F-1 1 d405483df1.htm FORM F-1 Form F-1
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As filed with the Securities and Exchange Commission on June 7, 2013

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Bermuda   3100   Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

73 Front Street, 5th Floor, Hamilton HM 12, Bermuda

+1.441.295.1443

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Mile T. Kurta, Esq.

Torys LLP

1114 Avenue of the Americas, New York, NY 10036

Telephone: 212-880-6000

Fax: 212-880-0200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Andrew J. Beck, Esq.

Mile T. Kurta, Esq.

Torys LLP

1114 Avenue of the Americas

New York, NY 10036

Telephone: 212-880-6000

Fax: 212-880-0200

 

Rod Miller, Esq.

Paul Denaro, Esq.

Milbank, Tweed, Hadley & McCloy LLP

1 Chase Manhattan Plaza

New York, NY 10005

Telephone: 212-530-5000

Fax: 212-530-5219

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to Be Registered
  Proposed
Maximum
Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee

Limited Partnership Units, no par value

  $500,000,000   $68,200

 

 

(1) Includes limited partnership units that the underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated June 7, 2013

             Limited Partnership Units

 

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Brookfield Renewable Energy Partners L.P.

 

 

We are offering              non-voting limited partnership units (our “LP Units”) in this offering.

Our LP Units are listed for trading under the symbol “BEP.UN” on the Toronto Stock Exchange (the “TSX”). On June 6, 2013, the last reported sale price of our LP Units on the TSX was C$30.04. We have received conditional approval to list our LP Units on the New York Stock Exchange (the “NYSE”) under the symbol “BEP”.

 

 

Investing in our LP Units involves risks. See “Risk Factors” beginning on page 19 of this prospectus.

 

     Per LP Unit      Total  

Price to the public

   $                    $                

Underwriting fee

   $         $     

Proceeds, before expenses, to us

   $         $     

We have granted the underwriters the option (the “Over-Allotment Option”) exercisable for 30 days after the date of this prospectus to purchase         additional LP Units on the same terms and conditions set forth above to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver our LP Units on or about             , 2013.

 

 

 

Barclays

 

Deutsche Bank Securities

CIBC  

Scotiabank

Prospectus dated                              , 2013


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TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     ii   

CAUTIONARY STATEMENT REGARDING THE USE OF NON-IFRS MEASURES

     iv   

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     19   

USE OF PROCEEDS

     50   

DISTRIBUTION POLICY

     51   

MARKET PRICE OF UNITS

     53   

DILUTION

     55   

CAPITALIZATION AND INDEBTEDNESS

     57   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

     58   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     62   

BUSINESS

     121   

MANAGEMENT

     149   

PRINCIPAL UNITHOLDER

     176   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     177   

DESCRIPTION OF PARTNERSHIP CAPITAL

     190   

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF BREP

     192   

MATERIAL CONTRACTS

     231   

EXCHANGE CONTROLS

     233   

UNITS ELIGIBLE FOR FUTURE SALE

     234   

TAX CONSIDERATIONS

     236   

UNDERWRITING

     261   

EXPENSES RELATED TO THE OFFERING

     265   

SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES

     266   

LEGAL MATTERS

     267   

EXPERTS

     267   

AVAILABLE INFORMATION

     267   

APPENDIX A—GLOSSARY

     A-1   

 

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Neither we nor the underwriters have authorized any other person to provide you with different or additional information other than that contained in this prospectus. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates. Information contained on, or accessible through, our website, www.brookfieldrenewable.com, does not constitute part of this prospectus.

The laws of certain jurisdictions may restrict the distribution of this prospectus and the offer and sale of our LP Units. Persons into whose possession this prospectus or any LP Units may come must inform themselves about, and observe, any such restrictions on the distribution of this prospectus and the offering and sale of our LP Units. In particular, there are restrictions on the distribution of this prospectus and the offer or sale of our LP Units in the United States and the European Economic Area. Neither we nor our representatives are making any representation to any offeree or any purchaser of our LP Units regarding the legality of any investment in our LP Units by such offeree or purchaser under applicable legal investment or similar laws or regulations. Accordingly, no LP Units may be offered or sold, directly or indirectly, and neither this prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning the business and operations of Brookfield Renewable Group. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. Forward-looking statements in this prospectus include statements regarding the quality of Brookfield Renewable Group’s assets and the resiliency of the cash flow they will generate, Brookfield Renewable’s anticipated financial performance, the future growth prospects and distribution profile of Brookfield Renewable and Brookfield Renewable’s access to capital. Forward-looking statements can be identified by the use of words such as “plans”, “expects”, “scheduled”, “estimates”, “intends”, “anticipates”, “believes”, “potentially”, “tends”, “continue”, “attempts”, “likely”, “primarily”, “approximately”, “endeavors”, “pursues”, “strives”, “seeks” or variations of such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information in this prospectus are based upon reasonable assumptions and expectations, we cannot assure you that such expectations will prove to have been correct. You should not place undue reliance on forward-looking statements and information as such statements and information involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information.

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to:

 

   

our limited operating history;

 

   

the risk that we may be deemed an “investment company” under the Investment Company Act;

 

   

the risk that the effectiveness of our internal controls over financial reporting could have a material effect on our business;

 

   

changes to hydrology at our hydroelectric stations or in wind conditions at our wind energy facilities;

 

   

the risk that counterparties to our contracts do not fulfill their obligations, and as our contracts expire, we may not be able to replace them with agreements on similar terms;

 

   

increases in water rental costs (or similar fees) or changes to the regulation of water supply;

 

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volatility in supply and demand in the energy market;

 

   

our operations are highly regulated and exposed to increased regulation which could result in additional costs;

 

   

the risk that our concessions and licenses will not be renewed;

 

   

increases in the cost of operating our plants;

 

   

our failure to comply with conditions in, or our inability to maintain, governmental permits;

 

   

equipment failure;

 

   

dam failures and the costs of repairing such failures;

 

   

exposure to force majeure events;

 

   

exposure to uninsurable losses;

 

   

adverse changes in currency exchange rates;

 

   

availability and access to interconnection facilities and transmission systems;

 

   

health, safety, security and environmental risks;

 

   

disputes and litigation;

 

   

our operations could be affected by local communities;

 

   

losses resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events;

 

   

general industry risks relating to the North American and Brazilian power market sectors;

 

   

advances in technology that impair or eliminate the competitive advantage of our projects;

 

   

newly developed technologies in which we invest not performing as anticipated;

 

   

labor disruptions and economically unfavorable collective bargaining agreements;

 

   

our inability to finance our operations due to the status of the capital markets;

 

   

the operating and financial restrictions imposed on us by our loan, debt and security agreements;

 

   

changes in our credit ratings;

 

   

changes to government regulations that provide incentives for renewable energy;

 

   

our inability to identify and complete sufficient investment opportunities;

 

   

the growth of our portfolio;

 

   

our inability to develop existing sites or find new sites suitable for the development of greenfield projects;

 

   

risks associated with the development of our generating facilities and the various types of arrangements we enter into with communities and joint venture partners;

 

   

Brookfield’s election not to source acquisition opportunities for us and our lack of access to all renewable power acquisitions that Brookfield identifies;

 

   

our lack of control over our operations conducted through joint ventures, partnerships and consortium arrangements;

 

   

our ability to issue equity or debt for future acquisitions and developments will be dependent on capital markets;

 

   

foreign laws or regulation to which we become subject as a result of future acquisitions in new markets;

 

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the departure of some or all of Brookfield’s key professionals; and

 

   

other factors described in this prospectus, including those set forth under “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”.

We caution that the foregoing list of important factors that may affect future results is not exhaustive. The forward-looking statements represent our views as of the date of this prospectus and should not be relied upon as representing our views as of any date subsequent to the date of this prospectus. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law. For further information on these known and unknown risks, please see “Risk Factors”.

Financial Information

The financial information contained in this prospectus is presented in U.S. dollars and, unless otherwise indicated, has been prepared in accordance with IFRS. All figures are unaudited unless otherwise indicated. In this prospectus, all references to “$” are to U.S. dollars. Canadian dollars and Brazilian Reais are identified as “C$” and “R$”, respectively.

CAUTIONARY STATEMENT REGARDING THE USE OF NON-IFRS MEASURES

This prospectus contains references to Adjusted EBITDA, funds from operations and net asset value which are not generally accepted accounting measures under IFRS and therefore may differ from definitions of Adjusted EBITDA, funds from operations and net asset value used by other entities. We believe that Adjusted EBITDA, funds from operations and net asset value are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by our operating portfolio. Neither Adjusted EBITDA, funds from operations nor net asset value should be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance with IFRS. As a result of the Combination, we have presented these measurements of the 2011 results on a pro forma basis. Reconciliations of each of Adjusted EBITDA and funds from operations to net income on a consolidated and pro forma basis are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Income, Adjusted EBITDA, and Funds from Operations on a Consolidated Basis” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reconciliation of Pro Forma Results.”

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our LP Units. Before making an investment decision, you should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and our consolidated financial statements and related notes appearing at the end of this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for more information. Unless the context requires otherwise, when used in this prospectus, the terms “Brookfield Renewable Group”, “we”, “us” and “our” refer to Brookfield Renewable, BRELP, the Holding Entities and the Operating Entities, each as defined in this prospectus, collectively; “Brookfield Renewable” and “BREP” refer to Brookfield Renewable Energy Partners L.P.; “Brookfield” refers to Brookfield Asset Management Inc. and its subsidiaries (other than Brookfield Renewable); “BRPI” refers to Brookfield Renewable Power Inc., an indirect wholly-owned subsidiary of Brookfield Asset Management Inc.; and “LP Unitholder” refers to holders of our LP Units. All references to “our portfolio” include 100% of the capacity and energy of the facilities even though we do not own 100% of the economic output of such facilities (see the table under “Business — Our Operations” for details on our portfolio). See “Appendix A — Glossary” for the definitions of the various defined terms used throughout this prospectus.

Overview

Brookfield Renewable owns one of the world’s largest, publicly-traded, pure-play renewable power portfolios with approximately 5,900 MW of installed capacity. The portfolio includes 196 hydroelectric generating stations on 70 river systems, 11 wind facilities and two natural gas-fired plants. Our portfolio is diversified across 12 power markets in Canada, the United States and Brazil, providing significant geographic and operational diversification.

We operate our facilities through three regional operating centers in the United States, Canada and Brazil, which are designed to maintain and enhance the value of our assets, while cultivating positive relations with local stakeholders. Overall, the assets we own or manage have 5,900 MW of generating capacity and annual generation exceeding 22,000 GWh based on long-term averages. The table below outlines our portfolio as at the date of this prospectus:

 

Markets

  River
Systems
    Generating
Stations
    Generating
Units
    Capacity(1)
(MW)
    LTA(2)(3)
(GWh)
    Storage
(GWh)
 

Operating assets

           

Hydroelectric generation(4)

           

United States

    28        126        371        2,696        9,951        3,582   

Canada

    18        32        72        1,323        5,062        1,261   

Brazil

    24        38        85        680        3,701        N/A (5) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    70        196        528        4,699        18,714        4,843   

Wind energy

           

United States

    —          8        724        538        1,394        —     

Canada

    —          3        220        406        1,197        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —          11        944        944        2,591        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

    —          2        6        215        899        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from operating assets

    70        209        1,478        5,858        22,204        4,843   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Assets under construction

           

Hydroelectric generation

           

Canada

    1        1        4        45        138        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    71        210        1,482        5,903        22,342        4,843   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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(1) Total capacity of our operating assets is 5,903 MW, and our share after accounting for our partners’ interests is 5,483 MW.
(2) Long-term average is calculated on an annualized basis from the beginning of the year, regardless of the acquisition or commercial operation date.
(3) Total long-term average of our operating assets is 22,342 GWh and, after accounting for our partners’ interests, is 21,617 GWh.
(4) Long-term average 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. In Brazil, assured generation levels are used as a proxy for long-term average.
(5) Brazilian hydroelectric assets benefit from a market framework which levelizes generation risk across producers.

Over the last ten years, we have acquired or developed approximately 160 hydroelectric assets totaling approximately 3,200 MW and 11 wind generating assets totaling approximately 950 MW. Since the beginning of 2013, we acquired or developed hydroelectric generating assets that have an installed capacity of 389 MW and 165 MW of wind generating assets. We also have strong organic growth potential with a 1,800 MW development pipeline spread across all of our operating jurisdictions. Our net asset value in renewable power has grown from approximately $900 million in 1999 to approximately $8.6 billion as at March 31, 2013, representing an 18% compounded annualized growth rate. We are able to acquire and develop assets due to our established operating and project development teams, strategic relationship with Brookfield and our strong liquidity and capitalization profile.

Our objective is to pay a distribution to our LP Unitholders that is sustainable on a long-term basis while retaining within our operations sufficient liquidity for recurring growth capital expenditures and general purposes. We currently have a target payout ratio of approximately 60% to 70% of funds from operations, which we believe provides us with significant flexibility and leaves us with sufficient retained cash to further invest in accretive projects or acquisitions. We further believe that this will allow us to pursue a long-term distribution growth rate target of 3% to 5% annually. We expect funds from operations to improve further in the long-term with the reinvestment of surplus cash flows. We intend to continue with a highly stable cash flow profile sourced from predominantly long-life hydroelectric assets, the vast majority of which sell electricity under long-term, fixed price contracts with creditworthy counterparties, including Brookfield, while supporting an attractive distribution yield and growth target.

