15% returns with slightly lower wind on a buy and hold to maturity basis with 20-year PPAs in the U.S., is a pretty good place for us to be, and it would be very, very tough to replicate those type of returns in today's market. So we're not fuzzed about it. We don't view it as something that is a hangover on the business or that needs to be sold out of the business. In fact, it is the exact reason why we went to development rather than acquisition on a technology that was pretty new in the last 7 to 10 years. When it comes to the ROFO pipeline, that's a completely separate decision framework for us. That will be used to the extent that we find great opportunities to invest capital and we're always better raising money in the business by selling assets at very high returns rather than issuing our equity, which we should always be judicious about given its most expensive cost of capital for us. So, I think we look at that more as a cost of capital use of proceeds decision. Whereas lower wind when you’re a developer and you’ve got significant cushion in your return, it doesn’t keep us up in naïve.

Got it. Okay. Thanks for that. Second question, more broadly on the focus on FFO as the key metric when you’re thinking about dividend growth sustainability, you guys exclude debt repayment from that calculation. Post TerraForm Global, you are going to have more amortizing debt going forward. How are you guys thinking about that item when you're squaring up FFO growth targets and dividend growth sustainability over the long run?

Yes. So, I think your point is that largely today we’ve had a perpetual asset base with hydro being high 80 percentage of our business, and Global that's -- changed that a little bit. We will still be north of 80% with Global. So I think FFO is clearly a really important metric. That being said, look, we are going to provide all of metrics AFFO and FFO and make sure that we provide people with all the information they need to look at the cash flows that are retaining the business versus the cash flows that are being used to deleverage the business. And obviously the trade-off there is that as you’re deleveraging you’re improving your credit quality, and as long as we feel confident that we can keep putting that money to work either by doing redevelopment on the backend or growing the business [technical difficulty] third-party acquisition, it should not be very relevant in terms of ongoing earnings measures. But our objective will be to provide both FFO and AFFO as a regular measure of our cash flow generation in the business.

Got it. Okay. That’s all I had. Thanks, guys.

No, problem.

The next question is from David Noseworthy with Macquarie Capital. Please go ahead.

Good morning.

Thanks. Hi, David.

Maybe I could just start off on Brazil, you mentioned that from the contracts that you’re selling or signing there are 8 to 12 years. But just in the commentary, it mentioned that you’re signing contracts that’s 20, 21. I was just trying to reconcile the two comments.

Yes. So when you’re putting on -- there is free market and there is a regulated market. The free market there is when you’re signing bilateral customers and those contracts could be anywhere from 6 months to 12 months to -- up to 12 years. Generally, beyond 12 years you don't see a market in the free market. And then we get into the regulated market, they’re 20 to 30 years. I think I’m just making this distinction that contracts we're signing in Brazil today are not regulated government PPAs. They’re all with existing customers that we have in the business or new customers that we're attracting through our free market operations. And the duration will vary anywhere from 6 months all the way up to 12 years.

Okay. And then with regards you provided R$230 per megawatt-hour average contract price from the new contracts. How does that compares your contracted price on the overall Brazilian contracted portfolio?

Well, again, I think you have to break out regulated versus free market. Today that would clearly be in excess of the regulated market. The regulated market which is the option market in the country, would probably be low 200, and in the free market its pretty much in line with where the free market trades today, but higher than our embedded contracts in the free market.

All right. That’s helpful. And then, finally, right now we are seeing power prices trade [ph] in Brazil, trading right up to [indiscernible] regulated cap of -- that was up 5.33, I believe. What do you see going forward in 2018? And if the cap raises do you see that flow through to what you get in both the free market and regulated market?

