Speaker 1: Welcome to zero I am Akshatrati this week, sun wind
Speaker 1: and making money. The COP twenty eighth meeting that ended
Speaker 1: in December led to many big announcements. That's the nature
Speaker 1: of these global climate diplomacy shindix. Lots of countries make
Speaker 1: big promises, such as tripling renewable energy, transitioning away from
Speaker 1: fossil fuels. It's only really years after that you can
Speaker 1: tell whether these countries were serious and delivered on those
Speaker 1: promises or it was all just good sound bites. However,
Speaker 1: there was one achievement on the first day of COP
Speaker 1: twenty eight in Dubai that is delivering results. The United
Speaker 1: Arab Emirates, the host country, pledged to put thirty billion
Speaker 1: dollars into a new climate finance fund named al Terra,
Speaker 1: and some of that money was immediately allocated to scaling
Speaker 1: up renewable energy projects in developing countries where the need
Speaker 1: for finance is the greatest. One of the firms that's
Speaker 1: going to put some of those billions to work is
Speaker 1: the Canadian asset management firm Brookfield. Brookfield already manages more
Speaker 1: than eight hundred and fifty billion dollars worth of assets,
Speaker 1: everything from real estate to private equity. About a tenth
Speaker 1: of its total assets are in renewables and the climate transition.
Speaker 1: In twenty twenty one, its renewable division launched the fifteen
Speaker 1: billion dollar Brookfield Global Transition Fund. At the time, it
Speaker 1: was the world's largest private fund of its kind dedicated
Speaker 1: to financing the energy transition. Brookfield is now raising a
Speaker 1: second fund of the same kind, and Alterra will invest
Speaker 1: two billion dollars in that fund. More importantly, and separately,
Speaker 1: Altera will invest one billion dollars in a new fund
Speaker 1: that's supposed to only invest in developing country Yes, so,
Speaker 1: how exactly will it work? To help me understand, I
Speaker 1: spoke to Connor Tesky. He started his career at Brookfield
Speaker 1: eleven years ago in private equity and became the CEO
Speaker 1: of Brookfield Renewable Partners in twenty twenty. I spoke with
Speaker 1: Connor at COP twenty eight in December to ask how
Speaker 1: to invest big money in developing countries, how to make
Speaker 1: a good return on renewables, and how to transition fossil
Speaker 1: fuel assets into clean energy.
Speaker 2: Connor, welcome to the show.
Speaker 3: Thank you, thank you for having us.
Speaker 2: Now at Brookfield. You do a few things, but you
Speaker 2: do head the renewables section, and here at COP twenty
Speaker 2: eight there is a lot of talk about renewables. There's
Speaker 2: a global goal to try and trip renewables by twenty thirty.
Speaker 2: Seems Brookfield's target is much more than just tripling, isn't it?
Speaker 3: I would say so yeah, And when we hear the
Speaker 3: global target of tripling renewables by twenty thirty, that seems
Speaker 3: very achievable. When we look across our business today, almost
Speaker 3: across asset classes and across geographies, the one thing that
Speaker 3: is overwhelming today is simply the amount of demand for
Speaker 3: clean power, in particular from corporates. And this has been
Speaker 3: accelerating for years and is at its highest level today
Speaker 3: and only expected to continue to accelerate going forward.
Speaker 2: As is in the management for renewables for you, were
Speaker 2: fifty seven billion dollars in twenty twenty, sixty nine billion
Speaker 2: dollars in twenty twenty one, and seventy seven billion dollars
Speaker 2: in twenty twenty two. Clearly it's gone up, but it's
Speaker 2: slowed down a little bit.
Speaker 3: I wouldn't read too much into that trajectory. I would
Speaker 3: say our our business is growing faster today than ever before.
Speaker 3: And assets under management. There's a lot of things that
Speaker 3: go into that. What assets are we building, what assets
Speaker 3: are we buying, what assets are we selling. But if
Speaker 3: there was a number to focus on that is illustrative
Speaker 3: of the growth in our business and the growth of
Speaker 3: the renewables market going forward. Is our run rate on
Speaker 3: a global basis is? Today we bring online about seven
Speaker 3: thousand megawatts of new capacity every year. That number is
Speaker 3: up significantly versus three or four or five years ago.