We believe that our scale, significant capitalization and sound investment-grade ratings will continue to enhance our ability to secure and fund new transactions globally. As such, we believe we are well-positioned to be a premium vehicle for investors seeking to invest in the renewable power sector. Our LP Units are listed on the TSX under the symbol “BEP.UN” and have been conditionally approved for listing on the NYSE, which once listed is expected to enhance our trading liquidity, deepen our investor base, broaden our access to capital and improve our ability to fund growth globally.

History and Development of Our Business

Brookfield Renewable was established to serve as the primary vehicle through which Brookfield will acquire renewable power assets on a global basis. Effective November 28, 2011, Brookfield Renewable Power Fund (the “Fund”) and Brookfield Asset Management’s directly-held power assets combined (the “Combination”), to form Brookfield Renewable. As a result of the Combination, all of the renewable power assets of the Fund, a publicly traded entity in Canada, and BRPI were combined and are now indirectly held by Brookfield Renewable through BRELP and BRELP’s subsidiaries. On completion of the Combination, public unitholders of the Fund received one LP Unit in exchange for each trust unit of the Fund held and the Fund was wound up. Prior to the Combination, Brookfield owned an approximate 34% interest in the Fund on a fully-exchanged basis. On completion of the Combination, Brookfield owned 73% of Brookfield Renewable on a fully-exchanged basis. Brookfield now owns 65% of Brookfield Renewable on a fully exchanged basis and the remaining 35% is held by public investors. After giving effect to this offering, Brookfield will own     % of Brookfield Renewable on a fully exchanged basis. See “Principal Unitholder”.

 

 

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Recent Developments

In January 2013, BRP Equity, a wholly-owned finance subsidiary of Brookfield Renewable, issued 7,000,000 Series 5 Shares at C$25 per share for gross proceeds of C$175 million. The proceeds were used to, among other things, repay outstanding indebtedness and for general corporate purposes.

On March 1, 2013, Brookfield Renewable acquired a portfolio of hydroelectric generating stations in Maine (“White Pine”) from a subsidiary of NextEra Energy Resources, LLC, for a total enterprise value of approximately $760 million, subject to typical closing adjustments. The portfolio consists of 19 hydroelectric facilities and eight upstream storage reservoir dams primarily on the Kennebec, Androscoggin and Saco rivers in Maine, with an aggregate capacity of 360 MW and expected average annual generation of approximately 1.6 million MWh.

On March 13, 2013, a wholly-owned subsidiary of Brookfield sold 8,065,000 LP Units of Brookfield Renewable in Canada at an offering price of C$31.00 per LP Unit pursuant to a bought-deal secondary offering with a syndicate of underwriters.

On March 20, 2013, we acquired the remaining 50% interest held by our partner in Powell River Energy Inc., which operates a hydro facility consisting of two generating stations located in British Columbia, for C$33 million plus the assumption of related debt.

In May 2013, BRP Equity issued 7,000,000 Series 6 Shares at C$25 per share for gross proceeds of C$175 million (the “Series 6 Preferred Share Offering”). The proceeds were used to repay outstanding indebtedness and for general corporate purposes.

Our Relationship with Brookfield Asset Management

One of our principal attributes is our relationship with Brookfield, a global alternative asset manager with more than $175 billion in assets under management. It has over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. It has a range of public and private investment products and services, which leverage its expertise and experience and provide it with a distinct competitive advantage in the markets where it operates. Brookfield Asset Management is listed on the NYSE, TSX and NYSE Euronext under the symbol “BAM”, “BAM.A” and “BAMA”, respectively.

Brookfield was the manager and administrator of the Fund since its inception in 1999 and we continue to benefit from its global asset management platform and depth of experience in creating LP Unitholder value. In addition, Brookfield Renewable continues to benefit from the same management team at Brookfield who created and drove the success of the Fund. We are Brookfield’s primary vehicle through which it will acquire renewable power assets on a global basis and we benefit from its reputation and global platform to grow our business.

The Manager complements our operating platforms in three key areas:

 

   

Executive oversight: The Manager provides leadership to our operating platforms and oversees the implementation of our annual and long-term operating plans, capital expenditure plans, and our power marketing plans to ensure compliance with our performance-based operating objectives and applicable laws. The Manager also oversees the implementation of our operational policies, and our management, accounting, regulatory reporting, legal and treasury functions.

 

   

Growth origination: We also benefit from the strategic advice, transaction origination capabilities and corporate development services of the Manager to grow our business. Brookfield Renewable benefits from the Manager’s renewable power acquisition experience focused in our target markets as well as market research capabilities that support evaluating opportunities to grow our business in our existing and new power markets.

 

 

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Capital markets strategy: The Manager recommends and oversees the implementation of funding strategies for our existing business and in connection with our acquisitions or developments. In doing so, the Manager advises upon and assists in the execution of our equity or debt financings. The Manager also arranges for the preparation of our tax planning and filing of tax returns.

 

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Industry Overview and Renewables Opportunity

The renewable power generation sector is increasingly becoming a meaningful portion of new electricity supply globally. Significant new renewable generation supply continues to be built, consisting primarily of new hydro and wind capacity. Global installed renewable power now stands at over 1,300 GW worldwide, and the industry is adding in the range of 100 GW or $200 billion of new renewable power supply each year. The following chart illustrates the global growth in various renewable power generation sectors from 2000 to 2011.

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Source: BP Statistical Review of World Energy (June 2012 Edition).
Note: 2012 results are not yet publicly available. We expect the results to be published on June 12, 2013.

We believe that, over time, strong continued growth in renewable power generation will be driven by the following:

 

   

Conventional coal and nuclear generation face challenges. The continued reliance on large-scale coal and nuclear facilities is causing concern with power system regulators and the general public. Coal plants are increasingly facing legislative pressures to undertake significant environmental compliance expenditures. This in turn is accelerating the retirement of coal plants, which need to be replaced by new capacity. Following the Fukushima nuclear disaster in Japan, and in light of ongoing cost uncertainties and concern over waste disposal, public concern over new nuclear construction and continued life extension of existing facilities has increased. This has delayed or halted most new nuclear development activities in the United States and has even caused some countries, despite relying on meaningful nuclear power, to legislate the early retirement of existing nuclear capacity.

 

   

Renewables are a cost-effective way of diversifying fuel risk. The abundance of low cost natural gas in North America presents a unique opportunity to replace aging coal and nuclear facilities with a domestic fuel source that is cost-effective and has a lower environmental impact. We expect the desire to diversify fuel sources and the exposure to potentially rising and volatile natural gas prices will

 

 

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increase the demand for renewable technologies, particularly hydroelectric and wind energy. In addition, technological developments over the last decade continue to reduce the costs of renewable technologies enhancing their position as a cost competitive complement to gas-fired generation and a means to meeting more stringent environmental standards.

 

   

Supported by government policies. There are a number of strategies that governments are using to encourage development of renewable power resources which generally include renewable portfolio standards (“RPS”) (requiring electricity distributors to obtain a minimum percentage of their power from renewable energy resources by specified target dates) and, in certain cases, tax incentives or subsidies. Globally, at least 64 countries, including all 27 European Union countries, have national targets for renewable energy supply, and 37 U.S. states, the District of Columbia, Puerto Rico and nine Canadian provinces have RPS or policy goals that require load-serving utilities to offer long-term power purchase contracts for new renewable supply.

 

   

Widespread acceptance of climate change. Over the last five years, it has become generally accepted that the combustion of fossil fuels contributes to global warming. In 2007, the Intergovernmental Panel on Climate Change (“IPCC”) released a series of four reports to build awareness of climate change and observed that average temperatures in the world’s northern hemisphere were likely the highest in at least the past 1,300 years, and in 2005, atmospheric concentrations of carbon dioxide exceeded by far the natural range over the last 650,000 years. According to the IPCC, the ramifications of global warming for society are significant. As the electricity sector is one of the largest contributors to carbon dioxide emissions globally we have observed that universal concern about global warming has become a catalyst for governments to take environmental policy action, often through legislation of renewable power procurement targets or implementation of feed-in tariffs.

Our Competitive Strengths

We are an owner and operator of a diversified portfolio of high quality assets that produce electricity from renewable resources and have evolved into one of the world’s largest listed pure-play renewable power businesses.

Our assets generate high quality, stable cash flows derived from a nearly fully contracted portfolio. Our business model is simple: utilize our global reach to identify and acquire high quality renewable power 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 LP Unitholders.

 

   

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 $17 billion in power generating assets, approximately 5,900 MW of installed capacity and long-term average generation of approximately 22,200 GWh annually. Our portfolio includes 196 hydroelectric generating stations on 70 river systems and 11 wind facilities, diversified across 12 power markets in the United States, Canada and Brazil.

 

LOGO

 

 

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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 32% of our annual generation. Our assets in Brazil benefit from a framework that exists in the country to levelize generation risk across producers. This ability to store water and have 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. Over the last ten years, we have acquired or developed approximately 160 hydroelectric assets totaling approximately 3,200 MW and 11 wind generating assets totaling approximately 950 MW. Since the beginning of 2013, we acquired or developed hydroelectric generating assets that have an installed capacity of 389 MW and 165 MW of wind generating assets. We also have strong organic growth potential with a 1,800 MW development pipeline spread across all of our operating jurisdictions. Our net asset value in renewable power has grown from approximately $900 million in 1999 to approximately $8.6 billion as at March 31, 2013, representing an 18% compounded annualized growth rate. We are able to acquire and develop assets due to our established operating and project development teams, strategic relationship with Brookfield and our strong liquidity and capitalization profile.

 

   

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 pursue a long-term distribution growth rate target in the range of 3% to 5% annually.

 

   

Stable, high quality cash flows with attractive long-term value for LP Unitholders. We intend to maintain a highly stable, predictable pricing profile sourced from a diversified portfolio of low operating cost, long-life hydroelectric and wind power assets that sell electricity under long-term, fixed price contracts with creditworthy counterparties. Over 90% of our generation output is sold pursuant to PPAs to public power authorities, load-serving utilities, industrial users or to affiliates of Brookfield Asset Management. The PPAs for our assets have a weighted-average remaining duration of 20 years, providing long-term cash flow stability.

 

   

Strong financial profile. With $17 billion of power generating assets and a conservative leverage profile, consolidated debt-to-capitalization is approximately 41%. Our liquidity position remains strong with $680 million of cash and unutilized portion of committed bank lines as of May 10, 2013, the date of our most recent Interim Report. Approximately 72% of our borrowings are non-recourse to Brookfield Renewable. Our corporate borrowings and subsidiary borrowings have a weighted-average term of approximately nine and 13 years, respectively.

Revenue and Cash Flow Profile

We believe that our portfolio offers high quality cash flows derived from predominantly hydroelectric assets. Our cash flow profile, which we believe will be highly stable and predictable, is derived from the combination of long-term, fixed price contracts, a unique hydro-focused portfolio with a low cost structure, and a prudent financing strategy focused on non-recourse debt with an investment grade balance sheet. Accordingly, we believe that we have a high degree of predictability in respect of revenue and costs on a per MWh basis.

We expect our current business to generate approximately $1.2 billion of Adjusted EBITDA and $575 million of funds from operations, annually, based on long-term average generation; however, we can provide no assurance that we will achieve such results in the near- or long-term. Our ability to achieve the results based on long-term average is dependent on various risks and uncertainties that our operations face, many of which are

 

 

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beyond our control. Some of these risks and uncertainties include hydrology or wind conditions at our facilities, and the risk that counterparties to our contracts may not fulfill their obligations.

Our Adjusted EBITDA and funds from operations for the three months ended March 31, 2013 totaled $319 million and $162 million, respectively. For the three months ended March 31, 2012, our Adjusted EBITDA and funds from operations totaled $318 million and $175 million, respectively.

 

     Hydroelectric      Wind energy      Other     Total  

(MILLIONS)

   U.S.      Canada      Brazil      U.S.      Canada               

For the three months ended March 31, 2013:

                   

Revenues(1)

   $ 185       $ 94       $ 75       $ 23       $ 40       $ 20      $ 437   

Adjusted EBITDA(2)

     143         78         55         14         35         (6     319   

Funds from operations(2)

     82         62         42         1         21         (46     162   

For the three months ended March 31, 2012:

                   

Revenues(1)

   $ 164       $ 100       $ 91       $ 7       $ 44       $ 20      $ 426   

Adjusted EBITDA(2)

     130         83         68         5         39         (7     318   

Funds from operations(2)

     83         66         30         2         29         (35     175   

 

(1)

Based on unaudited consolidated financial data which is derived from and should be read in conjunction with unaudited consolidated financial statements of Brookfield Renewable as at and for the three months ended March 31, 2013 and 2012.

(2) 

Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

We typically maintain a predictable pricing profile based on long-term PPAs. Our current revenue profile is supported by PPAs with a weighted average remaining duration of 20 years for over 90% of our total generation. These contracts, combined with a well-diversified portfolio, reduce variability in our generation volumes and enhance the stability of our cash flow profile. The majority of our long-term PPAs are with investment-grade rated or creditworthy counterparties. As outlined in the graph below, the vast majority of our long-term PPA counterparties are government-owned utilities or power authorities, Brookfield or industrial power users.