Not really. The cap is more a function of balancing daily supply and demand. It's not something that people can capture meaningfully. What’s more important is it's a strong signal for weak supply or heavy demand or just supply demand in balance. And it's more of an important measure to demonstrate that structurally long-term, the country continues to be short power. And so if we have a development program there and you’ve a contracting capability and you’ve got a good commercial business, then fundamentally long-term you should see earnings growth and earnings appreciation. Are we capturing the 500 every now and then? Yes, we are, but it's not something that we bank on or promote too heavily because of the small part of the business. I think what's more important if you're a shareholder is the trajectory of opportunity in the country as the economy recovers and as supply continues to be weak.

Okay. And just moving to India, Brookfield isn't highlighting obviously [indiscernible] this call and previously your interest in India. How do you think about adding cold thermal power assets to your portfolio as part of gaining a key hydro asset. And is there a maximum amount of thresh -- a maximum threshold of nonrenewal assets above which Brookfield will not go above?

Yes. Look we don’t actively seek out coal or thermal assets. We have over the years acquired some gas plants along the way if they come with a larger portfolio. So, I would say that we always maintain some flexibility to acquire assets we like and bring along other assets that we may have to sell off to somebody, we may have to shut down, we may have to just run off, if they’re a run off type business in order to acquire bulk assets that are renewable that we think have a meaningful place in the supplies that long-term. So we never say never. In terms of hydro in India, we continue to look at it. It's not something that we prioritize over wind and solar in India, they’re all good. I’d say, they just all have different issues. Hydro in India has just suffered from development side from significant cost overruns and weak credit from utility off-takes, given the regions the hydro is in largely in the north or the deep South. And whereas wind and solar, given that you can put those anywhere in the country, you can focus your time and efforts on states with better balance sheets and better utility off-take arrangements. So we're looking at all and we would not say no to bringing a thermal on. In terms of a hard cap that you ask about, again, we don't think of it that way. The business continues to grow and so we feel we have the flexibility in the balance sheet to do a little bit of thermal if we needed to if it's going to move the dial on our renewable business and strategically be very important as a transaction.

Great. Thank you. I will get back in queue. I appreciate your answers.

No, problem.

The next question is from Mark Jarvi with CIBC Capital Markets. Please go ahead.

Good morning. First, its two part question on Columbia. One would be how much generation did you contract at US$65 per megawatt-hour? And then the second part would be, it looks like you’re continuing to see cost improvements, stronger margins which you highlighted at the Investor Day. I’m wondering whether or not that was only unusual in this quarter or is there something that we could think could be sustained in the next few quarters?

Hi, Mark. Sorry, it was thin on the call, but to answer your question, so the contracts that we did in the quarter those prices we did just over a gigawatt hour -- sorry 1,000 gigawatt hours, and that would be for the next two years of those prices and that was done with a very credible utility off-taker in the country. And then for the cost reduction, I think what you're seeing year-over-year in the cost coming down in Colombia is not so much to do with the cost reduction plan, its more than last year when we had low hydrology. We were running the gas plants, we had a few purchases last year than we have this year. So the cost reduction year-over-year is more to do with lower fuel purchases and actually putting in place our plan. We are just going to start to see next year as we start to put in place our longer-term cost reduction, capital restructuring, then you will start to see the efficiencies come through in the results next year.

Okay. That’s helpful. And then question on the recent DOE, the notice of proposed rulemaking on resiliency, what’s your view in terms of the ability of hydro to be considered as one of these fuel save type technologies being given proper consideration in that?

Yes. Well, this is -- these rules are all coming out because of the intermittent nature of wind and solar. And so what the markets and you’re seeing this with ISOs, you’re seeing this with regulators in the federal and state level. They’re looking for technologies that they can compensate or ensure have high degrees of reliability or resiliency depending on the measures that they’re prioritizing. And we continue to believe that hydro meets all of those criteria, and I'd say that the challenge we have sometimes is that high hydro because of its age and vintage doesn't often get into the first round of criteria that the regulators are looking for, but over time as more and more wind and solar come in and more intermittency comes in, and that continues to play havoc with the grid, we’ve seen the benefit show up in other ways that are hydro facilities through ancillary payment streams like spinning reserve or capacity or black start revenue streams. And all of that comes because we are highly reliable, have significant resiliency and can be counted on to provide backup power in the event of a power interruption in key markets in the United States.

