Brookfield Power


The Brookfield Renewable Power Fund has created profits in renewable energy.

Working with Thomas Fischer of Jyske Bank we created a Leveraged Green Portfolio in 2006 that rose 260% in one year.  When the bottom of the global economy fell out we ended high leverage but green investing can still make sense.

See below how one green investment, Brookfield Power, created profits up to 269% in the last 2.5 years.

There are many conditions in play that could push oil and energy prices sky high.  I do not invest in oil companies but there are other great ways to invest in energy that are greener than oil.

Recently Merri and I spent a very nice long week with my mom.  During the trip we took the drive, a few miles from our home, over the Sandy River, past Dabny State Park and up onto the old scenic highway out past Crown Point and along the road to Multnomah Falls.

This is a truly magnificent drive and is filled with memories from my teenage years.  These hills and valleys were my playgrounds.

One the way we stopped to take in the Columbia River Gorge

gary-scott-columbia-river

Looking over the Columbia River Gorge with mom.

columbia river

The mighty Columbia River.

I was reminded of one reason why I like hydro power.  This area is the domain of the Bonneville Power Administration (BPA). The BPA is a federal agency based in Portland that  markets and transmits electric power from the Bonneville and other dams on the Columbia River Basin and provides about 35% of the electricity used in the region.  My next door neighbors were bigwigs at BPA and my high school hiking buddy worked there. Visits to the dam always impressed me… the incredible sound and almost tangible feel of power as the water rushed through the turbines.

Part of this early programming may have had something to do with my interest in renewable power.

However my decision to invest in Brookfield Renewable Power Fund was based on multi currency reasoning… my quest for good value and income producing equities.

I keep about 10% of my liquid portfolio in Canadian dollars and in January 2010 was looking for a good Canadian equity to add to the portfolio.  I put half (5%) in electricity via Brookfield Renewable Power Fund.

I looked first for value…  second a good yield… third… growth potential… fourth… safety commiserate with risk premium (or discount)… and finally the Canadian dollar.

There were plenty of energy deals I reviewed that I did not like.   I mostly avoid oil to make a minor positive economic statement with my investments.

When I reviewed the Brookfield Renewable Power Fund, I looked at earnings and took into account the demographics and potential for electricity prices to rise.

Then I asked, “Is this an investment suited to the longer view?”  Electricity created by liquid (hydro power) and gas (wind power) seemed a good environmental option.

Don’t get me wrong. I understand that there is damage that dams and wind turbines do.  I grew up watching the Dalles Dam destroy Celio Falls. I am surprised by what a negative impact that had on me.

I was not even a teen yet but recall all too clearly watching the villagers fishing at Celilo Falls (this means “Sound of water upon the rocks,” in the native language).

Celilo had been a tribal fishing and trading area for an estimated 15,000 years, the oldest continuously inhabited community on the North American continent until 1957, when the falls and village were flooded by the the Dalles Dam.

celilio falls

From the NW Council site. See more photos at the link below.

Before… Indians fishing at Celilo Falls.

The wooden platforms out over the water and the estimated fifteen to twenty million salmon that passed through the falls every year were destroyed.

celilio falls

From the Columbia River Images site.  See more photos at the link below.

After.

One of the greatest fishing sites in North America was gone.

I watched that dam being built, the falls flooded and the rape of the Indians that remained in Celilo Village. They did not understand money and I recall so many stories of the Indians being scammed.

I felt an enormous sadness, even at that young age, in the village’s passing.  Perhaps as a fishing crazy teen the fall in fish numbers added to the recall of my younger days.  Perhaps this was a karmic thing.   I ended up living in Umatilla, Florida… named after Umatilla, Oregon… named after the Umatilla Indians… one of the communities that relied on those falls.

Yet in levels of environmental damage hydro seems less offensive than oil. I do not see everyone turning their lights out (or their air conditioning and heating off) so I stepped through the crazy financial dance… a pirouette along the fine line between the future and present that so many of us have to spin.

The here and now turned out well.

Brookfield Renewable Power Chart

brookfield

From Toronto Stock Exchange website. Click on photo to enlarge.

In Jan 2010 I invested in Brookfield Renewable Power Units at C$19.75

Since the shares have paid dividends each year in the 1.20 per share… about 6%.