 

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As at March 31, 2013, Brookfield Renewable had contracted 91% of the balance of 2013 generation at an average price of $82 per MWh. The following table sets out contracts as at March 31, 2013 over the next five years for generation from existing facilities as of that date, assuming long-term average hydrology and wind conditions:

 

     Balance of
2013
     2014      2015      2016      2017  

Contracted generation(1)

              

% of total generation

     91         84         78         77         74   

% of total generation on a proportionate basis(2)

     92         90         85         84         81   

 

(1) Assets under construction are included when long-term average and pricing details are available and the commercial operations date is established in a definitive construction contract. Figures assume no recontracting.
(2) Long-term average on a proportionate basis includes wholly-owned assets and our share of partially-owned assets and equity-accounted investments.

As of March 31, 2013, over the next three years Brookfield Renewable has an average annual generation of 3,157 GWh which is uncontracted. A significant portion of our uncontracted generation is located in the eastern United States and was acquired in the last six months. We have been able to acquire long-life hydroelectric facilities at values which reflect the current low commodity price environment and which may provide meaningful upside optionality if energy prices increase. All of this energy can be sold into the current wholesale or bilateral market, however we intend to maintain flexibility in re-contracting to position ourselves to achieve the most optimal pricing.

Our portfolio benefits from significant hydrology diversification, with assets distributed on 70 river systems in three countries. Our water storage capabilities and our access to the hydrological balancing pool administered by the government of Brazil amount to approximately 37% of annual generation, allowing us to mitigate hydrological fluctuations, optimize production and minimize losses due to outages.

North America. In North America, we generate revenues primarily through energy sales by way of long-term PPAs with creditworthy counterparties such as government-owned entities or power authorities (including for example, the Ontario Power Authority, Ontario Electricity Financial Corporation, Hydro-Québec, BC Hydro and the Long Island Power Authority), load-serving utilities (such as Entergy Louisiana), Brookfield and its subsidiaries, and in some cases industrial power users. Currently, our North American portfolio is largely contracted pursuant to long-term PPAs that are generally structured on a “take or pay” basis without fixed or minimum volume commitments. As a result, there is minimal risk of having to supply power from the market to customers when we are experiencing low water or wind conditions. Most of our PPAs also provide for annual escalation of the realized price, typically linked to inflation. In respect of power sold to Brookfield, Brookfield will in some cases have entered into back to back power resale agreements in respect to output purchased from Brookfield Renewable Group (see “Business — The Manager — Energy Marketing”).

Brazil. In the Brazilian electricity market, energy is typically sold under long-term contracts either to regulated load-serving distribution companies, which are customers with more than 0.5 MW of annual demand and who can choose their own electricity supplier (“free customers”). Both types of customers are required to demonstrate that they have contracts in place to meet all forecast demand annually. In the regulated market, Brookfield has typically entered into 20-30 year PPAs with creditworthy state-owned utilities. In the “free customer” market, Brookfield has typically entered into three to eight year PPAs with large industrial and commercial customers, generally engaged in producing essential services or products such as the telephone, food and pharmaceutical industries. Our PPAs in Brazil typically provide a fixed price that is fully indexed to inflation annually. Brazil has recently experienced significant dry conditions in its largely hydroelectric based system.

 

 

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This trend, combined with the growing demand and the requirement to dispatch higher cost thermal facilities, has put upward pressure on power prices. Our Brazilian portfolio has a weighted average remaining contract term of nine years and we believe that it is well positioned to capitalize on market opportunities in the medium term as 18% of the portfolio is scheduled to be re-contracted in 2014 and a further 37% is scheduled to be re-contracted in 2015.

Our Growth Strategy

We expect to continue focusing primarily on long-life renewable power assets that provide stable, long-term contracted cash flows, and which are well positioned to appreciate in value over time. We intend to combine our industry, operating, development and transaction expertise with our ability to commit capital to transactions in order to secure opportunities at attractive returns for securityholders. To grow Brookfield Renewable, we benefit from a proactive and focused business development strategy in each of our markets and Brookfield’s global investment platform that may lead to originating attractive opportunities for investment. We expect that our growth will be focused on the following:

 

   

Focusing on core markets and pursuing opportunities in other high-value markets. Geographically, we expect to continue our growth in the United States, Canada and Brazil, where our existing renewable power operating platforms allow us to efficiently integrate operating or development-stage renewable power assets and capture economies of scale. Within each of these countries, our growth strategy is focused on the higher-value regional electricity markets. For example, in the United States, our strategy is to continue our growth in the eastern and western power markets, where higher electricity prices and renewable portfolio standards offer more attractive returns and better long-term value. Similarly in Brazil, our operations and growth objectives are focused on the southern and mid-western portion of the country where over 60% of the population and over 80% of economic activity is located. Over time, we would also pursue new markets that offer attractive opportunities to enhance the geographic diversifications of our operations, the ability to add operating platforms that we can grow over time and offer attractive risk-adjusted returns. We have access to Brookfield’s infrastructure investment platforms in Europe and Australasia, giving us the capability to secure transactions globally.

 

   

Maintaining our predominantly hydroelectric focus. We intend to maintain our predominantly hydroelectric focus as we believe hydroelectric assets are the longest-life, lowest cost, power generation assets. We believe that investing in the highest quality assets within a particular asset class offers an investment that typically can maintain a premium valuation and funds from operations performance throughout market cycles, and is better positioned to appreciate in value over time. We believe hydroelectric assets are the most attractive segment of the power generation infrastructure asset class as they benefit from high barriers to entry and a sustainable competitive cost advantage. In addition, wind power is a proven technology and one of the fastest growing renewable power segments globally. Also, we plan to grow our wind platform by continuing to focus on high-quality sites that benefit from a proven wind resource and are located in high-value markets where wind has significant scarcity value. Over time, we may invest in other proven renewable power technologies that share the long-life and low-cost attributes of our hydroelectric and wind assets.

 

   

Optimizing capital allocation to “build or buy” opportunities. We intend to grow our business by pursuing the acquisition of both operating and development-stage assets, or by developing and building projects from our own development project portfolio. Market conditions in some cases lead to periods where operating assets are valued at significant premiums or discounts to their replacement cost or long-term fundamental value. Similarly, renewable power policy may at certain times be particularly conducive to new developments, leading to opportunities to earn superior risk-adjusted returns by developing and building greenfield projects. For this reason, we believe a sound investment and capital allocation strategy continuously compares acquisition or “buy” investment opportunities with similar

 

 

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development-stage or “build” opportunities, whether sourced from our own development pipeline or through the acquisition of development-stage projects. We plan to allocate capital to the best acquisition and development opportunities sourced through our global renewable power platform and believe our ability to do so globally is one of our competitive advantages in creating value for our LP Unitholders. While we intend to pursue development projects, we expect that our development-stage capital commitments will be a relatively small portion of our cash flows and invested capital as our predominant focus will be on sites with significant competitive advantage in high-value markets that we would build once the project is “construction-ready” and that benefit from sound commercial arrangements that limit construction risk and secures long-term stable cash flows.

Our Growth Opportunity

We believe that the current transaction environment offers attractive acquisition opportunities to invest in renewable power acquisitions or developments that we expect will allow us to deploy capital, on an accretive basis, in the following opportunities:

 

   

Asset monetizations and divestitures. Significant renewable power generation capacity is owned by industrial companies, smaller independent power producers, private equity investors or foreign companies. These types of owners sell renewable power assets either because power generation is not their core business, their investment horizons are shorter, or a particular market ceases to be strategic.

 

   

Privatizations. We believe that in the current fiscal climate, governments will continue to engage the private sector in providing funding solutions for infrastructure requirements which could increasingly involve sales of existing assets. Our proven operating track record, global scale and ability to partner with local pension and institutional investors may better competitively position us to participate in such opportunities.

 

   

Development cycle divestitures. Renewable power assets are often developed or built by smaller developers or construction companies who, in our experience, seek to capture development-stage returns. We have been, and believe will continue to be, a logical acquirer of, or partner in, such projects. Our focus on acquisitions in this area also gives us a unique perspective on pursuing the best development-stage opportunities through acquisitions or by building projects in our own portfolio.

 

   

Brookfield Renewable Group’s development project portfolio. In addition to growing our business through acquisitions, we intend to pursue organic growth by developing our portfolio of greenfield projects. We indirectly own over 25 development projects in Brazil, Canada and the United States totaling an estimated 1,800 MW of potential capacity. See “Certain Relationships and Related Party Transactions — Development Projects”. Over the past ten years, Brookfield has completed or commenced construction on approximately 21 development projects totaling an aggregate of over 1,000 MW of capacity giving us a successful execution track record in each of our focus markets as a developer of both hydroelectric and wind capacity. Our regional operating platforms have the development expertise and capability to advance our renewable power projects from the development stage to commercial operation. We also have the necessary expertise to oversee the regulatory, engineering, construction execution, transmission, permitting, licensing, environmental and legal activities required for successful project development.

Risk Factors

Investing in our LP Units entails a high degree of risk as more fully described in the “Risk Factors” section of this prospectus. You should carefully consider such risks before deciding to invest in our LP Units. These risks include, among others, that:

 

   

changes to hydrology at our hydroelectric stations or in wind conditions at our wind energy facilities could materially adversely affect the volume of electricity generated;

 

 

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counterparties to our contracts may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms;

 

   

increases in water rental costs (or similar fees) or changes to the regulation of water supply may impose additional obligations on Brookfield Renewable;

 

   

supply and demand in the energy market, including the non-renewable energy market, is volatile and such volatility could have an adverse impact on electricity prices and a material adverse effect on Brookfield Renewable’s assets, liabilities, business, financial condition, results of operations and cash flow;

 

   

our operations are highly regulated and may be exposed to increased regulation which could result in additional costs to Brookfield Renewable;

 

   

there is a risk that our concessions and licenses will not be renewed;

 

   

the cost of operating our plants could increase for reasons beyond our control;

 

   

we may fail to comply with the conditions in, or may not be able to maintain, our governmental permits;

 

   

we may experience equipment failure;

 

   

the occurrence of dam failures could result in a loss of generating capacity and repairing such failures could require us to expend significant amounts of capital and other resources;

 

   

our ability to finance our operations is subject to various risks relating to the state of the capital markets; and

 

   

we are subject to operating and financial restrictions through covenants in our loan, debt and security agreements.

Corporate and Other Information

Brookfield Renewable is a Bermuda exempted limited partnership that was established on June 27, 2011 under the provisions of the Exempted Partnerships Act 1992 of Bermuda and the Limited Partnership Act 1883 of Bermuda. Our registered and head office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda, and the telephone number is +1.441.295.1443. We do not incorporate the information contained on, or accessible through, our website into this prospectus, and you should not consider it a part of this prospectus.

 

 

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SUMMARY TERMS OF THE OFFERING

The summary below describes the principal terms of this offering. The “Amended and Restated Limited Partnership Agreement of BREP” section of this prospectus contains a more detailed description of our LP Units.

LP Units offered by us

             LP Units

 

LP Units to be outstanding immediately after this offering

             LP Units issued and outstanding on a fully-exchanged basis, assuming no exercise of the Over-Allotment Option.

 

               LP Units issued and outstanding on a fully-exchanged basis, assuming full exercise of the Over-allotment Option.

Use of Proceeds

We intend to use the proceeds of this offering to repay outstanding indebtedness (which may include indebtedness outstanding under the Credit Facilities) and for general corporate purposes. See “Use of Proceeds”.

Voting Rights

Our LP Unitholders do not have a right to vote on Brookfield Renewable matters or to take part in the management of Brookfield Renewable. See “Amended and Restated Limited Partnership Agreement of BREP”.

Distribution Policy

We target a distribution payout ratio in the range of approximately 60% to 70% of funds from operations (“FFO”) and intend to pursue a long-term distribution growth rate target of 3% to 5% annually. See “Distribution Policy.”

 

Material U.S. Federal Tax Considerations

Investors in this offering will become limited partners of Brookfield Renewable. As discussed in “Tax Considerations — Material U.S. Federal Income Tax Considerations”, Brookfield Renewable will be treated as a partnership and not as a corporation for U.S. federal income tax purposes. An entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. Instead, each partner is required to take into account its allocable share of items of income, gain, loss and deduction of the partnership in computing its U.S. federal income tax liability, regardless of whether or not cash distributions are then made. Accordingly, an investor in this offering will generally be required to pay U.S. federal income taxes with respect to the income and gain of Brookfield Renewable that is allocated to such investor, even if Brookfield Renewable does not make cash distributions. See “Tax Considerations — Material U.S. Federal Income Tax Considerations” for a summary discussing certain U.S. federal income tax considerations related to the purchase, ownership and disposition of our LP Units as of the date of this prospectus.

 

Material Canadian Federal Tax Considerations

Investors in this offering will become limited partners of Brookfield Renewable. Generally, as a partnership, Brookfield Renewable will incur no Canadian federal income tax liability, other than Canadian federal withholding taxes. A Canadian resident partner must report in its Canadian federal income tax return, and will be subject to

 

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Canadian federal income tax in respect of its share of each item of Brookfield Renewable’s income, gain, loss, deduction and credit for each fiscal period of Brookfield Renewable ending in or coincidentally with, its taxation year, even if the partner receives no distributions from Brookfield Renewable in such taxation year. Investors who are resident in Canada should refer to “Tax Considerations — Material Canadian Federal Income Tax Considerations — Holders Resident in Canada” for a summary discussing certain Canadian federal income tax consequences to them of the acquisition, holding and disposition of our LP Units.

Investors who are not resident in Canada should refer to “Tax Considerations — Material Canadian Federal Income Tax Considerations — Holders Not Resident in Canada” for a summary discussing certain Canadian federal income tax consequences to them of the acquisition, holding and disposition of our LP Units.

NYSE Symbol

We have received conditional approval to list our LP Units on the NYSE under the symbol “BEP”.