Speaker 2: Now we're talking renewables, but of course there are different
Speaker 2: forms of renewables, and solar deployment globally is at a
Speaker 2: record base. Wind is struggling. So can we just talk
Speaker 2: through the different technologies. Where do you see progress and
Speaker 2: where do you see challenges?
Speaker 3: You're highlighting a great point. Today's solar is the fastest
Speaker 3: growing tech technology on a global basis, and it's important
Speaker 3: to recognize why. Twenty years ago, if you were developing renewables,
Speaker 3: you were likely developing a hydro electric facility. That's millions
Speaker 3: and tons of steel, millions and tons of concrete, multi
Speaker 3: year construction period, usually somewhere out in the wilderness. You
Speaker 3: need to camp workers there overnight, et cetera. Go back
Speaker 3: maybe twelve to fifteen years ago, if you were developing renewables.
Speaker 3: You're developing wind that is far easier than hydro, but
Speaker 3: it's still special ships to transport the equipment. You've still
Speaker 3: got to shut highways at night. If something breaks, you
Speaker 3: got to get a crane. And then came a long solar.
Speaker 3: The majority of solar is built between three and twelve
Speaker 3: feet above the ground. The equipment is modular. You can
Speaker 3: start a construction program on all four sides and meat
Speaker 3: in the middle. And therefore, if you can generate the
Speaker 3: same financial return building solar versus building wind or hydro,
Speaker 3: you will naturally pick solar because it is the least
Speaker 3: operationally intensive. Now that being said, the whole world can't
Speaker 3: run on solar. The nature of intermittent renewable technologies is
Speaker 3: we need different forms of energy that have differentiated load
Speaker 3: patterns to provide a complete energy solution to the grid.
Speaker 3: So while solar is accelerating now and wind perhaps accelerated
Speaker 3: a few years ago and is plateauing off, they all
Speaker 3: need to grow going forward. And our view is some
Speaker 3: of the headwinds being felt in the wind space are
Speaker 3: quite discrete in nature and the industry will move past
Speaker 3: them and you will continue to see very significant growth
Speaker 3: in the wind asset class.
Speaker 2: When do you see that happening very readily?
Speaker 3: A number of the issues that took place in wind
Speaker 3: are discrete. They can be attributable to disruptions in shipping
Speaker 3: and a cohort of contracts in a number of wind
Speaker 3: farms around the world, in particular offshore wind that we're struck,
Speaker 3: I would say with unfortunate timing and unfortunate economics for
Speaker 3: those across the value chain. We are already seeing the
Speaker 3: industry react very quickly, not only to adjust those economics
Speaker 3: to enable the greater build out of wind going forward,
Speaker 3: but also more appropriate risk sharing across the value chain.
Speaker 3: That will ensure we've learned our lessons from those experiences
Speaker 3: and the whole industry will be better equipped to not
Speaker 3: repeat those going.
Speaker 2: Forward, which is going to cause prices to go up
Speaker 2: for wind deployment. Our customers, the off takers ready for it.
Speaker 2: Are governments ready to ensure that those prices are reflective
Speaker 2: of an industry that needs to grow. Absolutely, the wind
Speaker 2: industry has suffered critical setbacks in recent years. The pandemic
Speaker 2: caused disruptions in the global economy and trade, pushing up
Speaker 2: the cost of coodities, labor and borrowing. That's a problem
Speaker 2: because a lot of wind farms are locked into contracts
Speaker 2: agreed two years ago, and that means produces a bound
Speaker 2: to projects that sell power at fixed rates, which, given
Speaker 2: today's cost structure, makes the project unprofitable. As a result,
Speaker 2: developers have been forced to walk away from contracts. The
Speaker 2: long list of cancel projects is causing a headache for
Speaker 2: governments across Europe and the US that have set targets
Speaker 2: to reach a certain amount of wind power in their mix.
Speaker 2: Now these governments are going to have to pay more
Speaker 2: than they previously thought.
Speaker 3: And this is probably one of the most dramatic things
Speaker 3: that we are seeing across our business around the world today.