Okay. But you don’t think there for in the -- in immediate near-term that you guys would be very considered as part of that package?

Look we are actively trying to be considered part of that, but we are not banking on in at this stage.

Okay, thanks. I appreciate it.

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

Good morning. I think the question is probably for Nick to start off with on contractual profile. So if I look on sequential quarters, you had a little bit of an uptick on the price per megawatt realizations on to the future, not a whole lot of incremental power that was contracted [indiscernible] bid in '19, so to what extend is that -- are there new contracts in place versus just FX moves in the portfolio?

Yes. I would say that we under in the quarter most of the recontracting would have been done in Brazil and Colombia as we highlighted. And so we would have slightly enhanced the levels of contracting, because we did contract at stronger levels for Brazil and Colombia as we discussed. Contracting activity in North America it's lower. We are working towards bidding into the RFPs and working on corporate contracting opportunities. But you’re right, the impact as we look forward is mainly FX and then some marginal improvements in the prices in Brazil and Colombia.

Okay. That’s helpful. And then maybe just following up -- just on looking at industrial contracts, corporate contracts, what’s the level of sophistication that you're seeing from some of the buyers, particularly Amazon's and the Google's looking for renewable power and what kind of green premium [indiscernible] are you really getting and cannot be quantified?

Hey, Andrew. I’d say first the buyers are getting more and more sophisticated and some of them are very sophisticated. And they all want green, because it's important to their customer base and for their public image. Increasingly they understand that wind and solar alone can't provide them full 24/7 green power and hydro is great at being able to balance that. And so, our ability to provide them with a bundled product is something that is resonating. That being said, like everybody today in the power sector in the United States, nobody wants to pay a significant margin for this. So I would say level of sophistication is high. Hydro is clearly starting to be recognized and you are starting to see it even in state-level RFPs that weren't corporate driven because they realize there's going to be more competition for the hydro from a corporate level. And so they’re now starting to include it in their RFPs. Where we still see a strong disconnect is on price. And that’s just a function of where wholesale markets trade today and you can imagine its difficult for some procurement person in organization to justify to their internal committees of paying a meaningful premium when they look at the power price and its trading at $30 megawatt-hour. So we're just in that dynamic right now where the commodity price is very low and we don't see a meaningful premium for green emerging at this stage.

Just maybe one quick follow-up on your comments, Sachin, and it's on the 24/7 comment. Do you view yourselves as having a significant portfolio advantage, given the asset positioning you have in the Northeast at this stage versus a number of other players in the market? And then possibly given what you’ve done on the pump storage in the U.K., an emerging potential advantage in that market.

Yes. And Andrew you’re kind of hitting the nail on the head now, which is -- this is exactly what we've been trying to build out over the last few years which is continued by hydro when we see depressed prices because of their flexibility, capture or storage because it's a great complement to our wind and solar. And then have a very diverse product offering where you can tailor solutions to customers that are more 24/7 that you provide backup capability. And I would even go one step further and say it's also why we're getting into commercial industrial DG or distributed generation because we think that having those customers and being able to build or provide that level of flexibility from multiple resources will over the long-term prove to be very valuable.

Yes, that’s great. Thank you.

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

Hi, good morning. Just wanted to build further on distribution generation opportunity. Obviously, you’re gathering a lot of investor attention right now and do know that TerraForm is an important player in that square. Just wondering if BEP is planning to keep TerraForm as its preferred platform to grow market share or is there a separate plan for the partnership to pursue DG opportunities on its own?