TSX Symbol

“BEP.UN”

Risk Factors

Investing in our LP Units involves substantial risks. See

“Risk Factors” for a description of certain of the risks you should consider before investing in our LP Units.

 

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Summary Historical Consolidated Financial and Other Data

The 2013, 2012, 2011 and 2010 information in this section, excluding the Operational Information and distributions per share set forth in the tables below, is derived from and should be read in conjunction with: (i) the unaudited consolidated financial statements of Brookfield Renewable as at March 31, 2013 and for the three months ended March 31, 2013 and 2012 and related notes, (ii) the audited consolidated financial statements of Brookfield Renewable as at and for the years ended December 31, 2012, 2011 and 2010 and related notes, and (iii) the unaudited pro forma condensed combined statement of (loss) income of Brookfield Renewable for the year ended December 31, 2011 and related notes, each of which is included elsewhere in this prospectus. The 2009 information in this section, excluding the Operational Information set forth in the tables below, is derived from the audited consolidated financial statements of Brookfield’s renewable power division (a division of BRPI) as at and for the year ended December 31, 2009, which are not included in this prospectus. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that can be expected for the full year or any future period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

We are providing unaudited pro forma financial results that include the impact of the Combination, new contracts and contract amendments, management service agreements along with the tax impacts resulting from the Combination, as if each had occurred as of January 1, 2011. The unaudited pro forma financial results have been prepared based upon currently available information and assumptions considered appropriate by management. The unaudited pro forma financial results are provided for information purposes only and may not be indicative of the results that would have occurred had the above transactions been effected on the date indicated. The accounting for certain of the Combination transactions in the audited consolidated financial statements of Brookfield Renewable for the year ended December 31, 2011 required the determination of fair value estimates at the date of the transaction on November 28, 2011 rather than the date assumed in the determination of the pro forma results of January 1, 2011. Capacity, long-term average and actual generation include facilities acquired or commissioned during the respective period ends. Long-term average and actual generation was calculated from the acquisition date or the commercial operation date, whichever is later.

 

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The following tables present consolidated financial data for Brookfield Renewable as at and for the periods indicated:

 

   

As at and for the three
month ended March 31,

    

As at and for the year ended December 31,(2)(3)

 

(US$ millions, unless otherwise stated)

  2013     2012      2012     2011     2010     2009  

Operational Information(1):

            

Capacity (MW)

    5,858        4,909         5,304        4,536        4,309        4,198   

Long-term average (GWh)

    5,325        4,549         18,202        16,297        15,887        15,529   

Actual generation (GWh)

    5,535        4,817         15,942        15,877        14,480        15,833   

Average revenue per MWh

    79        88         82        74        72        62   

Selected Financial Information:

            

Revenues

  $       437      $       426       $ 1,309      $ 1,169      $ 1,045      $ 984   

Adjusted EBITDA(4)

    319        318         852        804        751        743   

Funds from operations(4)

    162        175         347        332        269        324   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 85      $ 31       $ (95   $ (451   $ 294      $ (580
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Distributions per share

            

Preferred equity(5)

    0.30        0.33         1.27        1.34        1.03     

General Partnership interest in a holding subsidiary held by Brookfield

    0.36        0.35         1.38        0.34        —       

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

    0.36        0.35         1.38        0.34        —       

Limited Partners’ equity

    0.36        0.35         1.38        0.34        —       

 

(1) Includes 100% of generation from equity-accounted investments.
(2) The 2011 balance sheet reflects changes in the accounting policy for construction work-in-progress. See note 2 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this prospectus.
(3) The 2011 results reflect changes arising from the Combination. See notes 2, 8, 10 and 18 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this prospectus.
(4) Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.
(5) Represents the weighted-average distribution to the Series 1 Shares, Series 3 Shares and Series 5 Shares, where applicable.

 

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The following tables provides a summary of the key items on the consolidated balance sheet as at the dates indicated:

 

    

As at

March 31,

         

As at December 31,

 

(US$ millions, unless otherwise stated)

   2013     2012     2012     2011     2010  
           Restated(3)                    

Property, plant and equipment at fair value

     $16,813      $ 15,658      $ 15,658      $ 13,945      $ 12,173   

Equity-accounted investments

     326        344        344        405        269   

Total assets

     18,268        16,925        16,925        15,708        13,874   

Long-term debt and credit facilities

     7,230        6,119        6,119        5,519        4,994   

Fund unit liability

     —          —          —          —          1,355   

Preferred equity

     659        500        500        241        252   

Participating non-controlling interests — in operating subsidiaries

     1,027        1,028        1,028        629        206   

General partnership interest in a holding subsidiary held by Brookfield

     62        63        63        64        34   

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     3,041        3,070        3,081        3,097        1,649   

Limited partners’ equity

     3,117        3,147        3,158        3,169        1,689   

Total liabilities and equity

     18,268        16,925        16,925        15,708        13,784   

Net asset value(1)

     8,647        8,548        8,579        8,398        7,480   

Net asset value per LP Unit(1)(2)

     32.60        32.23        32.35        31.67        28.21   

Debt to total capitalization(1)

     41     38     38     37     40

 

(1) Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.
(2) Average LP Units outstanding during the period totaled 132.9 million, (2010 and 2011: 132.8 million).
(3) See note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

 

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The following table reflects the Adjusted EBITDA, funds from operations and the reconciliation to net income (loss) for the periods indicated:

 

    

For the
three months
ended March 31,

     For the year ended December 31,  

(US$ millions, unless otherwise stated)

   2013      2012      2012      2011      2010      2009  

Generation (GWh) (1)

     5,535         4,817         15,942         15,877         14,480         15,833   

Revenues

     $437         $426         $1,309         $1,169         $1,045         $984   

Other income

     2         5         16         19         12         9   

Share of cash earnings from equity-accounted investments and long-term investments

     6         4         13         23         22         29   

Direct operating costs

     (126)         (117)         (486)         (407)         (328)         (279)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (2)

     319         318         852         804         751         743   

Interest expense - borrowings

     (102)         (110)         (411)         (411)         (404)         (348)   

Management service costs

     (12)         (7)         (36)         (1)         —           —     

Current income taxes

     (3)         (6)         (14)         (8)         (32)         (23)   

Cash portion of non-controlling interests

     (40)         (20)         (44)         (52)         (46)         (48)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Funds from operations (2)

     162         175         347         332         269         324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash portion of non-controlling interests included in funds from operations

     40         20         44         52         46         48   

Other items:

                 

Depreciation and amortization

     (128)         (126)         (483)         (468)         (446)         (321)   

Unrealized financial instrument (losses) gains

     16         (9)         (23)         (20)         584         (791)   

Fund unit liability revaluation

     —           —           —           (376)         (159)         (244)   

Share of non-cash losses from equity-accounted investments

     (2)         (3)         (18)         (13)         (7)         (13)   

Deferred income tax recovery

     (1)         (13)         54         50         3         335   

Other

     (2)         (13)         (16)         (8)         4         82   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     $85         $31         $(95)         $(451)         $294         $(580)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to:

                 

Preferred equity

     $7         $3         $16         $13         $10         $—     

Participating non-controlling interests — in operating subsidiaries

     16         (1)         (40)         11         25         28   

General partnership interest in a holding subsidiary held by Brookfield

     1         —           (1)         (5)         3         (6)   

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     30         14         (35)         (232)         127         (297)   

Limited partners’ equity

     31         15         (35)         (238)         129         (305)   

Basic and diluted earnings (loss) per LP Unit(3)

     $0.23         $0.11         $(0.26)         $(1.79)         $0.97         $(2.29)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Variations in generation are described under Item 5.A “Operating Results — Segmented Disclosures.”

(2) 

Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

(3) 

Average LP Units outstanding during the period totaled 132.9 million, (2009 to 2011: 132.8 million).

Brookfield Renewable has not included financial information for the year ended December 31, 2008, as such information is not available on a basis consistent with the consolidated financial information for the years ended December 31, 2012, 2011, 2010 and 2009 and cannot be provided on an IFRS basis without unreasonable effort or expense.

 

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RISK FACTORS

An investment in our LP Units involves a high degree of risk. Prior to investing in our LP Units, we encourage each prospective investor to carefully read this entire prospectus, including, without limitation, the following risk factors and the section of this prospectus entitled “Cautionary Note Regarding Forward-Looking Statements.” You should carefully consider the following factors in addition to the other information set forth in this prospectus. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected and the value of our LP Units would likely decline, and you could lose all or part of your investment.

Risks Related to Brookfield Renewable

Brookfield Renewable is a newly formed partnership with a limited operating history and the historical and pro forma financial information included in this prospectus does not reflect the financial condition or operating results we would have achieved during the periods presented, and therefore may not be a reliable indicator of our future financial performance.

Brookfield Renewable, which was formed on June 27, 2011 and acquired substantially all of its assets pursuant to the Combination in November 2011, has a limited operating history. Our lack of operating history will make it difficult for you to assess our ability to operate profitably and make distributions to LP Unitholders. Financial information for the periods prior to November 28, 2011 is presented based on the historical combined financial information for the contributed operations as previously reported by Brookfield. For the period after completion of the Combination, the results are based on the actual results of the new entity, Brookfield Renewable, including the adjustments associated with the Combination and the execution of several new and amended agreements, including PPAs and management service agreements.

Brookfield Renewable is not, and does not intend to become, regulated as an “investment company” under the Investment Company Act (and similar legislation in other jurisdictions) and if Brookfield Renewable was deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to operate as contemplated.

The Investment Company Act (and similar legislation in other jurisdictions) provides certain protections to investors and imposes certain restrictions on companies that are registered as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. Brookfield Renewable has not been and does not intend to become regulated as an investment company and Brookfield Renewable intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans. We will be limited in the types of acquisitions that we may make, and we may need to modify our organizational structure or dispose of assets of which we would not otherwise dispose. Moreover, if anything were to happen, which would potentially cause Brookfield Renewable to be deemed an investment company under the Investment Company Act, it would be impractical for us to operate as intended. Agreements and arrangements between and among us and Brookfield would be impaired, the type and amount of acquisitions that we would be able to make as a principal would be limited, and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the amendment or termination of our Master Services Agreement, the restructuring of Brookfield Renewable and the Holding Entities, the amendment of the Amended and Restated Limited Partnership Agreement of BREP or the termination of Brookfield Renewable, any of which could materially adversely affect the value of our LP Units. In addition, if Brookfield Renewable were deemed to be an investment company under the Investment Company Act, it would be taxable as a corporation for U.S. federal income tax purposes, and such treatment could materially adversely affect the value of our LP Units.

 

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Brookfield Renewable is a “foreign private issuer” under U.S. securities laws and will therefore be subject to disclosure obligations different from requirements applicable to U.S. domestic registrants listed on the NYSE.

Although Brookfield Renewable will be subject to the periodic reporting requirement of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about Brookfield Renewable than is regularly published by or about other public companies in the United States. Brookfield Renewable will be exempt from certain other sections of the Exchange Act to which U.S. domestic issuers are subject, including the requirement to provide our LP Unitholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large LP Unitholders of Brookfield Renewable will not be obligated to file reports under Section 16 of the Exchange Act, and certain corporate governance rules that are imposed by the NYSE will be inapplicable to Brookfield Renewable.

We may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence of debt at multiple levels within an organizational structure.

Our ownership and organizational structure is similar to structures whereby one company controls another company which in turn holds controlling interests in other companies; thereby, the company at the top of the chain may control the company at the bottom of the chain even if its effective equity position in the bottom company is less than a controlling interest. Brookfield is the sole shareholder of the Managing General Partner and, as a result of such ownership of the Managing General Partner, Brookfield will be able to control the appointment and removal of the Managing General Partner’s directors and, accordingly, will exercise substantial influence over us. In turn, we often have a majority controlling interest or a significant influence in our investments. Even though Brookfield has an effective economic interest in our business of approximately 65% as a result of its ownership of our LP Units and the Redeemable/Exchangeable partnership units, over time Brookfield may reduce this economic interest while still maintaining its controlling interest, and, therefore, Brookfield may use its control rights in a manner that conflicts with the economic interests of our other LP Unitholders. For example, despite the fact that we have the Conflicts Policy in place, which addresses the requirement for independent approval and other requirements for transactions in which there is greater potential for a conflict of interest to arise, including transactions with affiliates of Brookfield, because Brookfield will be able to exert substantial influence over us, and, in turn, over our investments, there is a greater risk of transfer of assets of our investments at non-arm’s length values to Brookfield and its affiliates. In addition, debt incurred at multiple levels within the chain of control could exacerbate the separation of economic interest from controlling interest at such levels, thereby creating an incentive to leverage us and our investments. Any such increase in debt would also make us more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. The servicing of any such debt would also reduce the amount of funds available to pay distributions to us and ultimately to our LP Unitholders.

Our failure to maintain effective internal controls could have a material adverse effect on our business in the future and the price of our LP Units.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting and our independent registered public accounting firm will be required to deliver an attestation report on our management’s assessment of, and the operating effectiveness of, our internal controls over financial reporting in conjunction with their opinion on our audited consolidated financial statements. Any failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to report material weaknesses or other deficiencies in our internal controls over financial reporting and could result in a more than remote possibility of errors or misstatements in our consolidated financial statements that would be material. If we or our independent registered public accounting firm were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our reported financial information and the price of our LP Units could decline. Our failure to

 

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achieve and maintain effective internal controls could have a material adverse effect on our business in the future, our access to the capital markets and investors’ perception of us. In addition, material weaknesses in our internal controls could require significant expense and management time to remediate.