Speaker 3: Is yes, due to financing costs increasing, capex costs increasing
Speaker 3: as they have over the last twelve to twenty four
Speaker 3: to thirty months, you have seen corporate off take contracts
Speaker 3: appropriately adjust to ensure that renewable developers can continue to
Speaker 3: earn an appropriate margin and capital can continue to be
Speaker 3: attracted to the sector. But what's important to recognize as well,
Speaker 3: there's two dynamics. One they still are typically at a
Speaker 3: significant discount to retail costs, so the end customer is
Speaker 3: still getting a energy price discount a cost savings by
Speaker 3: using renewable power. And two, the demand for green power
Speaker 3: today is higher than it has been at any point
Speaker 3: in history. There has long been a supply demand imbalance,
Speaker 3: meaning there is more demand for new green power off
Speaker 3: takes and there are ready to build projects available. That
Speaker 3: supply demand imbalance today is stronger than any before. We
Speaker 3: don't struggle to find demand and off take to pull
Speaker 3: projects out of the ground. Well.
Speaker 2: One example played out in the UK where I live,
Speaker 2: where the gun brought in a bid to get offshore
Speaker 2: wind deployment a lower price than had ever been set,
Speaker 2: and the government was pretty confident there would be bids
Speaker 2: coming in. Zero came in and so they've had to
Speaker 2: change and increase their bid for the next round.
Speaker 3: That sounds about right, yeah, and.
Speaker 2: They had to increase their price by forty percent. The
Speaker 2: next auction hasn't happened, so we'll see if new bids
Speaker 2: come in, but the industry says they are interested in
Speaker 2: it now. Tripling renewables by twenty thirty is as we've
Speaker 2: looked from other analysts to quite doable. The bottlenecks that
Speaker 2: they see isn't really deploying the assets for wind and solar,
Speaker 2: it's really grids and permitting. How are you thinking about them?
Speaker 3: You nailed it. Depending on the region around the world,
Speaker 3: there tends to be three bottlenecks to the development of renewables,
Speaker 3: securing land, securing grids, and securing permits. And I would
Speaker 3: say in different regions around the world it's a different
Speaker 3: one of those three. The vast majority of the bottlenecks
Speaker 3: are permits and interction. What I would say as well,
Speaker 3: these are real limitations. Today, there is a very cohesive effort,
Speaker 3: I would say, in almost every major market around the
Speaker 3: world to accelerate and overcome some of these bottlenecks. One
Speaker 3: of the very positive outcomes over the European energy crisis
Speaker 3: over the last two or three years, if you've seen
Speaker 3: concerted efforts across the EUS to accelerate the permitting process,
Speaker 3: that had a noticeable impact on the ground at the
Speaker 3: local development level. It was immediately felt and allowed more
Speaker 3: projects to get into planning and construction than at a
Speaker 3: faster rate than before. When it comes to interconnection, there
Speaker 3: is going to need to be significant grid enhancement going
Speaker 3: forward to support the build out of renewables. Grids around
Speaker 3: the world are attracting that capital. It will continue to
Speaker 3: be a bottleneck for some period of time, but it's
Speaker 3: also important to recognize that many of the solutions are
Speaker 3: accelerating equally. As fast storage is being built out even
Speaker 3: on a relative basis, growing faster than renewables. That helps
Speaker 3: address some of the interconnection concerns, as well as the
Speaker 3: growth of asset classes like distributed generation where you can
Speaker 3: produce the electricity right at the point of the end
Speaker 3: consumer and not be as reliant on the grid. So
Speaker 3: you're absolutely right, those are the limitations today. They are
Speaker 3: getting better. There is still work to do. I would
Speaker 3: say the investors and operators who will drive the greatest
Speaker 3: amount going forward are the ones most well positioned to
Speaker 3: navigate those issues because there are not immediate fixes.
Speaker 2: More from the conversation after the break. Now, developed markets
Speaker 2: are places where you have less risk of all kinds
Speaker 2: and you're able to invest heavily. What is the split
Speaker 2: for Brookfield between developed economies and developing countries Globally?
Speaker 3: We like to think we're generally about three quarters in
Speaker 3: develop markets. Around the world and twenty to twenty five
Speaker 3: percent in developing markets. We have a long history in
Speaker 3: developing markets, in particular large businesses in Brazil, India and
Speaker 3: Latin America, and we are actually in the process of
Speaker 3: expanding that mandate to take some of our capital and
Speaker 3: our operating capabilities to address transition investing in a wider
Speaker 3: spectrum of developing market.
Speaker 2: Can you talk a little more about what new markets
Speaker 2: are you looking at in the developing countries?
