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Brookfield Renewable Energy Partners L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

our operations

We operate our facilities through continental operating platforms in North America, Latin America and Europe which are designed to maintain and enhance the value of our assets, while cultivating positive relations with local stakeholders. We own and manage 208 hydroelectric generating stations, 37 wind facilities, two natural gas-fired plants and three biomass facilities. Overall, the assets we own or manage have 7,265 MW of generating capacity and annual generation of 25,562 GWh based on long-term averages. The table below outlines our portfolio as at March 31, 2015:

⁽¹⁾            Includes 100% of capacity and generation from equity-accounted investments.

⁽²⁾            Long-term average (“LTA”) is calculated on an annualized basis from the beginning of the year, regardless of the acquisition or commercial operation date.

⁽³⁾            Hydroelectric LTA is the expected average level of generation, as obtained from the results of a simulation based on historical inflow data performed over a period of typically 30 years.

⁽⁴⁾            Hydroelectric assets located in Brazil benefit from a market framework which levelizes generation risk across producers.

⁽⁵⁾            Includes two natural gas-fired plants in North America and three biomass facilities in Latin America.

  

The following table presents the annualized long-term average generation of our portfolio as at March 31, 2015 on a quarterly basis:

⁽¹⁾            Includes 100% of generation from equity-accounted investments.

⁽²⁾            LTA is calculated on an annualized basis from the beginning of the year, regardless of the acquisition or commercial operation date.

⁽³⁾            Hydroelectric LTA is the expected average level of generation, as obtained from the results of a simulation based on historical inflow data performed over a period of typically 30 years.

⁽⁴⁾            Hydroelectric assets in Brazil benefit from a market framework which levelizes generation risk across producers.

⁽⁵⁾            Includes two natural gas-fired plants in North America and three biomass facilities in Latin America.

  

Statement Regarding Forward-Looking Statements and Use of Non-IFRS Measures

 

This Interim Report contains  forward-looking information within the meaning of U.S. and Canadian securities laws. We may make such statements in this Interim Report, in other filings with the U.S. Securities and Exchange Commission (“SEC”) or in other communications with Canadian regulators - see “Cautionary Statement Regarding Forward-Looking Statements”. We make use of non-IFRS measures in this Interim Report  - see “Cautionary Statement Regarding Use Of Non-IFRS Measures”. This Interim Report, our Form 20-F  and additional information filed with the SEC and with securities regulators in Canada are available on our website at www.brookfieldrenewable.com, on the SEC’s website at www.sec.gov  or on SEDAR’s website at www.sedar.com.

  

 

Letter to SHAREHOLDERS

Brookfield Renewable’s operations continued to perform well in the first quarter. Our operating teams preserved high reliability and availability metrics across their respective platforms while continuing to enhance the long-term value of our renewable assets and the many energy products and services we provide. While unfavourable hydrology in Brazil and the United States impacted our quarterly results, the prospects for continued growth in our core markets remains strong, as evidenced by recent portfolio acquisitions in South America and Europe, as well as rising price signals in North America.

Acquisition and Development

With the acquisition of more than 500 megawatts of capacity in South America and Europe since the beginning of the year and a robust acquisition and development pipeline, we are on track to meet our growth and investing objectives in 2015.

During the quarter, we substantially completed the acquisition of a 488 megawatt diversified portfolio in Brazil which has significantly expanded our operating capacity in the country while adding two new technologies to our Brazilian operation – wind and biomass. The portfolio includes a 120 megawatt hydroelectric facility, the acquisition of which is expected to be completed in the second quarter.

We also completed, with our institutional partners, the acquisition of a 123 megawatt operating wind portfolio in Portugal from a local developer. Comprised of two wind farms with expansion opportunities, this transaction adds high-quality renewable power assets to our growing European platform and provides a vantage point for further expansion within Iberia, a region with significant hydro, wind and solar investment potential. 

We continue to advance our development pipeline with the objective of bringing 500 to 750 megawatts of greenfield projects into operation over the next five years. We recently achieved full commissioning of two wind projects in Ireland totaling 125 megawatts, with another 12 megawatt facility on track to achieve commercial operation in the summer of 2015. In Brazil, construction has begun on a 28 megawatt hydro project and a 55 megawatt expansion of a biomass facility, both of which were acquired in recent transactions. In addition, our 25 megawatt Serra dos Cavalinhos hydroelectric project remains on scope, schedule and budget, and remains on track for commercial operation in Q1 2017.  

Over the long term, our ability to commercialize projects and de-risk cash flows can lead to significant enhancement of shareholder value. In that regard, fully contracted renewable energy assets, particularly in North America, are currently attracting very strong valuations. Accordingly, we are selectively exploring sale opportunities, such as in our wind portfolio, where we can crystallize very strong returns having maximized value over a relatively short period of time. 