Risks Related to Our Operations and the Renewable Power Industry

Changes to hydrology at our hydroelectric stations or in wind conditions at our wind energy facilities could materially adversely affect the volume of electricity generated.

The revenues generated by our facilities are proportional to the amount of electricity generated which in turn is dependent upon available water flows and wind conditions. Hydrology and wind conditions have natural variations from season to season and from year to year and may also change permanently because of climate change or other factors. A natural disaster could also impact water flows within the watersheds in which we operate. Water rights are also generally owned or controlled by governments that reserve the right to control water levels or may impose water-use requirements as a condition of license renewal. Wind energy is highly dependent on weather conditions and, in particular, on wind conditions. The profitability of a wind farm depends not only on observed wind conditions at the site, which are inherently variable, but also on whether observed wind conditions are consistent with assumptions made during the project development phase. A sustained decline in water flow at our hydroelectric stations or in wind conditions at our wind energy facilities could lead to a material adverse change in the volume of electricity generated, revenues and cash flow.

In Brazil, hydroelectric power generators have access to the MRE, which, within the limitation referred to below, stabilizes hydrology by assuring that all participant plants in the MRE receive a reference amount of electricity, approximating long-term average irrespective of the actual volume of energy generated whether above or below long-term average and substantially all our assets are part of that pool. In cases of nationwide drought, when the pool as a whole is in shortfall relative to the long-term average, an asset can expect to share the nationwide shortfall pro rata with the rest of the pool. In addition, specific rules provide the minimum percentages of the reference amount of electricity that must be actually generated each year for assuring participation in the MRE. The energy reference amount is assessed yearly according to the criteria of such regulation, and can be adjusted positively or negatively. If the MRE is terminated or changed or Brookfield Renewable Group reference amount is revised, Brookfield Renewable’s financial results would be exposed to variations in hydrology in Brazil.

Counterparties to our contracts may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms.

A significant portion of the power we generate is sold under long-term PPAs with Brookfield, public utilities or industrial or commercial end-users, some of whom may not be rated by any rating agency. For example, as at December 31, 2012, approximately 43% of our projected annual sales were with Brookfield entities which are not rated and whose obligations are not guaranteed by Brookfield Asset Management. If, for any reason, any of the purchasers of power under such PPAs, including Brookfield, are unable or unwilling to fulfill their contractual obligations under the relevant PPA or if they refuse to accept delivery of power pursuant to the relevant PPA, our assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as we may not be able to replace the agreement with an agreement on equivalent terms and conditions. External events, such as a severe economic downturn, could impair the ability of some counterparties to the PPAs or some end use customers to pay for electricity received.

Certain portions of our hydroelectric portfolio will be subject to re-contracting in the future. We cannot provide any assurance that we will be able to re-negotiate these contracts once their terms expire, and even if we are able to do so, we cannot provide any assurance that we will be able to obtain the same prices or terms we currently receive. If we are unable to renegotiate these contracts, or unable to receive prices at least equal to the current prices we receive, our business, financial condition, results of operation and prospects could be adversely affected.

 

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Conversely, a significant percentage of our sales will be made by facilities subject to indefinite term contracts with Brookfield (taking into account its rights of renewal) at fixed prices per MWh of our electricity sold. Accordingly, with respect to those facilities, our ability to realize improved revenues due to increases in market prices for renewable power may be limited.

Increases in water rental costs (or similar fees) or changes to the regulation of water supply may impose additional obligations on Brookfield Renewable Group.

Water rights are generally owned or controlled by governments that reserve the right to control water levels or may impose water-use requirements as a condition of license renewal that differ from those arrangements in place today. We are required to make rental payments and pay property taxes for water rights or pay similar fees for use of water once our hydroelectric projects are in commercial operation. Significant increases in water rental costs or similar fees in the future or changes in the way that governments regulate water supply could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

Supply and demand in the energy market, including the non-renewable energy market, is volatile and such volatility could have an adverse impact on electricity prices and a material adverse effect on Brookfield Renewable Group assets, liabilities, business, financial condition, results of operations and cash flow.

A portion of Brookfield Renewable’s revenues are tied, either directly or indirectly, to the wholesale market price for electricity in the markets in which Brookfield Renewable Group operates. Wholesale market electricity prices are impacted by a number of factors including: the price of fuel (for example, natural gas) that is used to generate other sources of electricity; the management of generation and the amount of excess generating capacity relative to load in a particular market; the cost of controlling emissions of pollution, including potentially the cost of carbon; the structure of the market; and weather conditions that impact electrical load. More generally, there is uncertainty surrounding the trend in electricity demand growth, which is greatly influenced by macroeconomic conditions, by absolute and relative energy prices, and by developments in energy conservation and demand-side management. Correspondingly, from a supply perspective, there are uncertainties associated with the timing of generating plant retirements — in part driven by environmental regulations — and with the scale, pace and structure of replacement capacity, again reflecting a complex interaction of economic and political pressures and environmental preferences. This volatility and uncertainty in the energy market, including the non-renewable energy market, could have a material adverse effect on Brookfield Renewable’s assets, liabilities, business, financial condition, results of operations and cash flow.

Our operations are highly regulated and may be exposed to increased regulation which could result in additional costs to Brookfield Renewable.

Our generation assets are subject to extensive regulation by various government agencies and regulatory bodies in different countries at the federal, regional, state, provincial and local level. As legal requirements frequently change and are subject to interpretation and discretion, we may be unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. Any new law, rule or regulation could require additional expenditure to achieve or maintain compliance or could adversely impact our ability to generate and deliver energy. Also, operations that are not currently regulated may become subject to regulation which could result in additional cost to our business. Further, changes in wholesale market structures or rules, such as generation curtailment requirements or limitations to access the power grid, could have a material adverse effect on our ability to generate revenues from our facilities. In particular, recent government legislation affecting Brazil’s electricity sector could have a negative impact on power prices in Brazil.

There is a risk that our concessions and licenses will not be renewed.

We hold concessions and licenses and we have rights to operate our facilities which generally include rights to the land and water required for power generation. We expect that our rights and/or our licenses will be renewed by the applicable regulatory bodies in each country. However, if these regulatory bodies do not grant us

 

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renewal rights, or if they decide to renew our concessions and licenses, as the case may be, under conditions which would impose additional costs, or if additional restrictions such as setting a price ceiling for energy sales, our profitability and operational activity could be adversely impacted.

The cost of operating our plants could increase for reasons beyond our control.

While we currently maintain a low and competitive cost position, there is a risk that increases in our cost structure that are beyond our control could materially adversely impact our financial performance. Examples of such costs include compliance with new conditions imposed during relicensing processes, municipal property taxes, water rental fees and the cost of procuring materials and services required for our maintenance activities.

We may fail to comply with the conditions in, or may not be able to maintain, our governmental permits.

Our generation assets and construction projects are required to comply with numerous federal, regional, state, provincial and local statutory and regulatory standards and to maintain numerous licenses, permits and governmental approvals required for operation. Some of the licenses, permits and governmental approvals that have been issued to our operations contain conditions and restrictions, or may have limited terms. If we fail to satisfy the conditions or comply with the restrictions imposed by our licenses, permits and governmental approvals, or the restrictions imposed by any statutory or regulatory requirements, we may become subject to regulatory enforcement action and the operation of the assets could be adversely affected or be subject to fines, penalties or additional costs or revocation of regulatory approvals, permits or licenses. In addition, we may not be able to renew, maintain or obtain all necessary licenses, permits and governmental approvals required for the continued operation or further development of our projects, as a result of which the operation or development of our assets may be limited or suspended. Our failure to renew, maintain or obtain all necessary licenses, permits or governmental approvals may have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

We may experience equipment failure.

Our generation assets may not continue to perform as they have in the past and there is a risk of equipment failure due to wear and tear, latent defect, design error or operator error, or early obsolescence, among other things, which could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow. In particular, wind generation turbines are a less mature technology than hydroelectric assets and have shorter lifespans.

The occurrence of dam failures could result in a loss of generating capacity and repairing such failures could require us to expend significant amounts of capital and other resources.

The occurrence of dam failures at any of our hydroelectric generating stations or the occurrence of dam failures at other generating stations or dams operated by third parties whether upstream or downstream of our hydroelectric generating stations could result in a loss of generating capacity and repairing such failures could require us to expend significant amounts of capital and other resources. Such failures could result in damage to the environment or damages and harm to third parties or the public, which could expose us to significant liability.

We may be exposed to force majeure events.

The occurrence of a significant event that disrupts the ability of our generation assets to produce or sell power for an extended period, including events which preclude existing customers from purchasing electricity, could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow. In addition, force majeure events affecting our assets could result in damage to the environment or harm to third parties or the public, which could expose us to significant liability. Our generation assets could be exposed to effects of severe weather conditions, natural disasters and potentially catastrophic events such as a

 

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major accident or incident. An assault or an action of malicious destruction, sabotage or terrorism committed on our generation assets could also disrupt our ability to generate or sell power. In certain cases, there is the potential that some events may not excuse Brookfield Renewable Group from performing its obligations pursuant to agreements with third parties. Brookfield Renewable Group may be liable for damages or suffer further losses as a result. In addition, many of our generation assets are located in remote areas which may make access for repair of damage difficult.

We may be exposed to uninsurable losses.

While we maintain insurance coverage, such insurance may not continue to be offered on an economically feasible basis and may not cover all events that could give rise to a loss or claim involving our assets or operations. If our insurance coverage is not adequate and we are forced to bear such losses or claims, our financial position could be materially and adversely affected.

We are subject to foreign currency risk which may adversely affect the performance of our operations.

A significant portion of our current operations are in countries where the U.S. dollar is not the functional currency. These operations pay distributions in currencies other than the U.S. dollar, which we must convert to U.S. dollars prior to making distributions. A significant depreciation in the value of such foreign currencies which could result from measures introduced by foreign governments to control inflation or deflation may have a material adverse effect on our business, financial condition, results of operations and cash flows.

The ability to deliver electricity to our various counterparties requires the availability of and access to interconnection facilities and transmission systems.

Our ability to sell electricity is impacted by the availability of, and access to, the various transmission systems to deliver power to its contractual delivery point and the arrangements and facilities for interconnecting the generation projects to the transmission systems. The absence of this availability and access, our inability to obtain reasonable terms and conditions for interconnection and transmission agreements, the operational failure of existing interconnection facilities or transmission facilities, the lack of adequate capacity on such interconnection or transmission facilities, may have a material adverse effect on our ability to deliver electricity to our various counterparties or the requirement of counterparties to accept and pay for energy delivery, which could materially and adversely affect our assets, liabilities, business, financial condition, results of operations and cash flow.

Our operations are exposed to health, safety, security and environmental risks.

The ownership, construction and operation of our generation assets carry an inherent risk of liability related to public safety, health, safety, security and the environment, including the risk of government imposed orders to remedy unsafe conditions and/or to remediate or otherwise address environmental contamination or damage. We could also be exposed to potential penalties for contravention of health, safety, security and environmental laws and potential civil liability. In the ordinary course of business we incur capital and operating expenditures to comply with health, safety, security and environmental laws to obtain and comply with licenses, permits and other approvals and to assess and manage related risks. The costs to comply with these laws (and any future laws or amendments enacted) may increase over time and result in additional material expenditures. We may become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety, security and environmental matters as a result of which our operations may be limited or suspended. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of health, safety, security and environmental laws could have a material and adverse impact on operations and result in additional material expenditures. Additional environmental, health and safety issues relating to presently known or unknown matters may require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) that may be material and adverse to our business and results of operations.

 

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Our renewable power business may be involved in disputes and possible litigation.

In the normal course of our operations, Brookfield Renewable Group may become involved in various legal actions that could expose it to significant liability for damages. The outcome with respect to outstanding, pending or future actions cannot be predicted with certainty and may be adverse to us and as a result could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

The operation of our generating facilities could be affected by local communities.

We may become impacted by the interests of local communities and stakeholders, including, in some cases, First Nations and other aboriginal peoples, that affect the operation of our facilities. Certain of these communities may have or may develop interests or objectives which are different from or even in conflict with our objectives, including the use of our project lands and waterways near our facilities. Any such differences could have a negative impact on the successful operation of our facilities. As well, disputes surrounding, and settlements of, Aboriginal land claims regarding lands on or near which our generating assets reside could interfere with operations and/or result in additional operating costs or restrictions.

We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events.

We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events, such as the occurrence of disasters or security threats affecting our ability to operate. We operate in different markets and rely on our employees to follow our policies and processes as well as applicable laws in their activities. Risk of illegal acts or failed systems is managed through our infrastructure, controls, systems and people, complemented by central groups focusing on enterprise-wide management of specific operational risks such as fraud, trading, outsourcing, and business disruption, as well as personnel and systems risks. Specific programs, policies, standards and methodologies have been developed to support the management of these risks. These risks can result in direct or indirect financial loss, reputational impact or regulatory censure.

There are general industry risks associated with operating in the North American and Brazilian power market sectors.

We operate in the North American and Brazilian power market sectors, which are affected by competition, price, supply of and demand for power, the location of import/export transmission lines and overall political, economic and social conditions and policies. A general and extended decline in the North American or Brazilian economy or sustained conservation efforts to reduce electricity consumption could have the effect of reducing demand for electric energy over time.

Advances in technology could impair or eliminate the competitive advantage of our projects.