Speaker 3: Certainly absolutely a greater reach within Latin and Central America,
Speaker 3: and then Eastern Europe and then the last one I
Speaker 3: would highlight being Southeast Asia. Those are three markets that
Speaker 3: we see tremendous operation tunity, and in fact what's important
Speaker 3: to recognize is we have a global platform and when
Speaker 3: we look to invest in these countries, in these regions,
Speaker 3: we need two things. We need one to see a
Speaker 3: market opportunity there, and then two we need to have
Speaker 3: an appropriate pool of capital that matches that market opportunity.
Speaker 3: We've just recently announced a vehicle that will focus specifically
Speaker 3: on those developing and emerging markets with a mandate of
Speaker 3: accelerating the transition in those regions. So we're now very
Speaker 3: excited to have that second component, which is that pool
Speaker 3: of capital to appropriately direct to that investment opportunity set.
Speaker 2: You're hinting at a new fund that was announced here
Speaker 2: at COP twenty eight, the al Terra Fund, which at
Speaker 2: least as plans go, is supposed to have thirty billion
Speaker 2: dollars in it, where twenty five billion dollars would be
Speaker 2: invested in developed countries and five billion dollars would be
Speaker 2: used as concessional finances attract more capital and specifically targeted
Speaker 2: in developm in countries. How much of that is Brookfield
Speaker 2: going to be participating in and how exactly.
Speaker 3: Al Tara and Brookfield are going to partner in two
Speaker 3: different ways. Al Tara is making a very meaningful commitment
Speaker 3: to our Global Transition Fund, which is currently on its
Speaker 3: second vintage. And then, perhaps more interesting to the comments
Speaker 3: you just made, Altara will also be committing one billion
Speaker 3: dollars to what we call the Catalytic Transition Fund, which
Speaker 3: we'll focus on accelerating decarbonization and transition investing in emerging markets.
Speaker 3: And what's very exciting about the one billion dollars that
Speaker 3: al Tara will commit to that fund is it comes
Speaker 3: in the form of catalytic capital that enhances the returns
Speaker 3: to other LPs in the fund, with a view of
Speaker 3: crowding in more institutional capital and really scaling up the
Speaker 3: pool for investment in those markets.
Speaker 1: Let's break down that jargon. What Connor is saying is
Speaker 1: that at Brookfield will use al Terra's billion dollars to
Speaker 1: bring in other investors and perhaps launch a four billion
Speaker 1: dollar fund dedicated to investing in renewable projects in developing countries.
Speaker 1: Why would other investors join It's because the profits on
Speaker 1: the billion dollar investment will be capped, and so the
Speaker 1: other investors joining in the fund can take more of
Speaker 1: the profits. And that's important because most private investors putting
Speaker 1: money in, say a solar farm in Kenya, see it
Speaker 1: as a riskier investment than a solar farm in France.
Speaker 1: That's because developing countries can often have currencies that fluctuate,
Speaker 1: a lot of bureaucracies that can mean payments are delayed
Speaker 1: or myriad other problems, and so the private investors want
Speaker 1: higher returns from a Kenyan solar farm than they would
Speaker 1: from a French solar farm, and that's what all Terra's
Speaker 1: billion dollar is promising to deliver.
Speaker 2: But you just said that there are billions being invested
Speaker 2: in developing countries already. Is it just more billions going
Speaker 2: in or is it actually opening new marks?
Speaker 3: Great? Great question. To date, the majority of the capital
Speaker 3: going into emerging markets has it has gone towards transition
Speaker 3: or decarbonization investments, But I would say ones that are
Speaker 3: more de risked, and therefore within those markets, it is
Speaker 3: a somewhat limited opportunity set that most investors are allowed
Speaker 3: to target within these markets. With now the benefit of
Speaker 3: the Catalytic Transition Fund and its differentiated investment profile and
Speaker 3: return mandate, there are different things we can look at,
Speaker 3: and I'll give you an example to make this play out.
Speaker 3: If we go to large developing markets like India and
Speaker 3: Brazil and we use our large global corporate off take
Speaker 3: relationships and we partner with some of the biggest global
Speaker 3: corporates simply to build wind and solar farms there with
Speaker 3: twenty year inflation link corporate off takes, we add absolutely
Speaker 3: we're already doing that in markets like India and Brazil
Speaker 3: and Columbia to date.