Long-term Rising Price Environment

As we have highlighted previously, our strategy is to leverage our integrated operating platform to produce growing cash flows for our shareholders and deliver an annual total return in the range of 12-15% over the long term. This approach to value creation is three-fold: 1) manage and market our products and services to capture the upside of rising prices; 2) advance our high quality, proprietary development pipeline at premium returns; and 3) grow margins and reduce risk through strong internal operating expertise. This approach has proven successful in the past and gives us confidence that we can continue to meet our objectives for cash flow and distribution growth.

In North America, prices for both energy and capacity continue to trend higher relative to the cyclical lows experienced during the last few years. As a result, the merchant assets we have added to the business

over the last three years are performing in line with our expectations and substantially above our underwritten cash flows. We have made good progress with our contracting initiatives, having successfully secured capacity contracts for our New England and PJM-based assets. Moreover, a number of jurisdictions, in which we have assets, are in the process of issuing requests for proposals for long-term energy or capacity contracts. We expect that in time, these will yield additional opportunities for our merchant assets as well as for the potential development of new projects.

Financial Results

Funds From Operations of $153 million in the quarter was below expectation due to lower inflows in the northeastern United States, and drought conditions in Brazil which led to lower assured energy levels across the country. While we expect current conditions in Brazil to persist through 2015, we have proactively reduced the contracted portion of our generation in Brazil to 80% entering the year, in anticipation of both weak hydrology and high prices. Given our conservative capitalization structure, high cash margins, and the relative size of our Brazil operations in our global portfolio, the impact to the overall business is relatively modest and will not affect our growth, distribution or investing plans. With a conservative balance sheet, we continue to plan and manage the business based on long-term averages, which mitigates the impact of the fluctuations that are an inevitable part of the hydrology cycle.

Looking Ahead

Looking ahead, we remain excited by the size and quality of our transaction pipeline. Whether the result of unsustainably low energy prices, underinvestment in new supply, legacy asset retirements, renewable power standards or other climate change objectives, each of our markets is characterized by drivers which are providing opportunities to grow and diversify. Our focus on direct origination and bilateral negotiations in many instances allows us to surface opportunities while bypassing competitive sales processes. 

Our liquidity position remains strong, aided by an ability to harvest low-cost sources of capital. During the quarter we raised C$400 million through the issuance of 10-year notes bearing an interest rate of 3.75%. We also completed the refinancing of a Canadian hydro facility which not only took place at an attractive rate of 2.95% but also unlocked $20 million in upfinancing proceeds. As indicated earlier, recent capacity auctions and rising energy prices are providing a strong backdrop to financing markets for power assets and as a result, we believe we are well positioned to surface an incremental $200-300 million annually from select assets over the next few years.

The diversified and robust nature of the business, with its multiple operating and growth levers, allows us to navigate short-term fluctuations while continuing to build long-term shareholder value.

We look forward to reporting on our progress throughout the year and thank you for your continued support.

 

Sincerely,

Richard Legault

Chief Executive Officer

 

May 6, 2015

Our Competitive Strengths

Brookfield Renewable Energy Partners L.P. ("Brookfield Renewable") is the owner and operator of a diversified portfolio of high quality assets that produce electricity from renewable resources.

Our business model is to utilize our global reach to identify and acquire high quality renewable power generating assets at favorable valuations, finance them on a long-term, low-risk basis, and enhance the cash flows and values of these assets using our experienced operating teams to earn reliable, attractive, long-term total returns for the benefit of our shareholders.

One of the largest, listed pure-play renewable platforms. We own one of the world’s largest, publicly-traded, pure-play renewable power portfolios with approximately $20 billion in assets, 7,265 MW of installed capacity, and long-term average generation from operating assets of 25,562 GWh. Our portfolio includes 208 hydroelectric generating stations on 74 river systems, 37 wind facilities and three biomass facilities, diversified across 14 power markets in North America, Latin America and Europe.

                                                                         

Focus on attractive hydroelectric asset class.  Our assets are predominantly hydroelectric and represent one of the longest life, lowest-cost and most environmentally-preferred forms of power generation. Our North American assets have the ability to store water in reservoirs approximating 29% of their annualized long-term average generation. Our assets in Brazil benefit from a framework in that country that levelizes generation risk across hydroelectric producers. The ability to store water in reservoirs in North America and to benefit from levelized generation in Brazil provides partial protection against short-term changes in water supply. As a result of our scale and the quality of our assets, we are competitively positioned compared to other listed renewable power platforms, providing significant scarcity value to investors.

Well positioned for global growth mandate. We have strong organic growth potential with an approximate 2,000 MW development pipeline spread across all of our operating jurisdictions, combined with the ability to capture operating efficiencies and the value of rising power prices for the market-based portion of our portfolio. Our organic growth is complemented by our strong acquisition ability. Over the last ten years, we have acquired or commissioned 86 hydroelectric assets totaling approximately 2,650 MW, 37 wind assets totaling approximately 1,670 MW and three biomass assets totaling 120 MW. For the three months ended March 31, 2015, we acquired or commissioned hydroelectric assets, wind assets and biomass assets that have an installed capacity of 43 MW, 398 MW and 120 MW, respectively. Our ability to develop and acquire assets is strengthened by our established operating and project development

teams, strategic relationship with Brookfield Asset Management, and our strong liquidity and capitalization profile. We have, in the past, and may continue in the future to pursue the acquisition or development of assets through arrangements with institutional investors in Brookfield Asset Management sponsored or co-sponsored partnerships. 