The Brookfield Renewable Power Fund has been merged into a much larger Brookfield Renewable Energy Partners L.P. one share per share.

Currently the shares of Brookfield Renewable Energy Partners L.P. are in the $35 range.

The new entity combines the Brookfield Renewable Power Fund, which mainly owns power plants in Canada and the northeastern United States, with a much larger portfolio of wind and hydro assets in Canada, the U.S. and Brazil.

Together, the new Brookfield Renewable Energy Partners L.P.  (BREP) holds $13-billion in assets and trades on the Toronto Stock Exchange, and will eventually seek a listing on the New York Stock Exchange.

BREP is highly concentrated in stable hydro power projects, that generate about 86 per cent of the company’s power. Wind projects make up most of the balance. Hydro usually receives longer contracts from power purchasers.

BREP has 179 existing power facilities currently generating 4,800 megawatts of power and id developing about 2,000 added MW of power mostly wind power in Canada.

Overall, about 40 per cent of the company’s business is in Canada, 40 per cent in the USA and 20 per cent in Brazil.

The bigger company will be able to raise larger sums of money at lower costs and plans to continue its attractive combination of yield and growth potential. Annual distribution is set for $1.35 per unit, up from the smaller fund’s $1.30.   This yield is less attractive than when I invested at $19.75 but at $31 is around 4.3%… not a bad return at this time.

BREP’s advantages include long-term contracts, strong cash flows… a big and stable company in a sector (green energy) that is filled with smaller renewable energy firms.

Since my investment the shares have risen 63%, plus I have received another 18% in dividends or about 32% increase per annum.

Finally the Canadian dollar

When I invested in 2010 the Canadian dollar was .93 to the US dollar.  Now it is in the 1.01 range.

In other words, the C$19.75 investment price was US$18.36.   Today the C$31 is worth 31.31  That adds an extra 4% of forex profit… not much except there is room for more Canadian dollar strength.

canadian dollar

From Finance.yahoo.com. Click on photo to enlarge.

The Loonie Looks Even Better Ahead

currency fundmentals

From the  August 18, 2012 “Trade, exchange rates, budget balances and interest rates” at Economist.com. Click on photo to enlarge.

The fundamentals in this chart show that Canada has a much better trade balance, current account (as percentage of GDP),  far more balanced federal budget and far higher 3 month interest rate as well as a rising trend against the US dollar.

All of these factors create upwards pressure on the parity of the Loonie to the Greenback.

In addition Canada remains on of the few AAA rated sovereign borrowers with a stable outline. The USA is now rated AA+ with a negative outlook and has several pitfalls in the election year ahead.  I expect the Canadian dollar to continue to strengthen versus the dollar.

What if we had Borrowed Low?

When I invested in Brookfield, a Canadian dollar purchased .67 euro.  Now the Canadian dollar is in the .82 range.

can$-euro-chart

From Finance.yahoo.com. Click on photo to enlarge.

Imagine if I had purchased C$100,000 of Brookfield and borrowed another C$200,000 worth of euro.  That would have cost 134,000 Euro to buy the C$200,000.

The $300,000 of Brookfield would have risen 81% (C$243,000) and be worth C$543,000.  The loan cost would have been in the 3% range. so the loan would be appx. 144,000 Euro.  The stronger Canadian dollar means that it would take only C$174,000 to pay off the loan.

After loan payoff, the shares would be worth appx. C$369,000… a 269% return on the $100,000 originally invested.   I should have been more bold perhaps? Still I am happy with an 81% return and continue to hold these shares.

For more details about investing in renewable power via Jyske Bank contact René Mathys at mathys@jbpb.dk  for non Americans.

Thomas Fischer at Jyske Global Asset Management can help Americans at fischer@jgam.com .

During this great depression many have felt that green investing has been dead. 

Brookfield Renewable Energy Partners L.P. shows that we can earn with green energy and that green investing can still make sense.

Gary

Learn at our upcoming Super Thinking + International Investing and Business Seminar why I am glad I did not borrow euro in 2010 and will do so soon.

August 18, 2012 “Trade, exchange rates, budget balances and interest rates” at Economist.com

Cililo Fall History from the NW Council site

Cililo Falls Images at Columbia River Images site


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