Speaker 1: Connor refers to corporate opt takes or corporate PPAs interchangeably.
Speaker 1: PPA basically stands for power purchasing agreements, and global companies
Speaker 1: are one of the biggest reasons for signing these power
Speaker 1: purchasing agreements for renewable deployment across the world. It's because
Speaker 1: companies like Amazon or Google want their warehouses and data
Speaker 1: centers to be only powered by renewables, regardless of where
Speaker 1: they operate in the world, and so they signed contracts
Speaker 1: with utilities that build solar wind farms, with almost all
Speaker 1: the electricity generated being fully consumed by these companies. It's
Speaker 1: a good deal for the utilities because they know these
Speaker 1: global companies will pay them on time. And it's a
Speaker 1: good deal for the global companies because they get clean
Speaker 1: energy in a country whether grid is typically powered by
Speaker 1: fossil fuels. And from an investor perspective, it means this
Speaker 1: type of solar farm asset is risk free, lower risk,
Speaker 1: or as Connor says, de risked.
Speaker 3: But in some of the emerging markets, maybe there isn't
Speaker 3: that well defined robust revenue construct. Maybe the corporate ppa
Speaker 3: market isn't as long in term, and therefore things like
Speaker 3: the catalytic capital appropriately adjust the risk return profile to
Speaker 3: make it more attractive. Maybe in even more mature developing
Speaker 3: markets like Brazil and India. It's not necessarily the down
Speaker 3: the fair Way wind and solar, but maybe it's getting
Speaker 3: into things like building out hydrogen or equipment supply chains
Speaker 3: and things like that. So while there is capital flowing
Speaker 3: into some of those developing markets already, there is no
Speaker 3: doubt that the Catalytic Transition Fund, with its differentiated risk
Speaker 3: return profile, certainly one increases the number of geographies, but
Speaker 3: even within those geographies increases the spectrum of investible opportunities.
Speaker 2: We do not name any new geographies that you have
Speaker 2: not invested in which could open up with.
Speaker 3: This, So today we are not invested in Southeast Asia,
Speaker 3: so that is a market that will open up as
Speaker 3: a result of this. We are quite active in Latin
Speaker 3: in Brazil that goes very long to Brookfield's history. But
Speaker 3: I would say there are more geographies we can now
Speaker 3: go to, particularly in and around Central America where perhaps
Speaker 3: we haven't gone in the past, as well as Eastern Europe,
Speaker 3: where we have a modest presence but not in all countries.
Speaker 3: And with this fund, we now have the mandate to
Speaker 3: go into more countries in those regions. So I would
Speaker 3: expect to see the Catalyic Transition Fund lead to us
Speaker 3: bringing our global platform and its operating capabilities and its
Speaker 3: capital to a large number of new countries.
Speaker 2: Well, the all Terra Funds catalytic portion has been pitched
Speaker 2: as never done before, is going to make a revolutionary difference. Now,
Speaker 2: we as journalists haven't really got to details, and so
Speaker 2: we are taking this claim on face value. But it's
Speaker 2: difficult to make this capital work. How serious do you
Speaker 2: think EUAE is when it's making this investment?
Speaker 3: Very serious, and I would perhaps put it in three buckets.
Speaker 3: The first is simply the size of the commitment they
Speaker 3: are making, which is truly transformational and well, a significant
Speaker 3: amount of that out capital has been allocated today, much
Speaker 3: of it will be allocated in the future, but the
Speaker 3: sheer size of it and the multiplier effect it will
Speaker 3: have on crowding in other institutional capital, it should not
Speaker 3: be dismissed. This is quite transformative and very commendable what
Speaker 3: they've done. From that perspective, the second thing, which I
Speaker 3: think can be taken to demonstrate the seriousness of it
Speaker 3: and how it will have an enduring impact, is they
Speaker 3: have partnered with the leaders of this type of investing
Speaker 3: around the world, have sought out council from the leading
Speaker 3: transition platforms, all that have slightly different mandates and invest
Speaker 3: slightly differently, but they have worked with those and supported
Speaker 3: those and picked very strategically who their partners are in
Speaker 3: order to have the best effect. And then the third
Speaker 3: point we would make is what we have experienced in
Speaker 3: working with the team at all Terra is this is
Speaker 3: something they are very committed to. They are not simply
Speaker 3: committing capital, they are committing human capital. They have dedicated
Speaker 3: significant time and resources to working alongside those partners to
Speaker 3: structure these vehicles to ensure that they're not only going
Speaker 3: to be successful today at announcement, but will be successful
Speaker 3: as they are executed in years to come.