Attractive distribution profile.  We pursue a strategy which we expect will provide for highly stable, predictable cash flows sourced from predominantly long-life hydroelectric assets ensuring an attractive distribution yield. We target a distribution payout ratio in the range of approximately 60% to 70% of Funds From Operations and a long-term distribution growth rate target to a range of 5% to 9% annually.

Stable, high quality cash flows with attractive long-term value for limited partnership unitholders.  We intend to maintain a highly stable, predictable cash flow profile sourced from a diversified portfolio of low operating cost, long-life hydroelectric and wind assets that sell electricity under long-term, fixed price contracts with creditworthy counterparties. Approximately 88% of our 2015 generation output is sold pursuant to power purchase agreements to public power authorities, load-serving utilities, industrial users or to affiliates of Brookfield Asset Management. The power purchase agreements for our assets have a weighted-average remaining duration of 17 years, providing long-term cash flow stability.

Strong financial profile. With approximately $20 billion of assets, our debt to total capitalization is 42% and approximately 77% of our borrowings are non-recourse to Brookfield Renewable. Corporate borrowings and subsidiary borrowings have weighted-average terms of approximately seven and ten years, respectively. Our available liquidity at quarter end includes approximately $1.3 billion of cash and cash equivalents and the available portions of credit facilities.

Management’s Discussion and Analysis

HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2015

Operating Results

The entire portfolio continued to maintain high availability and reliability with no material unplanned outages. Total generation was 5,823 GWh, compared to the long-term average of 6,516 GWh and to 5,711 GWh from the prior year. Revenues were $441 million, compared to $480 million in the prior year. Net income was $51 million, compared to $125 million in the prior year.

Adjusted EBITDA was $338 million, compared to $360 million in the prior year. Funds From Operations was $153 million, compared to $185 million in the prior year.

North America

·          The hydroelectric portfolio generated 3,763 GWh, below the long-term average of 3,995 GWh and a decrease from the prior year of 139 GWh. Lower generation levels in the United States were partly offset by the above long-term average inflows in our Canadian portfolio

·          The incremental generation and revenues from a full period’s contribution from the hydroelectric facilities acquired last year in Pennsylvania and Maine was 224 GWh and $20 million, respectively

·          The hydroelectric facility in British Columbia commissioned last year contributed 50 GWh and $7 million of revenues

·          The wind portfolio experienced lower wind conditions resulting in generation levels of 484 GWh, below the long-term average of 635 GWh and a decrease from prior year generation of 610 GWh

Latin America

·          The hydroelectric portfolio generated 739 GWh, below assured levels of 947 GWh and a decrease of 360 GWh from the prior year as a result of the continuing drought conditions in Brazil. The impact of the adverse conditions on our financial results was partly reduced by our participation in the balancing pool administered by the Brazilian government, and by maintaining a lower level of contracted generation 

Europe

·          The wind portfolio experienced higher wind conditions resulting in generation levels of 451 GWh, above the long-term average of 440 GWh.  The Irish wind facilities acquired last year contributed 360 GWh and $31 million of revenues, while the wind facilities acquired in Portugal in February 2015 contributed 91 GWh and $9 million of revenues

Growth and Development

Along with our institutional partners, we completed acquisitions of 436 MW in operating renewable power generation facilities and 102 MW of advanced renewable development projects:

·          313 MW operating renewable power generation portfolio in Brazil which comprises of 43 MW of hydroelectric, 150 MW of wind, and 120 MW of biomass generating capacity. The portfolio is expected to generate 1,264 GWh annually. We also acquired a 55 MW biomass development project expected to generate 186 GWh annually that will be fully commissioned in 2016. The acquisition of a 120 MW hydroelectric facility in Brazil, expected to generate 527 GWh annually, is expected to close in the second quarter of 2015

·          123 MW wind portfolio in Portugal expected to generate 260 GWh annually

·          Two hydroelectric development projects in Brazil totalling 47 MW expected to generate 280 GWh annually and be fully commissioned in 2017.  These projects will begin development in 2015

We achieved full commissioning on 125 MW of wind facilities and continued construction on scope, schedule and budget on 37 MW of development projects:

·          Two Irish wind facilities totaling 125 MW, expected to generate 349 GWh annually, were fully commissioned

·          12 MW Irish wind development project, expected to generate 33 GWh annually, is on schedule to be fully commissioned in mid-2015

·          25 MW hydroelectric development project in Brazil, expected to generate 119 GWh annually, is on schedule to be fully commissioned in 2017

Brookfield Renewable retains an approximate 40% controlling interest in the above-noted acquisitions, recently commissioned facilities and development projects.