There are other alternative technologies that can produce renewable power, such as fuel cells, microturbines and photovoltaic (solar) cells. These alternative technologies currently produce electricity at a higher average price than our generation facilities; however, research and development activities are ongoing to seek improvements in such alternative technologies and their cost of producing electricity is gradually declining. Additionally, research and developments activities are ongoing to seek improvements and reductions in carbon emissions from fossil fuel generation. It is possible that advances will further reduce the cost or increase the competitiveness of alternative methods of power generation. If this were to happen, the competitive advantage of our projects may be significantly impaired or eliminated and our assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as a result.

 

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There can be no guarantee that newly developed technologies that we invest in will perform as anticipated.

We may invest in and use newly developed, less proven, technologies in our development projects or in maintaining or enhancing our existing assets. There is no guarantee that such new technologies will perform as anticipated. The failure of a new technology to perform as anticipated may materially and adversely affect the profitability of a particular development project.

Performance of our Operating Entities may be harmed by future labor disruptions and economically unfavorable collective bargaining agreements.

Certain of Brookfield Renewable’s subsidiaries are parties to collective agreements that expire periodically and those subsidiaries may not be able to renew their collective agreements without a labor disruption or without agreeing to significant increases in cost. In the event of a labor disruption such as a strike or lock-out, the ability of our generation assets to generate electricity may be impaired. Our results from operations and cash flow could be materially and adversely affected as a result.

Risks Related to Financing

Our ability to finance our operations is subject to various risks relating to the state of the capital markets.

Brookfield Renewable Group has corporate debt as well as limited recourse project level debt that will need to be replaced from time to time. Brookfield Renewable Group’s financings may contain conditions that limit its ability to repay indebtedness prior to maturity without incurring penalties, which may limit its capital markets flexibility. Refinancing risk includes, among other factors, dependence on continued operating performance of Brookfield Renewable Group’s assets, future electricity market prices, future capital markets conditions, the level of future interest rates and investors’ assessment of Brookfield Renewable’s credit risk at such time. In addition, certain of our financings are, and future financings may be, exposed to floating interest rate risks, and if interest rates increase, an increased proportion of our cash flow may be required to service indebtedness. Future acquisitions, development and construction of new facilities and other capital expenditures will be financed out of cash generated from our operations, borrowings and possible future sales of equity. Our ability to obtain financing to finance our growth is dependent on, among other factors, the overall state of the capital markets, continued operating performance of our assets, future electricity market prices, the level of future interest rates and investors’ assessment of our credit risk at such time, and investor appetite for investments in renewable energy and infrastructure assets in general and in Brookfield Renewable Group’s securities in particular. To the extent that external sources of capital become limited or unavailable or available on onerous terms, our ability to make necessary capital investments to construct new or maintain existing facilities will be impaired, and as a result, our business, financial condition, results of operations and prospects may be materially and adversely affected.

We are subject to operating and financial restrictions through covenants in our loan, debt and security agreements.

Brookfield Renewable, BRELP and its subsidiaries are or will in the future be subject to operating and financial restrictions through covenants in our loan, debt and security agreements. These restrictions may prohibit or limit our ability to, among other things, incur additional debt, provide guarantees for indebtedness, create liens, dispose of assets, liquidate, dissolve, amalgamate, consolidate or effect corporate or capital reorganizations, declare or make distributions, issue equity interests, enter into material or affiliate contracts and create subsidiaries. Financial covenants in our bonds and in our corporate bank credit facilities limit our overall indebtedness to a percentage of total capitalization as well as require us to maintain a minimum tangible net worth, restrictions which may limit our ability to obtain additional financing, withstand downturns in our business and take advantage of business and development opportunities. If we breach our covenants, our credit facilities may be terminated or come due and such event may cause our credit rating to deteriorate and subject Brookfield Renewable to higher interest and financing costs. We may also be required to seek additional debt

 

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financing on terms that include more restrictive covenants, require repayment on an accelerated schedule or impose other obligations that limit our ability to grow our business, acquire needed assets or take other actions that we might otherwise consider appropriate or desirable.

Changes in our credit ratings may have an adverse effect on our financial position and ability to raise capital.

We cannot provide any assurance that any credit rating assigned to Brookfield Renewable or any of our subsidiaries’ debt securities will remain in effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering or withdrawal of such ratings may have an adverse effect on our financial position and ability to raise capital, as well as increase the cost of utilizing our corporate bank credit facilities.

Risks Related to Our Growth Strategy

Government regulations providing incentives for renewable energy could change at any time.

Development of renewable energy sources and the overall growth of the renewable energy industry are dependent on state or provincial, national and international policies in support of such development. In particular, policies to actively support renewable energy have for several years been pursued and in many cases continue to be pursued by Canada and the United States, two of our principal markets, and their respective provinces and states. In Brazil, SHPPs under 30 MW operate in a special segment of the market that benefit from certain preferred economic and regulatory rights. Customers that purchase power from these plants benefit from a special discount for the use of the distribution system which, in turn, enables us to capture a portion of this discount through higher prices with end-use customers. Those incentives supporting renewable development are subject to the political process and can therefore be amended or cancelled. Policies which incentivize the development of renewables can vary significantly by market, including renewable energy purchase obligations imposed on load serving entities, tax incentives, including investment tax credits, production tax credits and accelerated depreciation and other direct subsidies.

In certain markets, the cost of renewable energy to purchasers, as well as the economic return available to project sponsors, is often dependent on the level of incentives available, which may change or expire over time. There is a risk that government regulations providing incentives for renewable energy or increasing emission standards or other environmental regulation of traditional thermal coal-fired generation could change at any time. Any such change may impact the competitiveness of renewable energy generally and the economic value and ability to develop our projects in particular. The budget difficulties facing many governments create greater challenges and uncertainty in receiving the renewal of incentives. In addition, even if incentives are renewed prior to their expiration, uncertainty regarding renewal can create substantial risks and delays for developers of renewable power projects. As a result, we may face reduced ability to develop our project pipeline and realize our development growth objectives. We may also suffer material write-offs of development assets as a result.

We may be unable to identify and complete sufficient investment opportunities.

Our strategy for building LP Unitholder value is to seek to acquire or develop high-quality assets and businesses that generate sustainable and increasing cash flows, with the objective of achieving appropriate risk-adjusted returns on our invested capital over the long term. However, there is no certainty that we will be able to find and complete sufficient investment opportunities that meet our investment criteria. Our investment criteria consider, among other things, the financial, operating, governance and strategic merits of a proposed acquisition and, as such, there is no certainty that we will be able to acquire or develop additional high-quality assets at attractive prices to continue growing our business. Competition for assets is significant and competition from other well-capitalized investors or companies may make the opportunity less attractive or prevent us from completing an acquisition.

 

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Future growth of our portfolio may subject us to additional risks.

Our strategy is to continue to expand our business through acquisitions and developments, however, acquisitions involve risks that could materially and adversely affect our business, including: the failure of the new acquisitions or projects to achieve the expected investment results, risks related to the integration of the assets or businesses and integration or retention of personnel relating to the acquired assets or companies and the inability to achieve potential synergies. In addition, liabilities may exist that Brookfield Renewable Group does not discover in its due diligence prior to the consummation of an acquisition, or circumstances may exist with respect to the entities or assets acquired that could lead to future liabilities and, in each case, Brookfield Renewable Group may not be entitled to sufficient, or any, recourse against the vendors or contractual counterparties to an acquisition agreement. The discovery of any material liabilities subsequent to an acquisition, as well as the failure of a new acquisition to perform according to expectations, could have a material adverse effect on Brookfield Renewable Group’s assets, liabilities, business, financial condition, results of operations and cash flow.

There are several factors which may affect our ability to develop existing sites and find new sites suitable for the development of greenfield power projects.

Our ability to realize our greenfield development growth plans is dependent on our ability to develop existing sites and find new sites suitable for development into viable projects. Ability to maintain a development permit often requires specific development steps to be undertaken within defined timelines. Successful development of greenfield power projects, whether hydroelectric or wind, or other technologies is typically dependent on a number of factors, including the ability to secure an attractive site on reasonable terms; the ability to measure resource availability at levels deemed economically attractive for continued project development; the ability to secure approvals, licenses and permits; the acceptance of local stakeholders, including in some cases, First Nations and other aboriginal peoples; the ability to secure transmission interconnection access or agreements; and the ability to secure a long-term PPA or other power sales contract on terms that made the investment attractive or viable. Each of these factors can be critical in determining whether or not a particular development project might ultimately be suitable for construction. Failure to achieve any one of these elements may prevent the development and construction of a project. When this occurs we may also lose all of our investment in development expenditures and may be required to write-off such project development assets.

The development of our generating facilities is subject to various construction risks and risks associated with the various types of arrangements we enter into with communities and joint venture partners.

Our ability to develop an economically successful project is dependent on, among other things, our ability to construct a particular project on-time and on-budget. The construction and development of generating facilities is subject to various environmental, engineering and construction risks that could result in cost-overruns, delays and reduced performance. A number of factors that could cause such delays, cost over-runs or reduced performance include, but are not limited to, permitting delays, changing engineering and design requirements, the costs of construction, the performance and necessary experience of contractors, labor disruptions and inclement weather. In addition, we enter into various types of arrangements with communities and joint venture partners, including in some cases, First Nations and other aboriginal peoples, for the development of projects. Certain of these communities and partners may have or may develop interests or objectives which are different from or even in conflict with our objectives. Any such differences could have a negative impact on the success of our projects.

Brookfield has no obligation to source acquisition opportunities for us and we may not have access to all renewable power acquisitions that Brookfield identifies.

Our ability to grow through acquisitions depends on Brookfield’s ability to identify and present us with acquisition opportunities. Brookfield established Brookfield Renewable to hold and acquire renewable power generating operations or developments on a global basis. However, Brookfield has no obligation to source acquisition opportunities specifically for us. In addition, Brookfield has not agreed to commit to us any minimum

 

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level of dedicated resources for the pursuit of renewable power-related acquisitions. There are a number of factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available from Brookfield, for example:

 

   

it is an integral part of Brookfield’s (and our) strategy to pursue the acquisition or development of renewable power assets through consortium arrangements with institutional investors, strategic partners or financial sponsors and to form partnerships to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed with us that it will not enter any such arrangements that are suitable for us without giving us an opportunity to participate in them, there is no minimum level of participation to which we will be entitled;

 

   

the same professionals within Brookfield’s organization that are involved in acquisitions that are suitable for us are responsible for the consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield’s broader asset management business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for us;

 

   

Brookfield will only recommend acquisition opportunities that it believes are suitable for us. Our focus is on assets where we believe that our operations-oriented approach can be deployed to create value. Accordingly, opportunities where Brookfield cannot play an active role in influencing the underlying operating company or managing the underlying assets may not be suitable for us, even though they may be attractive from a purely financial perspective. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and could limit our ability to participate in these certain investments;

 

   

in addition to structural limitations, the question of whether a particular acquisition is suitable is highly subjective and is dependent on a number of factors including an assessment by Brookfield relating to our liquidity position at the time, the risk profile of the opportunity, its fit with the balance of our then-current operations and other factors. If Brookfield determines that an opportunity is not suitable for us, it may still pursue such opportunity on its own behalf, or on behalf of a Brookfield-sponsored partnership or consortium.

In making these determinations, Brookfield may be influenced by factors that result in a misalignment or conflict of interest. See “Certain Relationships and Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

We do not have control over all our operations.

We have structured some of our operations as joint ventures, partnerships and consortium arrangements. An integral part of our strategy is to participate with institutional investors in Brookfield-sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships that target acquisitions that suit our profile. These arrangements are driven by the magnitude of capital required to complete acquisitions of renewable assets and other industry-wide trends that we believe will continue. Such arrangements involve risks not present where a third party is not involved, including the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, partners or co-venturers might at any time have economic or other business interests or goals different from Brookfield Renewable and Brookfield.

Joint ventures, partnerships and consortium investments generally provide for a reduced level of control over an acquired company because governance rights are shared with others. Accordingly, decisions relating to the underlying operations, including decisions relating to the management and operation and the timing and nature of any exit, are often made by a majority vote of the investors or by separate agreements that are reached with respect to individual decisions. In addition, such operations may be subject to the risk that the company may make business, financial or management decisions with which we do not agree or the management of the company may take risks or otherwise act in a manner that does not serve our interests. Because we may not have

 

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the ability to exercise control over such operations, we may not be able to realize some or all of the benefits that we believe will be created from Brookfield’s involvement. If any of the foregoing were to occur, our financial condition and results of operations could suffer as a result.

In addition, all of our current operations with less than 100% ownership are structured joint ventures, partnerships, consortium arrangements or leasehold interests. The sale or transfer of interests in some of these operations are subject to rights of first refusal or first offer, tag along rights or drag along rights and some agreements in these operations provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not want them to be exercised and such rights may inhibit our ability to sell our interest in an entity within the desired time frame or on any other desired basis. In addition, the operations are also all subject to pre-emptive or default rights which may lead to the joint venture or third parties compulsorily acquiring assets from the joint venture.

We may be required to issue equity or debt for future acquisitions and developments and our ability to do so will be dependent on the overall state of the capital markets.

Future acquisitions and developments, construction of new facilities and other capital expenditures will be financed out of cash generated from our operations, borrowings and possible future sales of equity. As such, financing our growth may depend on raising additional equity and/or debt capital. Our ability to do so is dependent on, among other factors, our credit rating, the overall state of the capital markets and investor appetite for investments in renewable energy assets in general and our securities in particular.