Speaker 2: The total amount that is needed to be invested in
Speaker 2: the transition in developing countries needs to be three to
Speaker 2: four times as it is today. Developed economies are getting
Speaker 2: much of that money. But let's look at the fact
Speaker 2: that you painting a picture which is yes, there's some problems,
Speaker 2: but it's really rosie. There is just so much to build,
Speaker 2: so much support and lots of profit on the table.
Speaker 2: If that's the case, why is it that oil and
Speaker 2: gas companies are trying to shrink their renewables portfolio. Right,
Speaker 2: these are companies that know how to do large infrastructure projects.
Speaker 2: What causes them to step back?
Speaker 3: So I would maybe come at that dynamic this way.
Speaker 3: In the last few years, there are three things that
Speaker 3: we have really seen in the developed transition market. The
Speaker 3: first one is a larger and more attractive opportunity set
Speaker 3: than both a commercial opportunity set and a more impactful
Speaker 3: decarbonization opportunity set then I think almost anyone imagined. The
Speaker 3: second one is in recently around the world we are
Speaker 3: seeing energy transition is more of a corporate pull than
Speaker 3: a government push. And what we would say is the
Speaker 3: trend line on decarbonization is being driven by corporates, the
Speaker 3: EBB and flow above that trend line is being driven
Speaker 3: by government policy. And then the third deal that's specifically renewables,
Speaker 3: renewables and other decarbonization solutions, whether it be biofuels or
Speaker 3: carbon capture, things like that.
Speaker 2: Surely that's not true given the fact that Inflation Reduction
Speaker 2: Act the European Green Deal were necessary for these things.
Speaker 3: To move on to.
Speaker 2: That renewables, I may let you have that case. These
Speaker 2: tax crisers in the US have been around for a while,
Speaker 2: but really is the corporate ppa market that's driving the transition.
Speaker 2: Those numbers make sense, but other solutions.
Speaker 3: Let me frame it a different way, and let's see
Speaker 3: if we agree, which is things like biofuels in carbon capture.
Speaker 3: Without question, IRA has accelerated their growth. Nobody disputes that
Speaker 3: they would still have been growing and still have been
Speaker 3: accelerating in the absence of IR right. And then maybe
Speaker 3: just the third one to round it out is the
Speaker 3: last thing we've seen is not on the investment opportunity side,
Speaker 3: but rather on the investor side. And in that bucket
Speaker 3: we've seen really two or three things. One more and
Speaker 3: more investors around the world having a transition or decarbonization
Speaker 3: investing allocation. And I think that's because the commercial opportunity
Speaker 3: set is large and growing. And then secondly, an increased
Speaker 3: pragmatism amongst those investors that it isn't all about simply
Speaker 3: what's building out more of what is already perfectly green
Speaker 3: and clean and pristine, but also a willingness to sometimes
Speaker 3: go where the emissions are in order to decarbonize something.
Speaker 3: I highlight those three dynamics. Corporate demand, large and attractive
Speaker 3: opportunity set, and growing investor momentum, and investor pragmatism because
Speaker 3: we see I see all three of those things happening
Speaker 3: in emerging markets very similar to how they have happened
Speaker 3: in developed markets, but on a slightly lagged basis. And
Speaker 3: that's why as we look to investing in those markets
Speaker 3: going forward, we do think one, it's an attractive opportunity
Speaker 3: set today. Now let's get back to the oil question. This,
Speaker 3: I would say comes down to a very specific question
Speaker 3: of who are your stakeholders and what do they want.