Liquidity and Capital Resources

Our available liquidity at quarter-end included approximately $1.3 billion of cash and cash equivalents and the available portions of credit facilities. Our debt to total capitalization is 42% and approximately 77% of our borrowings are non-recourse to Brookfield Renewable.

During the quarter, we completed the following financing initiatives:

·          Issued C$400 million ($317 million) of medium-term corporate notes, maturing in June 2025 at a fixed rate of 3.75%

·          Secured an 18-month extension on $75 million of debt associated with a portfolio of hydroelectric and wind facilities in the United States held through the Brookfield Americas Infrastructure Fund. The debt bears interest at LIBOR plus 2.75%, and matures in August 2016

·          Refinanced indebtedness associated with a 45 MW hydroelectric portfolio in British Columbia by issuing C$90 million ($76 million) of bonds with an interest rate of 2.95%, maturing in May 2023.

Corporate borrowings and subsidiary borrowings have weighted-average terms of approximately seven and ten years, respectively.

 

We increased LP Unitholder distributions to $1.66 per LP Unit on an annualized basis, an increase of 11 cents per LP Unit, which took effect with the distribution payable on March 31, 2015.

HISTORICAL OPERATIONAL AND FINANCIAL INFORMATION

⁽¹⁾       Includes 100% of capacity and generation from equity-accounted investments.

⁽²⁾       For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

⁽³⁾       Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, “Financial Review by Segments for the Three Months Ended March 31, 2015”.

⁽⁴⁾       For the three months ended March 31, 2015, weighted average LP units, Redeemable/Exchangeable units and General Partnership units totaled 275.7 million (2014: 265.3 million).

⁽⁵⁾       Figure is based on last twelve months of operations.

⁽⁶⁾       Represents distributions per unit to holders of Redeemable/Exchangeable partnership units, LP Units and GP interest.

⁽⁷⁾       Total capitalization is calculated as total debt plus deferred income tax liabilities, net of deferred income tax assets, and equity.

This Management’s Discussion and Analysis for the three months ended March 31, 2015 is provided as of May 6, 2015. Unless the context indicates or requires otherwise, the terms “Brookfield Renewable”, “we”, “us”, and “our” mean Brookfield Renewable Energy Partners L.P. and its controlled entities.

Brookfield Renewable’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which require estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and the amounts of revenue and expense during the reporting periods.

Certain comparative figures have been reclassified to conform to the current year’s presentation.

Unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars.

The ultimate partner of Brookfield Renewable is Brookfield Asset Management Inc. (“Brookfield Asset Management”). Brookfield Asset Management and its subsidiaries, other than Brookfield Renewable, are also individually and collectively referred to as Brookfield in this Management’s Discussion and Analysis.

PRESENTATION TO PUBLIC STAKEHOLDERS

Brookfield Renewable’s consolidated equity interests include the non-voting limited partnership units ("LP Units") held by public unitholders, Redeemable/Exchangeable partnership units in Brookfield Renewable Energy L.P. (“BRELP”), a holding subsidiary of Brookfield Renewable, held by Brookfield (“Redeemable/Exchangeable partnership units”), and a general partnership interest in BRELP held by Brookfield (“GP interest”). The LP Units and the Redeemable/Exchangeable partnership units have the same economic attributes in all respects, except that the Redeemable/Exchangeable partnership units provide Brookfield the right to request that their units be redeemed for cash consideration. In the event that Brookfield exercises this right, Brookfield Renewable has the right, at its sole discretion, to satisfy the redemption request with LP Units, rather than cash, on a one-for-one basis. Brookfield, as holder of Redeemable/Exchangeable partnership units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units. As Brookfield Renewable, at its sole discretion, has the right to settle the obligation with LP Units, the Redeemable/Exchangeable partnership units are classified under equity, and not as a liability. 

Given the exchange feature referenced above, we are presenting LP Units, Redeemable/Exchangeable partnership units, and the GP interest as separate components of consolidated equity. This presentation does not impact the total income, per unit or share information, or total consolidated equity.

As at the date of this report, Brookfield owns an approximate 62% LP Unit interest, on a fully-exchanged basis, and all general partnership interests in Brookfield Renewable, representing a 0.01% interest, while the remaining  approximately 38% is held by the public.

Performance Measurement

We present our key financial metrics based on total results prior to distributions made to LP Unitholders, the Redeemable/Exchangeable Unitholders and holders of the GP interest. In addition, our operations are segmented by the type of power generation (Hydroelectric, Wind, and Other, which includes Co-gen and Biomass) with Hydroelectric and Wind further segmented by geography (North American, which is comprised of the United States and Canada segments; Latin America, which includes the former Brazil segment; and Europe), as that is how Brookfield Renewable’s Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer (collectively, the chief operating decision maker, or “CODM”) review our results, manage operations and allocate resources. Accordingly, we report our

results in accordance with these segments. Refer to Note 14 – Segmented information in our interim consolidated financial statements for further details.

