Artificial intelligence appears to be the wave of the future – assuming it doesn’t go the science fiction route and destroy us first.
There’s already speculation about which industries are likely to profit from the refinement of today’s phase one AI projects (health care, financials) and which are the most vulnerable (media, customer support).
But here’s a bit of a surprise: the beleaguered green energy business, which has been in a downward spiral since interest rates started to rise, may be one of those saved by the rapid growth of new AI technology and the data centres needed to support the systems.
That’s because AI requires power – lots of power – and existing generating systems don’t have enough resources to meet the growing demand. That helps explain why Brookfield Renewable Partners LP (BEP.UN-T) saw its price jump by almost a third in the first 10 days of May.
A recent research note from RBC Capital Markets drew attention to this connection. Authors Nelson Ng, Trevor Bryan and Shelby Tucker concur with Brookfield’s view that demand for green energy will increase at an exponential rate for years to come.
Brookfield management “sees far more demand for clean power than there is available projects and expects this dynamic to play out over the course of years,” the report says. “We believe that the company is uniquely positioned to capitalize on this trend due to its development capabilities and access to scale capital.”
Earlier this month, BEP signed a landmark renewable energy framework agreement with Microsoft Corp. (MSFT-Q). Under the plan, BEP expects to deliver more than 10,500 megawatts of new renewable energy capacity in the U.S. and Europe between 2026 and 2030.
BEP describes it as a “first-of-its-kind agreement” and says it is almost eight times bigger than the largest single corporate power purchase agreement ever signed.
“It will assist Microsoft’s data centre growth and support its investment in AI-powered cloud services,” BEP said. “The agreement positions us well to deliver over 7,000 megawatts of new capacity annually through the end of the decade.”
The agreement includes provisions to deliver additional renewable energy capacity within the U.S. and Europe and beyond to the Asia-Pacific region, India and Latin America.
“The partnership is a testament to our differentiated offering, which is characterized by our significant access to capital and credibility to deliver scale clean power solutions from our extensive pipeline of advanced stage projects, which are well positioned from an interconnection and permitting perspective in many key data centre markets globally,” Brookfield said.
“We are uniquely positioned to be a key enabler of growth for the largest technology players through similar arrangements. Our access to scale capital, sizable development pipeline, and ability to commission significant capacity concurrently to meet this demand differentiates us as a partner.”
BEP’s first-quarter results (to March 31) showed a revenue increase of 8.8 per cent over last year, to just under US$1.5-billion. The company posted a net loss attributable to unitholders of US$12-million (a loss of 23 U.S. cents per unit), compared with a loss of US$32-million (9 U.S. cents per unit) in the prior year. Funds from operations were US$296-million (45 U.S. cents per unit), compared with US$273-million (43 U.S. cents per unit) in the same quarter of 2023.
RBC rates BEP as “outperform” and raised its target price to US$31. The shares closed May 17 at $37.90 (US$27.86). The units pay a quarterly distribution of 35.5 U.S. cents (US$1.42 a year) to yield 5.1 per cent.
One more interesting point. The BEP-Microsoft deal may have been the catalyst for a modest rally across the green energy sector. Between April 30 and May 17, Quebec-based Boralex Inc. (BLX-T) saw its share price jump 16.25 per cent. Innergex Renewables (INE-T) gained 12.6 per cent. Shares of Algonquin Power & Utilities (AQN-T), which is in the process of selling off its renewable assets, were ahead 7.7 per cent.
The units of the BMO Clean Energy Index ETF (ZCLN-T), which invests in green energy companies around the world, were up 5.2 per cent. For the year leading up to April 30, the fund was down 27.25 per cent, a stark indication of how these companies have been battered by rising interest rates. Perhaps this is the start of a turnaround.
Gordon Pape is the editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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