Speaker 3: There is no question that if you look at the
Speaker 3: investment profile of a new build twenty year contracted wind
Speaker 3: or solar facility, it is a lower return. But if
Speaker 3: you have a twenty year inflation linked off take with Microsoft,
Speaker 3: you could argue it's a very de risk return. It's
Speaker 3: slightly lower on the risk return spectrum. I am not
Speaker 3: a oil and gas engineer, but I understand that if
Speaker 3: you drill for oil, and you do it well and
Speaker 3: you hit a good reserve, your short returns can be
Speaker 3: a lot higher. And you are seeing some leading energy
Speaker 3: companies either invest in renewables or invest in things like
Speaker 3: e fuels or hydrogen where they feel their skill set
Speaker 3: is more appropriate, or invest in other decarbonization solutions where
Speaker 3: they feel that is more in line with the investment
Speaker 3: profile that their investors want them to take.
Speaker 2: Now, wearing the President's had seventy seven billion out of
Speaker 2: the eight hundred and fifty billion dollars is renewables, you
Speaker 2: have a lot of other assets and they are carbon generating.
Speaker 2: What are you doing about those?
Speaker 3: So I think it's an important thing to recognize and
Speaker 3: it's something we say proudly at Brookfield, even those within
Speaker 3: the Renewable Power in Transition platform. It's important to recognize
Speaker 3: that every asset at Brookfield is decarbonizing, not just the
Speaker 3: ones in the Renewable Power and Transition platform, because we
Speaker 3: have a fundamental belief across our organization that by decarbonizing
Speaker 3: our investments, we are de risking them going forward and
Speaker 3: enhancing their value. So it doesn't matter if you're in
Speaker 3: real estate or infrastructure or private equity business. This is
Speaker 3: a value lever to enhance the returns of our portfolio companies.
Speaker 2: Yes, you have a zero by twenty fifty target for
Speaker 2: all your assets, but real estate is a really difficult
Speaker 2: asset to decarbonize. What's short term looking like, are you
Speaker 2: able to hit the powers goals of being able to
Speaker 2: havelff your asset emissions by twenty thirty.
Speaker 3: You picked real estates one where I would say we
Speaker 3: feel most confident about hitting those goals because of there
Speaker 3: are such well established ways to reduce the carbon emissions
Speaker 3: in real estate. Most notably the biggest thing is sourcing
Speaker 3: and procuring green power. And then secondly, the other obvious
Speaker 3: one when it comes to real estate is improving the
Speaker 3: energy efficiency within the buildings, whether it be a facts
Speaker 3: or smart meters, our products and solutions like that. One
Speaker 3: of the key differentiators of those good versus bad dynamics
Speaker 3: is how energy efficient is you're building and how well
Speaker 3: is it set up. As those energy efficiency standards increase
Speaker 3: going forwards, We're not doing that just to get a certification.
Speaker 3: We're doing that because our end customers, the tenants are
Speaker 3: demanding it when they pick the next place that they're
Speaker 3: going to lease retailer office space. So I would say
Speaker 3: this is front of mind, not simply as a philosophy,
Speaker 3: but as a key commercial initiative to drive returns in
Speaker 3: our investments.
Speaker 2: One other thing that Rupield is trying to do hasn't
Speaker 2: quite succeeded yet is trying to get brown assets fossil
Speaker 2: assets and then trying to turn them into green assets.
Speaker 2: You tried that with the Australian Utility AGL, didn't work out.
Speaker 2: You are trying it and again there's failure today of
Speaker 2: trying to or Origin and that didn't work out. Could
Speaker 2: you just talk through the philosophy and why has it
Speaker 2: been so hard?
Speaker 3: We do feel that one of the most impactful ways
Speaker 3: to drive the energy transition is that willingness to go
Speaker 3: where the emissions are in order to make carbon intensive
Speaker 3: but critical industries more sustainable going forward. And the nature
Speaker 3: of these businesses is they need not only large capital
Speaker 3: providers to effectuate that significant transition, but they also need
Speaker 3: people with very large operating capabilities. This isn't necessarily a
Speaker 3: problem you can just throw money at capital is a
Speaker 3: big part of the solution, but it's also having the
Speaker 3: know how of how to transition those large, critical, somewhat
Speaker 3: complicated businesses to more sustainable business models.
Speaker 1: Just a little bit of context here. AGAL and Origin
Speaker 1: are some of the biggest electricity producers in Austria, with
Speaker 1: many power plants burning fossil fields. Brookfield and a few
Speaker 1: other like minded investors have tried to buy out these
Speaker 1: public companies, make them private, and then accelerate their transition
Speaker 1: to clean energy. The trouble is that it would mean
Speaker 1: Brookfield will have to take on the additional emissions from
Speaker 1: these companies when advise them, and then keep them on
Speaker 1: its books until the clean energy transition is complete. In
Speaker 1: accounting terms, it would look like Brookfield is going in
Speaker 1: the wrong direction on its net zero goals, even as
Speaker 1: it is helping the world get to net zero faster.