One of our primary business objectives is to generate reliable and growing cash flows while minimizing risk for the benefit of all stakeholders. We monitor our performance in this regard through four key metrics — i) Net Income (loss), ii) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), iii) Funds From Operations,  and iv) Adjusted Funds From Operations.

It is important to highlight that Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. We provide additional information on how we determine Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations, and we provide reconciliations to net income and cash flows from operating activities. See “Financial Review by Segments for the Three Months Ended March 31, 2015”.

Net Income (Loss)

Net income (loss) is calculated in accordance with IFRS.

Adjusted EBITDA

Adjusted EBITDA means revenues less direct costs (including energy marketing costs), plus our share of cash earnings from equity-accounted investments and other income, before interest, income taxes, depreciation, management service costs and the cash portion of non-controlling interests.

Funds From Operations

Funds From Operations is defined as Adjusted EBITDA less interest, current income taxes and management service costs, which is then adjusted for the cash portion of non-controlling interests.

Our payout ratio is defined as distributions to Redeemable/Exchangeable partnership units, LP Units and the GP interest, including general partnership incentive distributions, divided by Funds From Operations.

Adjusted Funds From Operations

Adjusted Funds From Operations is defined as Funds From Operations less Brookfield Renewable’s share of adjusted sustaining capital expenditures (based on long-term sustaining capital expenditure plans).

GENERATION AND FINANCIAL REVIEW FOR THE THREE MONTHS ENDED MARCH 31, 2015

The following table reflects the actual and long-term average generation for the three months ended March 31:

⁽¹⁾         For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

⁽²⁾         Includes 100% of generation from equity-accounted investments.

We compare actual generation levels against the long-term average to highlight the impact of one of the important factors that affect the variability of our business results. In the short-term, we recognize that hydrology and wind conditions will vary from one period to the next; over time however, we expect our facilities will continue to produce in line with their long-term averages, which have proven to be reliable indicators of performance.

Our risk of a generation shortfall in Latin America continues to be minimized by participation in a hydrological balancing pool administered by the government of Brazil. This program mitigates hydrology risk by assuring that all participants receive, at any particular point in time, a balanced amount of electricity, irrespective of the actual volume of energy generated. The program reallocates energy, transferring surplus energy from those who generated an excess to those who generate less than their assured energy, up to the total generation within the pool. Periodically, low precipitation across the entire country’s system could result in a temporary reduction of generation available for sale which has been the case for the last twelve months. During these periods, we expect that a higher proportion of thermal generation would be needed to balance supply and demand in the country potentially leading to higher overall spot market prices. In anticipation of adverse hydrological conditions, we continue to maintain a lower level of contracted generation, thereby preserving optionality and flexibility in the portfolio and allowing us to capture increased revenues in times of strong power prices.

The entire portfolio continued to maintain high availability and reliability with no material unplanned outages. Generation for the three months ended March 31, 2015 totaled 5,823 GWh, below the long-term average of 6,516 GWh, and an increase of 112 GWh as compared to the prior year. The generation from existing facilities on a consolidated basis decreased 613 GWh. This was partly mitigated by the non-controlling interests in certain facilities, reducing the impact on Brookfield Renewable to 490 GWh.

The hydroelectric portfolio generated 4,776 GWh, below the long-term average of 5,389 GWh and a decrease of 225 GWh compared to the prior year. 

·         Existing hydroelectric facilities generated 4,502 GWh, below the long-term average of 4,942 GWh and a decrease of 499 GWh as compared to the prior year. Higher inflows at our Canadian facilities were offset by the decrease in generation from our United States and Latin American facilities

·         The contribution from recently acquired or commissioned facilities resulted in incremental generation of 274 GWh

The wind portfolio generated 935 GWh, below the long-term average of 1,075 GWh and an increase of 325 GWh compared to the prior year.

·         Existing wind facilities generated 484 GWh, below the long-term average of 635 GWh, and a decrease of 126 GWh as compared to the prior year. The variance was caused by lower wind conditions across the North American portfolio

·         The contribution from recently acquired or commissioned facilities resulted in incremental generation of 451 GWh

Our 105 MW natural gas-fired facility in New York generated 112 GWh as we took advantage of prevailing power prices which were in excess of gas market prices.

The following table reflects Adjusted EBITDA, Funds From Operations, Adjusted Funds From Operations, and provides a reconciliation to net income for the three months ended March 31:

⁽¹⁾       Non-IFRS measures.  See “Cautionary Statement Regarding Use of Non-IFRS Measures” and “Financial Review by Segments for the Three Months Ended March 31, 2015”.

⁽²⁾       Based on long-term sustaining capital expenditure plans.

⁽³⁾       Average LP Units outstanding during the period totaled 143.4 million (2014: 133.0 million).