Hi, Frederic. So, yes, it's a good question. I think the way to think about TerraForm is obviously TerraForm does not do any development work. It acquires operating assets whether they are at a DG level or they’re at a utility level, focused on C&I. And so, I think to -- if we’re going to build out a DG business, there's room for both. TerraForm has the ability to keep buying assets that are operating, they don't have development risk, whereas Brookfield Renewable can really benefit from its development capabilities and if we're originating customers we're doing development work that will be clearly in Brookfield Renewable. But we will need to obviously keep those two things separate over the long-term.

And are there better opportunities in the states at the moment or are you seeing this market sort of evolve also elsewhere?

Sorry, are you saying are the better opportunities in the U.S today?

In DG, yes.

U.S is clearly further along on DG mostly because they had very strong net metering policies and that led to a significant proliferation of DG across the U.S in what I call high-value states. So that’s our focus today.

Okay. Thank you.

Yes.

The next question is from Sophie Karp with Guggenheim Securities. Please go ahead.

Hi, good morning. Thank you for taking my question. I wanted to ponder a little more in this TerraForm and Brookfield relationship. And my question is this, you mentioned that you would -- could potentially sell mature assets into TerraForm. And what constitutes a mature asset in your definition? And also, why would that be better for TerraForm to own such an asset? It seems that versus Brookfield versus -- considering that the cost of capital seems to be fairly similar at this point between the two entities, if we take a look at the Bloomberg forward estimates in or do you expect that to change somehow the cost of capital relationship? Thank you.

Sure. So there is a couple of questions in there. First of all, what do we define as mature? I think any asset where we have developed it, we built it or operating it, we put a contract on it, we finance it long-term and there -- and maybe we’ve squeezed as much margin out of it as we can, I would define as largely mature. It's better held in somebody else's hands long-term as more of a coupon type asset than ours where there's limited operating upside that we can draw out of the asset. And again we look at it simply as a way to raise capital at a better cost than issuing our equity. So this is not suggesting we have an active sales program, but recycling our capital is really important to us and you’ve seen over the last few years that selectively we have sold off wind farms that meet that criteria. So I think that's that our definition, number one. Number two is when we think about cost of capital of TerraForm versus Brookfield Renewable, I know many people in the market just look at dividend yield, we look at it a little bit differently. We think about cost of capital in terms of what type of return are we promising to generate for our shareholders. And at Brookfield Renewable, we’ve always targeted a 12% to 15% long-term return. We believe that the cost of our equity that people ascribed to our equity and that’s our cost of capital, whereas in TerraForm Power they’re targeting more of a 9% to 11% type return in that -- there cost of capital from what they promised to deliver to their shareholders long-term. So clearly they have a lower cost of capital than we do, setting aside where the shares trade. And then, lastly, I would say that they’re just one potential buyer for these assets. We will, if we decide to sell, because an asset is maturing because we have a good use of proceed, then we will run a sales process and TerraForm will -- would or could participate in that and have a right of first offer. It doesn't mean that somebody else who was in even lower cost of capital couldn't come in and buy that. It just means that TerraForm had access to a very large portfolio now of assets that could be sold in the future to help its growth program. I think more importantly for TerraForm and what you can see what we’ve articulated to the street is that what it gives that is a dedicated wind and solar platform largely in the U.S and Western Europe where assets do trade at a premium. We often don't buy those assets because of our target returns. We now have a company that can go out, they can acquire these projects with Brookfield asset management providing its investment capabilities, but acquire them with their cost of capital which is lower and grow the business on that basis. And so, we think it's a unique vehicle because it will be able to grow through M&A, it will have access to this ROFA pipeline, it will have organic growth inside of it. And long-term if we can build it out, then it becomes a nice piece of Brookfield Renewable's business to participate in assets we otherwise couldn’t own.

Thank you.

No, problem.

This concludes the question-and-answer session. I will now hand the call back over to the presenters for closing comments.

Okay. Well, once again thank you for joining us today on our quarterly conference call. We appreciate the support as always and we look forward to updating you at the end of the year on our full-year results in February. Thank you everyone.

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