Speaker 1: It's a tricky accounting problem that investors trying to speed
Speaker 1: up the transition will have to deal with. For now.
Speaker 1: Brookfield didn't succeed in Australia with AGL or with Origin,
Speaker 1: but it has examples of making this kind of transition
Speaker 1: work for other big companies.
Speaker 3: We have a very successful investment in Central America called
Speaker 3: inter Energy. This is a multi asset, class, multi jurisdictional
Speaker 3: utility across five or six different countries in Central America
Speaker 3: and we are currently working to get it off of
Speaker 3: heavy fuel oil and diesel onto strictly natural gas and renewables.
Speaker 3: And it's one of these great examples where doing so
Speaker 3: not only very materially decarbonizes the business, but also enhances
Speaker 3: the margins of the company as well. Many years ago,
Speaker 3: we invested in a company called TransAlta in Canada where
Speaker 3: we provided a very large structured investment into their portfolio
Speaker 3: of operating assets, and that capital was used to transition
Speaker 3: some of their coal facilities to more cleaner forms of
Speaker 3: power generation and retire others while building out its renewable fleet.
Speaker 3: So and today I would have to check the stat
Speaker 3: but I believe the emissions of TransAlta are off seventy
Speaker 3: eighty percent versus the time when we invested in that company, and.
Speaker 2: Both of those have provided good returns.
Speaker 3: At or above our targets.
Speaker 2: And that's what's powering your interest in trying to go
Speaker 2: to Australia and try and make that transition faster. Absolutely,
Speaker 2: And what is in Australia? What is your philosophy? Is
Speaker 2: it that Labor government has come through has set a
Speaker 2: really ambitious renewables target and you see clearly if they're
Speaker 2: going to have to meet this target, they're going to
Speaker 2: have to clean up their utilities.
Speaker 3: I would say that some of it, but I would
Speaker 3: say when we look at these types of investments, the
Speaker 3: investment philosophy and the investment thesis tends to be a
Speaker 3: lot more micro in that when we looked at some
Speaker 3: of the gen tailors in Australia, we thought they had
Speaker 3: a very strong base of infrastructure that as you retired
Speaker 3: the more carbon intensive power generation assets, you could leverage
Speaker 3: some of that existing infrastructure to build out some of
Speaker 3: the renewables. The other thing that was interesting about some
Speaker 3: of the opportunities in Australia, but was equally interesting about
Speaker 3: let's say our inter energy opportunity, is it paired not
Speaker 3: only the generation asset with the off take, and therefore,
Speaker 3: as you built out more of those renewables, there was
Speaker 3: a clear off taker for that green power as well.
Speaker 2: In doing so in the short term, at least, if
Speaker 2: these assets are to be decarbonized faster than they were previously,
Speaker 2: in the short term, you're going to take on emissions
Speaker 2: as a result. How are you going to deal with
Speaker 2: that accounting problem which is a real one.
Speaker 3: We will take on those emissions in our accounting. We
Speaker 3: do truly feel that this is some of the most
Speaker 3: impactful and powerful decarbonization investing you can do. But you
Speaker 3: do get that short term spike in your emissions, and
Speaker 3: therefore we feel that people do recognize the benefit of
Speaker 3: this type of investing, but you need to be very
Speaker 3: transparent about what you're doing, and what we have generally
Speaker 3: seen is you do have to take those emissions on absolutely,
Speaker 3: but typically if you break them out from your broad
Speaker 3: portfolio and show that these are emissions, we are going
Speaker 3: to rationalize very quickly, and we are going to be
Speaker 3: upfront and transparent. This isn't buried on page seventy of
Speaker 3: your annual report. This is right up front in your
Speaker 3: shareholder letter, tracking the progress you are making and being
Speaker 3: transparent about how quickly you are decarbonizing, whether you're behind
Speaker 3: schedule or ahead of it, then people are understanding if
Speaker 3: you took some of those emissions on day one.
Speaker 2: Thank you, conor, thank you, it was great to be here.
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