Net income is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income on an IFRS basis for our business will often lead to the recognition of a loss or a year-over-year decrease in income even though the underlying cash flows generated by the assets are supported by strong margins and stable, long-term power purchase agreements. The primary reason for this is that we recognize a significantly higher level of depreciation for our assets than we are required to reinvest in the business as sustaining capital expenditures.

As a result, we also measure our financial results based on Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations to provide readers with an assessment of the cash flow generated by our assets and the residual cash flow retained to fund distributions and growth initiatives.

Revenues totaled $441 million which represented a year-over-year decrease of $39 million. The year-over-year decrease in generation from our existing facilities in the United States, combined with a relatively lower pricing environment, resulted in a $35 million decrease in revenues. Higher generation in Canada and annual escalations in our power purchase agreements contributed $8 million.

In Latin America, revenues declined $29 million year-over-year due to the impact of the continued drought conditions.

Annual escalations in our power purchase agreements partly offset the lower than average wind conditions across our existing wind portfolio, resulting in a year-over-year decrease in revenues of $13 million.

The growth in our hydroelectric and wind portfolios over the last 12 months resulted in incremental revenues of $27 million and $40 million, respectively.

Revenues from our co-generation facilities decreased $10 million, reflecting the temporary suspension of our facility in Ontario partly offset by the increased generation at our 105 MW facility in New York.

With 50% of our portfolio located in the United States, our foreign exchange exposure is limited. Canadian dollar and Euro exposure, representing 35% of the portfolio, is proactively managed through foreign currency contracts. The remaining 15% is exposed to the Brazilian Real, which is not hedged through foreign currency contracts due to high associated costs. However, the exposure is mitigated by the annual inflation-linked escalations in our power purchase agreements.

The average total revenue per MWh of $76 decreased $8 per MWh from the prior year, reflecting the impact of the relatively lower pricing environment and to a lesser extent the impact of the appreciation of the U.S. dollar.

Direct operating costs totaling $134 million represent a year-over-year increase of $4 million, reflecting the cost reduction effort at our North American and Latin American operations and the reduction in power purchased in the open market for our co-generation facilities. The growth in our portfolio resulted in incremental costs of $17 million.

Interest expense totaling $105 million represents a year-over-year increase of $4 million. The savings attributable to repayments in the normal course on existing subsidiary borrowings were partially offset by the issuance of C$400 million of medium-term corporate notes in the current quarter. Incremental borrowing costs of $14 million were attributable to the growth in our portfolio.

Management service costs totaling $14 million represent a year-over-year increase of $3 million, primarily attributable to the increase in the market value of our LP Units and the issuance of 10.25 million LP Units in 2014.

The cash portion of non-controlling interests totaling $61 million represents a year-over-year increase of $6 million. The increase of $20 million related to the growth in our portfolio was partly offset by the decrease in performance from certain existing assets in our portfolio.

Funds From Operations totaling $153 million (2014: $185 million) reflects the variances noted above, and incorporates growth of $7 million from the hydroelectric portfolio and $9 million from the wind portfolio.

Net income was $51 million for the three months ended March 31, 2015 (2014: $125 million).

SEGMENTED DISCLOSURES

Segmented information is prepared on the same basis that Brookfield Renewable’s CODM manages the business, evaluates financial results, and makes key operating decisions.  See Note 14 - Segmented information in our interim consolidated financial statements.

HYDROELECTRIC

The following table reflects the results of our operations for the three months ended March 31:

⁽¹⁾            Includes 100% of generation from equity-accounted investments.

⁽²⁾           For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

⁽³⁾            Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review by Segments for the Three Months Ended March 31, 2015”.

North America

Generation from the portfolio was 4,037 GWh, below the long-term average of 4,442 GWh and an increase from prior year generation of 3,902 GWh.

Revenues totaling $297 million represent a year-over-year decrease of $7 million. Funds From Operations totaling $140 million represent a year-over-year increase of $2 million.

United States

Generation from the portfolio was 2,535 GWh, below the long-term average of 3,213 GWh and prior year generation of 2,591 GWh. Generation from existing facilities decreased 280 GWh as compared to the prior year due to lower inflows in New York, Louisiana, Tennessee and North Carolina. The non-controlling interests in our facilities in Tennessee and North Carolina, Louisiana and Maine reduced the impact on our financial results. A full period’s contribution from facilities acquired in 2014 resulted in incremental generation of 224 GWh. 

Revenues totaling $191 million represent a year-over-year decrease of $15 million. The lower generation impacted revenues by $19 million. While wholesale prices for both energy and capacity continue to trend

higher relative to the cyclical lows experienced during the last few years, pricing did not reach the peaks of 2014. The impact was a $16 million reduction in revenues.

A full period’s contribution from facilities acquired in 2014 resulted in incremental revenues of $20 million.