We may pursue acquisitions in new markets that are subject to foreign laws or regulation that are more onerous than the laws and regulations we are currently subject to.

We may pursue acquisitions in new markets that are subject to regulation by various foreign governments and regulatory authorities and to the application of foreign laws. Such foreign laws or regulations may not provide for the same type of legal certainty and rights, in connection with our contractual relationships in such countries, as are afforded to our projects in Canada, the United States and Brazil, which may adversely affect our ability to receive revenues or enforce our rights in connection with our foreign operations. In addition, the laws and regulations of some countries may limit our ability to hold a majority interest in some of the projects that we may develop or acquire, thus limiting our ability to control the development, construction and operation of such projects. Any existing or new operations may also be subject to significant political, economic and financial risks, which vary by country, and may include:

 

   

changes in government policies or personnel;

 

   

changes in general economic conditions;

 

   

restrictions on currency transfer or convertibility;

 

   

changes in labor relations;

 

   

political instability and civil unrest;

 

   

regulatory or other changes in the local electricity market; and

 

   

breach or repudiation of important contractual undertakings by governmental entities and expropriation and confiscation of assets and facilities for less than fair market value.

Risks Related to Our Relationship with Brookfield

Brookfield will exercise substantial influence over Brookfield Renewable and we are highly dependent on the Manager.

A subsidiary of Brookfield Asset Management is the sole shareholder of the Managing General Partner. As a result of its ownership of the Managing General Partner, Brookfield will be able to control the appointment and removal of the Managing General Partner’s directors and, accordingly, exercise substantial influence over

 

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Brookfield Renewable. In addition, Brookfield Renewable holds its interest in the Operating Entities indirectly and will hold any future acquisitions indirectly through BRELP, the general partner of which is indirectly owned by Brookfield. As Brookfield Renewable’s only substantial asset is the limited partnership interests that it holds in BRELP, except future rights under the Voting Agreement, Brookfield Renewable will not have a right to participate directly in the management or activities of BRELP or the Holding Entities, including with respect to the making of decisions (although it will have the right to remove and replace the BRELP GP LP).

Brookfield Renewable and BRELP depend on the management and administration services provided by or under the direction of the Manager under our Master Services Agreement. Brookfield personnel and support staff that provide services to us under our Master Services Agreement are not required to have as their primary responsibility the management and administration of Brookfield Renewable or BRELP or to act exclusively for either of us and our Master Services Agreement does not require any specific individuals to be provided by Brookfield or Brookfield Renewable. Any failure to effectively manage our current operations or to implement our strategy could have a material adverse effect on our business, financial condition and results of operations. Our Master Services Agreement continues in perpetuity, until terminated in accordance with its terms.

The departure of some or all of Brookfield’s professionals could prevent us from achieving our objectives.

We will depend on the diligence, skill and business contacts of Brookfield’s professionals and the information and opportunities they generate during the normal course of their activities. Our future success will depend on the continued service of these individuals, who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our objectives. The departure of a significant number of Brookfield’s professionals for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives. The Amended and Restated Limited Partnership Agreement of BREP and our Master Services Agreement do not require Brookfield to maintain the employment of any of its professionals or to cause any particular professionals to provide services to us or on our behalf.

The role and ownership of Brookfield may change.

Our arrangements with Brookfield do not require Brookfield to maintain any ownership level in Brookfield Renewable or in BRELP. Accordingly, the Managing General Partner may transfer its general partnership interest to a third party, including in a merger or consolidation or in a transfer of all or substantially all of its assets, without the consent of our LP Unitholders provided the transferee is an affiliate of the BRELP General Partner. In addition, Brookfield may sell or transfer all or part of its interests in the Manager or in the Managing General Partner, in each case, without the approval of our LP Unitholders. If a new owner were to acquire ownership of the Managing General Partner and to appoint new directors or officers of its own choosing, it would be able to exercise substantial influence over Brookfield Renewable’s policies and procedures and exercise substantial influence over our management and the types of acquisitions that we make. Such changes could result in Brookfield Renewable’s capital being used to make acquisitions in which Brookfield has no involvement or in making acquisitions that are substantially different from our targeted acquisitions. Additionally, Brookfield Renewable cannot predict with any certainty the effect that any transfer in the ownership of the Managing General Partner would have on the trading price of our LP Units or Brookfield Renewable’s ability to raise capital or make investments in the future, because such matters would depend to a large extent on the identity of the new owner and the new owner’s intentions with regard to Brookfield Renewable. As a result, the future of Brookfield Renewable would be uncertain and Brookfield Renewable’s business, financial condition and results of operations may suffer.

Brookfield is not necessarily required to act in the best interests of the Service Recipients, Brookfield Renewable or our LP Unitholders.

Our Master Services Agreement and our other arrangements with Brookfield do not impose any duty on the Manager to act in the best interest of the Service Recipients, and the Manager is not prohibited from engaging in

 

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other business activities that compete with the Service Recipients. Additionally, the Managing General Partner, the general partner of BRELP, the Managers and their affiliates will have access to material confidential information. Although some of these entities will be subject to confidentiality obligations pursuant to confidentiality agreements or pursuant to implied duties of confidence, none of the Amended and Restated Limited Partnership Agreement of BREP, the Amended and Restated Limited Partnership Agreement of BRELP nor our Master Services Agreement contains general confidentiality provisions. See “Certain Relationships and Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any fiduciary duties to act in the best interests of our LP Unitholders.

Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any duty (statutory or otherwise) to act in the best interests of the Service Recipients, nor do they impose other duties that are fiduciary in nature. As a result, the Managing General Partner, a wholly-owned subsidiary of Brookfield Asset Management, in its capacity as our general partner, will have sole authority to enforce the terms of such agreements and to consent to any waiver, modification or amendment of their provisions in accordance with our conflicts policy.

The Bermuda Limited Partnership Act of 1883, under which Brookfield Renewable and BRELP were established, does not impose statutory fiduciary duties on a general partner of a limited partnership in the same manner that corporate statutes, such as the Canada Business Corporations Act and the Delaware Revised Uniform Limited Partnership Act, impose fiduciary duties on directors of a corporation. In general, under applicable Bermudian legislation, a general partner has certain limited duties to its limited partners, such as the duty to render accounts, account for private profits and not compete with the partnership in business. In addition, Bermuda common law recognizes that a general partner owes a duty of utmost good faith to its limited partners. These duties are, in most respects, similar to duties imposed on a general partner of a limited partnership under U.S. and Canadian law. However, to the extent that the Managing General Partner and BRELP GP LP owe any fiduciary duties to Brookfield Renewable and our LP Unitholders, these duties have been modified pursuant to the Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP as a matter of contract law. We have been advised by Bermuda counsel that such modifications are not prohibited under Bermuda law, subject to typical qualifications as to enforceability of contractual provisions, such as the application of general equitable principles. This is similar to Delaware law which expressly permits modifications to the fiduciary duties owed to partners, other than an implied contractual covenant of good faith and fair dealing.

The Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP contain various provisions that modify the fiduciary duties that might otherwise be owed to Brookfield Renewable and our LP Unitholders, including when conflicts of interest arise. For example, the agreements provide that the Managing General Partner, the BRELP General Partner and their affiliates do not have any obligation under the Amended and Restated Limited Partnership Agreements of BREP or the Amended and Restated Limited Partnership Agreement of BRELP, or as a result of any duties stated or implied by law or equity, including fiduciary duties, to present business or investment opportunities to BREP, BRELP, any Holding Entity or any other holding entity established by us. They also allow affiliates of the Managing General Partner and BRELP General Partner to engage in activities that may compete with us or our activities. In addition, the agreements permit the Managing General Partner and the BRELP General Partner to take into account the interests of third parties, including Brookfield, when resolving conflicts of interest. The agreements each prohibit the limited partners from advancing claims that otherwise might raise issues as to compliance with fiduciary duties or applicable law. These modifications to the fiduciary duties are detrimental to our LP Unitholders because they restrict the remedies available for actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that is not in the best interests of Brookfield Renewable or the best interests of our LP Unitholders. See “Certain Relationships and Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

 

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Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in the best interests of Brookfield Renewable or the best interests of our LP Unitholders.

Our organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between Brookfield Renewable and our LP Unitholders, on the one hand, and Brookfield, on the other hand. In certain instances, the interests of Brookfield may differ from the interests of Brookfield Renewable and our LP Unitholders, including with respect to the types of acquisitions made, the timing and amount of distributions by Brookfield Renewable, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers, including as a result of the reasons described under “Certain Relationships and Related Party Transactions”.

In addition, the Manager, an affiliate of Brookfield, will provide management services to us pursuant to our Master Services Agreement. Pursuant to our Master Services Agreement, we pay a base management fee to the Manager equal to $20 million (which amount shall be adjusted for inflation annually beginning on January 1, 2013, at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the Total Capitalization Value (which is generally determined with reference to the aggregate of the value of all outstanding LP Units, assuming full conversion of Brookfield’s limited partnership interests in BRELP into LP Units, and securities of the other Service Recipients that are not held by Brookfield Renewable Group, plus all outstanding third party debt with recourse to Brookfield Renewable, BRELP or a Holding Entity, less all cash held by such entities) of Brookfield Renewable exceeds an initial reference value determined based on its market capitalization immediately following the Combination. In the event that the measured Total Capitalization Value of Brookfield Renewable in a given period is less than the initial reference value, the Manager will receive a base management fee of $20 million annually (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). BRELP GP LP will also receive incentive distributions based on the amount by which quarterly distributions on the limited partnership units of BRELP exceed specified target levels as set forth in the Amended and Restated Limited Partnership Agreement of BRELP. For a further explanation of the management fee and incentive distributions, see “Management — Our Master Services Agreement — Management Fee” and “Certain Relationships and Related Party Transactions — Incentive Distributions”. This relationship may give rise to conflicts of interest between us and our LP Unitholders, on the one hand, and Brookfield, on the other, as Brookfield’s interests may differ from the interests of Brookfield Renewable and our LP Unitholders.

The Managing General Partner, the sole shareholder of which is Brookfield, has sole authority to determine whether we will make distributions and the amount and timing of these distributions. The arrangements we have with Brookfield may create an incentive for Brookfield to take actions which would have the effect of increasing distributions and fees payable to it, which may be to the detriment of us and our LP Unitholders. For example, because the base management fee is calculated based on the Total Capitalization Value it may create an incentive for Brookfield to increase or maintain the Total Capitalization Value over the near-term when other actions may be more favorable to us or our LP Unitholders. Similarly, Brookfield may take actions to increase our distributions in order to ensure Brookfield is paid incentive distributions in the near-term when other investments or actions may be more favorable to us or our LP Unitholders. Also, through Brookfield’s ownership of our LP Units and the Redeemable/Exchangeable partnership units, it will have an effective economic interest in our business of approximately 65% and therefore may be incented to increase distributions payable to our LP Unitholders and thereby to Brookfield.

The Managing General Partner may be unable or unwilling to terminate our Master Services Agreement.

Our Master Services Agreement provides that the Service Recipients may terminate the agreement only if: the Manager defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 60 days after written notice of the breach is given to the Manager; the Manager engages in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to us; the Manager is grossly negligent in the performance of its duties under the

 

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agreement and such negligence results in material harm to the Service Recipients; or upon the happening of certain events relating to the bankruptcy or insolvency of the Manager. The Managing General Partner cannot terminate the agreement for any other reason, including if the Manager or Brookfield experiences a change of control or due solely to the poor performance or under-performance of Brookfield Renewable Group’s operations or assets, and the agreement continues in perpetuity, until terminated in accordance with its terms. In addition, because the Managing General Partner is an affiliate of Brookfield, it may be unwilling to terminate our Master Services Agreement, even in the case of a default. If the Manager’s performance does not meet the expectations of investors, and the Managing General Partner is unable or unwilling to terminate our Master Services Agreement, the market price of our LP Units could suffer. Furthermore, the termination of our Master Services Agreement would terminate Brookfield Renewable’s rights under the Relationship Agreement and the Licensing Agreement. See “Certain Relationships and Related Party Transactions — Relationship Agreement” and “Certain Relationships and Related Party Transactions — Licensing Agreement”.

The liability of the Manager is limited under our arrangements with it and we have agreed to indemnify the Manager against claims that it may face in connection with such arrangements, which may lead it to assume greater risks when making decisions relating to us than it otherwise would if acting solely for its own account.

Under our Master Services Agreement, the Manager has not assumed any responsibility other than to provide or arrange for the provision of the services described in our Master Services Agreement in good faith and will not be responsible for any action that the Managing General Partner takes in following or declining to follow its advice or recommendations. In addition, under the Amended and Restated Limited Partnership Agreement of BREP, the liability of the Managing General Partner and its affiliates, including the Manager, is limited to the fullest extent permitted by law to conduct involving bad faith, fraud or willful misconduct or, in the case of a criminal matter, action that was known to have been unlawful. The liability of the Manager under our Master Services Agreement is similarly limited, except that the Manager is also liable for liabilities arising from gross negligence. In addition, Brookfield Renewable has agreed to indemnify the Manager to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with our operations, investments and activities or in respect of or arising from our Master Services Agreement or the services provided by the Manager, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in the Manager tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which the Manager is a party may also give rise to legal claims for indemnification that are adverse to Brookfield Renewable and our LP Unitholders.

Risks Related to Our LP Units

Our LP Units, which have only been trading on the TSX since November 30, 2011, are not currently included in major market indices, and an active and liquid trading market for our LP Units may not develop.