Funds From Operations totaling $54 million represent a year-over-year decrease of $21 million, primarily attributable to the decrease in revenues from existing facilities. The facilities acquired in 2014 contributed an incremental $4 million.

Canada

Generation from the portfolio of 1,502 GWh was above both the long-term average of 1,229 GWh and prior year generation of 1,311 GWh. Hydrological conditions were strong at our facilities in Ontario and British Columbia. The facility in British Columbia commissioned in 2014 provided incremental generation of 50 GWh.

Revenues totaling $106 million represent a year-over-year increase of $8 million. The primary contributor to the increase was the above long-term average generation, supplemented by annual escalators in our power purchase agreements. The recently commissioned facility contributed $7 million.

Funds From Operations totaling $86 million represent a year-over-year increase of $23 million. The increase reflects the higher revenues. The appreciation of the U.S. dollar impacted revenues by $7 million but also affected costs and other expenses. The effect was fully offset by the ongoing foreign currency hedging program.

Latin America

Generation from the portfolio was 739 GWh, below the long-term average of 947 GWh and a decrease from prior year of 1,099 GWh. Conditions in Brazil continue to be challenging with generation being affected by the drought conditions. The impact was reduced by our participation in the Brazilian balancing pool and by maintaining a lower level of contracted generation in order to preserve optionality and flexibility in the portfolio.

Revenues totaling $45 million represent a year-over-year decrease of $44 million, primarily attributable to decrease in generation. Funds From Operations totaling $21 million represent a year-over-year decrease of $37 million. The appreciation of the U.S. dollar impacted revenues by $15 million, but also affected costs and other expenses resulting in a net decrease in Funds From Operations of $10 million. 

WIND

The following table reflects the results of our operations for the three months ended March 31:

⁽¹⁾            Includes 100% of generation from equity-accounted investments.

⁽²⁾           For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

⁽³⁾            Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review by Segments for the Three Months Ended March 31, 2015”.

North America

Generation from the portfolio of 484 GWh was below the long-term average of 635 GWh and prior year generation of 610 GWh.

Revenues totaling $51 million represent a year-over-year decrease of $17 million. Funds From Operations totaling $16 million represent a year-over-year decrease of $8 million.

United States

Generation from the portfolio of 203 GWh was below the long-term average of 311 GWh and lower than prior year generation of 273 GWh, primarily attributable to lower wind conditions across the portfolio. The impact on our financial results was reduced by the non-controlling interests in certain of our facilities in California and New England.

Revenues totaling $20 million represent a year-over-year decrease of $9 million attributable to the decrease in generation. Funds From Operations totaling negative $2 million represent a year-over-year decrease of $1 million. The decrease in revenues was partly offset by decreases in costs and the cash portion of non-controlling interests.

Canada

Generation from the portfolio was 281 GWh, below the long-term average of 324 GWh and lower than the prior year generation of 337 GWh, primarily attributable to lower wind conditions.

Revenues totaling $31 million represent a year-over-year decrease of $8 million attributable to the decrease in generation and the appreciation of the U.S. dollar. Funds From Operations totaling $18

million represent a year-over-year decrease of $7 million primarily attributable to the decrease in revenues.

Europe

Generation from our wind portfolio in Europe of 451  GWh was consistent with the long-term average of 440  GWh. Our portfolio in Ireland generated 360  GWh, while our portfolio in Portugal contributed 91  GWh.

Revenues totaled $41  million for the quarter, and Funds From Operations totaled $17 million. The impact of the appreciation of the U.S. dollar was fully offset by the ongoing foreign currency hedging program.

Analysis Of Consolidated Financial Statements and Other Information

Property, Plant and Equipment

In accordance with IFRS, Brookfield Renewable has elected to revalue its property, plant and equipment at a minimum on an annual basis, as at December 31^st of each year. Substantially all of Brookfield Renewable’s property, plant and equipment, are carried at fair value as opposed to historical cost, using a 20-year discounted cash flow model. This model incorporates future cash flows from long-term power purchase agreements that are in place where it is determined that the power purchase agreements are linked specifically to the related power generating assets. The model also includes estimates of future electricity prices, anticipated long-term average generation, estimated operating and capital expenditures, and assumptions about future inflation rates and discount rates by geographical location. For power generating assets acquired through business combinations during the year, Brookfield Renewable initially measures the assets at fair value consistent with the policy described in Note 2(l) – Business combinations in our December 31, 2014 audited consolidated financial statements. Accordingly, in the year of acquisition, power generating assets are not revalued at year-end unless there is an indication that assets are impaired.

Property, plant and equipment, at fair value totaled $18.4 billion as at March 31, 2015 as compared to $18.6 billion as at December 31, 2014. During the three months ended March 31, 2015, the acquisition of 43 MW of hydroelectric facilities, 273 MW of wind facilities and 120 MW of biomass facilities totaled $917 million. The development and construction of power generating assets totaled $36 million. Property, plant and equipment were impacted by foreign currency changes related to the appreciation of the U.S. dollar in the amount of $1.0 billion. We also recognized depreciation expense of $158 million which is significantly higher than what we are required to reinvest in the business as sustaining capital expenditures. 

Fair value of property, plant and equipment can vary with discount and terminal capitalization rates. Excluding power generating assets acquired during the year ended December 31, 2014, the following table summarizes the impact of a change in discount rates and terminal capitalization rates on the fair value of property, plant and equipment as at December 31:

⁽¹⁾            The terminal capitalization rate applies only to hydroelectric assets in North America.

Terminal values are included in the valuation of hydroelectric assets in North America. For the hydroelectric assets in Brazil, cash flows have been included based on the duration of the authorization or useful life of a concession asset without consideration of potential renewal value. The weighted-average remaining duration at December 31, 2014, was 15 years (2013: 16 years). Consequently, there is no terminal value attributed to the hydroelectric assets in Brazil. If an additional 20 years of cash flows were included, the fair value of property, plant and equipment would increase by approximately $1 billion. See Note 11 - Property, plant and equipment, at fair value in our December 31, 2014 audited consolidated financial statements.

liquidity and capital Resources

A key element of our financing strategy is to raise the majority of our debt in the form of asset-specific, non-recourse borrowings at our subsidiaries on an investment grade basis. As at March 31, 2015, long-term indebtedness increased from December 31, 2014 as a result of the portfolio growth. The debt to capitalization ratio increased from December 31, 2014 due primarily to the issuance of C$400 million ($317 million) of medium-term corporate notes and the appreciation of U.S. dollar, and was 42% as at March 31, 2015.

Capitalization

The following table summarizes the capitalization using book values:

⁽¹⁾            Credit facilities are comprised of $113 million drawn by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable, and $206 million borrowed under a subscription credit facility made available by a private fund sponsored by Brookfield Asset Management. This subscription credit facility is only available to us on a limited basis, and is secured by capital contributed to the private fund.

⁽²⁾            Issued by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable. The amounts are unsecured.

⁽³⁾            Issued by subsidiaries of Brookfield Renewable and secured against their respective assets. The amounts are not guaranteed.

During the three months ended March 31, 2015 we completed the following financings:

In March 2015, we issued C$400 million ($317 million) of medium-term corporate notes, maturing in June 2025 at a fixed rate of 3.75%. Proceeds of the offering were used to repay existing indebtedness and for general corporate purposes.

In February 2015, we secured an 18-month extension on $75 million of debt associated with a portfolio of hydroelectric and wind facilities in the United States held through the Brookfield Americas Infrastructure Fund. The debt bears interest at LIBOR plus 2.75%, and matures in August 2016.

In February 2015, we refinanced indebtedness associated with a 45 MW hydroelectric facility in British Columbia by issuing C$90 million ($76 million) of bonds with an interest rate of 2.95%, maturing in May 2023. We own a 50%, equity-accounted interest in this facility.

In February 2015, as part of the acquisition of a 123 MW wind portfolio in Portugal, Brookfield Renewable assumed loans with principal balances totaling €99 million ($109 million). The loans bear interest at an initial weighted-average fixed rate of 6.28%, including the related interest rate swaps, and have a weighted-average remaining term of 9.5 years.

In March 2015, as part of the acquisition of a 313 MW operating renewable power generation portfolio in Brazil comprising of 43 MW of hydroelectric, 150 MW of wind, and 120 MW of biomass generating capacity and a 55 MW biomass development project, Brookfield Renewable assumed R$631 million ($197 million) of debt with a combination of variable and fixed interest rates, and a weighted-average remaining term of 12.7 years.

Available liquidity

We operate with sufficient liquidity to enable us to fund growth initiatives, capital expenditures, distributions, withstand sudden adverse changes in economic circumstances or short-term fluctuations in generation, and to finance the business on an investment grade basis. Principal sources of liquidity are cash flows from operations and access to public and private capital markets.

The following table summarizes the available liquidity:  

⁽¹⁾            Amounts are unsecured and revolving. Interest rate is at the LIBOR plus 1.20% (December 31, 2014: 1.20%).

Long-term debt and credit facilities

The following table summarizes our principal repayment obligations and maturities as at March 31, 2015:

⁽¹⁾            Subsidiary borrowings and corporate borrowings and credit facilities include $7 million and $69 million of unamortized premiums and deferred financing fees, respectively.

The remaining subsidiary borrowings due in 2015 are normal course principal repayments. Repayments on subsidiary borrowings in 2016 include maturities of $250 million on our portfolio of hydroelectric facilities in the Southeastern United States and $75 million of debt associated with a portfolio of hydroelectric and wind facilities in the United States held through the Brookfield Americas Infrastructure Fund. Both of these borrowings are expected to be refinanced in the normal course.

We remain focused on refinancing near term facilities on acceptable terms and maintaining a manageable maturity ladder. We do not anticipate material issues in addressing our borrowings through