Our LP Units have only been trading on the TSX since November 30, 2011 and are not included in major market indices. In addition, we have received conditional approval to list our LP Units on the NYSE. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market for our LP Units or, if such a market develops, whether it will be maintained. We cannot predict the effects on the price of our LP Units if a liquid and active trading market for our LP Units does not develop and if our LP Units continue to not be eligible for inclusion in trading indices. In addition, if such a market does not develop, relatively small sales of our LP Units may have a significant negative impact on the price of our LP Units.

 

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We may need additional funds in the future and Brookfield Renewable may issue additional LP Units in lieu of incurring indebtedness which may dilute existing holders of our LP Units or Brookfield Renewable may issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to our LP Unitholders.

Under the Amended and Restated Limited Partnership Agreement of BREP, Brookfield Renewable may issue additional partnership securities, including LP Units and options, rights, warrants and appreciation rights relating to partnership securities for any purpose and for such consideration and on such terms and conditions as the Managing General Partner may determine. The Managing General Partner’s board of directors will be able to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any rights to share in Brookfield Renewable’s profits, losses and distributions, any rights to receive partnership assets upon a dissolution or liquidation of Brookfield Renewable and any redemption, conversion and exchange rights. The Managing General Partner may use such authority to issue additional LP Units, which could dilute holders of our LP Units, or to issue securities with rights and privileges that are more favorable than those of our LP Units. Holders of LP Units will not have any pre-emptive right or any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.

Our LP Unitholders do not have a right to vote on Brookfield Renewable matters or to take part in the management of Brookfield Renewable.

Under the Amended and Restated Limited Partnership Agreement of BREP, our LP Unitholders are not entitled to vote on matters relating to Brookfield Renewable, such as acquisitions, dispositions or financing, or to participate in the management or control of Brookfield Renewable. In particular, our LP Unitholders do not have the right to remove the Managing General Partner, to cause the Managing General Partner to withdraw from Brookfield Renewable, to cause a new general partner to be admitted to Brookfield Renewable, to appoint new directors to the Managing General Partner’s board of directors, to remove existing directors from the Managing General Partner’s board of directors or to prevent a change of control of the Managing General Partner. In addition, except as prescribed by applicable laws, our LP Unitholders’ consent rights apply only with respect to certain amendments to the Amended and Restated Limited Partnership Agreement of BREP. As a result, unlike holders of common shares of a corporation, our LP Unitholders are not able to influence the direction of Brookfield Renewable, including its policies and procedures, or to cause a change in its management, even if they are unsatisfied with the performance of Brookfield Renewable. Consequently, our LP Unitholders may be deprived of an opportunity to receive a premium for their LP Units in the future through a sale of Brookfield Renewable and the trading price of our LP Units may be adversely affected by the absence or a reduction of a takeover premium in the trading price.

The market price of our LP Units may be volatile.

The market price of our LP Units may be highly volatile and could be subject to wide fluctuations. Some of the factors that could negatively affect the price of our LP Units include: general market and economic conditions, including disruptions, downgrades, credit events and perceived problems in the credit markets; actual or anticipated variations in our quarterly operating results or distributions; changes in our investments or asset composition; write-downs or perceived credit or liquidity issues affecting our assets; market perception of Brookfield Renewable, our business and our assets; our level of indebtedness and/or adverse market reaction to any indebtedness we incur in the future; our ability to raise capital on favorable terms; loss of any major funding source; the termination of our Master Services Agreement or additions or departures of our or Brookfield’s key personnel; changes in market valuations of similar renewable power companies; speculation in the press or investment community regarding us or Brookfield; and changes in U.S. tax laws that make it impractical or impossible for Brookfield Renewable to continue to be taxable as a partnership for U.S. federal income tax purposes.

Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies or partnerships. Any broad market fluctuations may adversely affect the trading price of our LP Units.

 

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Non-U.S. Holders will be subject to foreign currency risk associated with Brookfield Renewable’s distributions.

A significant number of Brookfield Renewable’s LP Unitholders will reside in countries where the U.S. dollar is not the functional currency. Our distributions are denominated in U.S. dollars but are settled in the local currency of the LP Unitholder receiving the distribution. For each Non-U.S. Holder, the value received in the local currency from the distribution will be determined based on the exchange rate between the U.S. dollar and the applicable local currency at the time of payment. As such, if the U.S. dollar depreciates significantly against the local currency of the Non-U.S. Holder, the value received by such LP Unitholder in its local currency will be adversely affected.

U.S. investors in our LP Units may find it difficult or impossible to enforce service of process and enforcement of judgments against us and directors and officers of the Managing General Partner and the Manager.

We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of the United States. In addition, our executive officers and the experts identified in this prospectus are located outside of the United States. Certain of the directors and officers of the Managing General Partner and the Manager reside outside of the United States. A substantial portion of our assets are, and the assets of the directors and officers of the Managing General Partner and the Manager and the experts identified in this prospectus may be, located outside of the United States. It may not be possible for investors to effect service of process within the United States upon the directors and officers of the Managing General Partner and the Manager. It may also not be possible to enforce against us, the experts identified in this prospectus or the directors and officers of the Managing General Partner and the Manager judgments obtained in U.S. courts predicated upon the civil liability provisions of applicable securities law in the United States.

We may not be able to continue paying comparable or growing cash distributions to our LP Unitholders in the future.

The amount of cash we can distribute to our LP Unitholders depends upon the amount of cash we receive from BRELP and, indirectly, the Holding Entities and the Operating Entities. The amount of cash BRELP, the Holding Entities and the Operating Entities generate will fluctuate from quarter to quarter and will depend upon, among other things: the weather in the jurisdictions in which they operate; the level of their operating costs; and prevailing economic conditions. In addition, the actual amount of cash we will have available for distribution will also depend on other factors, such as: the level of costs related to litigation and regulatory compliance matters; the cost of acquisitions, if any; our debt service requirements; fluctuations in our working capital needs; our ability to borrow under our credit facilities; our ability to access capital markets; restrictions on distributions contained in our debt agreements; and the amount, if any, of cash reserves established by our Managing General Partner in its discretion for the proper conduct of our business. As a result of all these factors, we cannot guarantee that we will have sufficient available cash to pay a specific level of cash distributions to our LP Unitholders. Furthermore, our LP Unitholders should be aware that the amount of cash we have available for distribution depends primarily upon the cash flow of BRELP, the Holding Entities and the Operating Entities, and is not solely a function of profitability, which is affected by non-cash items. As a result, we may declare and/or pay cash distributions during periods when we record net losses.

We rely on BRELP and, indirectly, the Holding Entities and the Operating Entities to provide us with the funds necessary to pay distributions and meet our financial obligations.

Our sole direct investment is our limited partnership interest in BRELP, which owns all of the common shares or equity interests, as applicable, of the Holding Entities, through which we hold all of our interests in the Operating Entities. We have no independent means of generating revenue. As a result, we depend on distributions and other payments from BRELP and, indirectly, the Holding Entities and the Operating Entities to provide us with the funds necessary to pay distributions on our LP Units and to meet our financial obligations. BRELP, the Holding Entities and the Operating Entities are legally distinct from BREP and they will generally

 

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be required to service their debt obligations before making distributions to us or their parent entity, as applicable, thereby reducing the amount of our cash flow available to pay distributions on our LP Units, fund working capital and satisfy other needs. Any other entities through which we may conduct operations in the future will also be legally distinct from BREP and may be restricted in their ability to pay dividends and distributions or otherwise make fund available to us under certain conditions.

We anticipate that the only distributions we will receive in respect of our limited partnership interests in BRELP will consist of amounts that are intended to assist us in making distributions to our LP unitholders in accordance with our distribution policy and to allow us to pay expenses as they become due.

Risks Related to Taxation

General

Changes in tax law and practice may have a material adverse effect on the operations of Brookfield Renewable, the Holding Entities, and the Operating Entities and, as a consequence, the value of Brookfield Renewable’s assets and the net amount of distributions payable to LP Unitholders.

The Brookfield Renewable structure, including the structure of the Holding Entities and the Operating Entities, is based on prevailing taxation law and practice in the local jurisdictions (such as Canada, the United States, and Brazil) in which the Brookfield Renewable entities operate. Any change in tax legislation (including in relation to taxation rates) and practice in these jurisdictions could adversely affect these entities, as well as the net amount of distributions payable to LP Unitholders. Taxes and other constraints that would apply to the Brookfield Renewable entities in such jurisdictions may not apply to local institutions or other parties, and such parties may therefore have a significantly lower effective cost of capital and a corresponding competitive advantage in pursuing such acquisitions.

Brookfield Renewable’s ability to make distributions depends on it receiving sufficient cash distributions from its underlying operations, and Brookfield Renewable cannot assure LP Unitholders that it will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities, in which case certain LP Unitholders may be required to pay income taxes on their share of Brookfield Renewable’s income even though they have not received sufficient cash distributions from Brookfield Renewable.

The Holding Entities and Operating Entities of Brookfield Renewable may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, Brookfield Renewable’s cash available for distribution is indirectly reduced by such taxes, and the post-tax return to LP Unitholders is similarly reduced by such taxes. Brookfield Renewable intends for future acquisitions to be assessed on a case-by-case basis and, where possible and commercially viable, structured so as to minimize any adverse tax consequences to LP Unitholders as a result of making such acquisitions.

In general, an LP Unitholder that is subject to income tax in Canada or the United States must include in income its allocable share of Brookfield Renewable’s items of income, gain, loss, and deduction (including, so long as it is treated as a partnership for tax purposes, Brookfield Renewable’s allocable share of those items of BRELP) for each of Brookfield Renewable’s fiscal years ending with or within such LP Unitholder’s tax year. See “Tax Considerations — Material Canadian Federal Income Tax Considerations” and “Tax Considerations —

 

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Material U.S. Federal Income Tax Considerations”. However, the cash distributed to an LP Unitholder may not be sufficient to pay the full amount of such LP Unitholder’s tax liability in respect of its investment in Brookfield Renewable, because each LP Unitholder’s tax liability depends on such holder’s particular tax situation. If Brookfield Renewable is unable to distribute cash in amounts that are sufficient to fund our LP Unitholders’ tax liabilities, each of our LP Unitholders will still be required to pay income taxes on its share of Brookfield Renewable’s taxable income.

As a result of holding LP Units, LP Unitholders may be subject to U.S. state, local or non-U.S. taxes and return filing obligations in jurisdictions in which they are not resident for tax purposes or otherwise not subject to tax.

LP Unitholders may be subject to U.S. state, local, and non-U.S. taxes, including unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which Brookfield Renewable entities do business or own property now or in the future, even if LP Unitholders do not reside in any of those jurisdictions. LP Unitholders may be required to file income tax returns and pay income taxes in some or all of these jurisdictions. Further, LP Unitholders may be subject to penalties for failure to comply with these requirements. Although Brookfield Renewable will attempt, to the extent reasonably practicable, to structure Brookfield Renewable operations and investments so as to minimize income tax filing obligations by LP Unitholders in such jurisdictions, there may be circumstances in which Brookfield Renewable is unable to do so. It is the responsibility of each LP Unitholder to file all U.S. federal, state, local, and non-U.S. tax returns that may be required of such LP Unitholder.

LP Unitholders may be exposed to transfer pricing risks.

To the extent that Brookfield Renewable, BRELP, the Holding Entities or the Operating Entities enter into transactions or arrangements with parties with whom they do not deal at arm’s length, including Brookfield, pursuant to the applicable law relating to transfer pricing, the relevant tax authorities may seek to adjust the quantum or nature of the amounts received or paid by such entities if they consider that the terms and conditions of such transactions or arrangements differ from those that would have been made between persons dealing at arm’s length and could impose penalties for failing to comply with applicable law relating to transfer pricing. This could result in more tax (and penalties and interest) being paid by such entities, and therefore the return to investors could be reduced. For Canadian tax purposes, a transfer pricing adjustment may in certain circumstances result in additional income being allocated to an LP Unitholder with no corresponding cash distribution or in a dividend being deemed to be paid by a Canadian resident to a non-arm’s length non-resident, which deemed dividend is subject to Canadian withholding tax.

The Managing General Partner and the BRELP General Partner believe the fees charged by or paid to non-arm’s length persons are consistent with applicable law relating to transfer pricing, however, no assurance can be given in this regard.

United States

If either Brookfield Renewable or BRELP were to be treated as a corporation for U.S. federal income tax purposes, the value of LP Units might be adversely affected.

The value of LP Units to LP Unitholders will depend in part on the treatment of Brookfield Renewable and BRELP as partnerships for U.S. federal income tax purposes. However, in order for Brookfield Renewable to be treated as a partnership for U.S. federal income tax purposes, under present law, 90% or more of Brookfield Renewable’s gross income for every taxable year must consist of qualifying income, as defined in Section 7704 of the U.S. Internal Revenue Code, and the partnership must not be required to register, if it were a U.S. corporation, as an investment company under the Investment Company Act and related rules. Although the Managing General Partner intends to manage Brookfield Renewable’s affairs so that Brookfield Renewable will not need to be registered as an investment company if it were a U.S. corporation and so that it will meet the 90%

 

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test described above in each taxable year, Brookfield Renewable may not meet these requirements, or current law may change so as to cause, in either event, Brookfield Renewable to be treated as a corporation for U.S. federal income tax purposes. If Brookfield Renewable were treated as a corporation for U.S. federal income tax purposes, (i) the deemed conversion to corporate status could result in recognition of gain to U.S. investors, if Brookfield Renewable were to have liabilities in excess of the tax basis of its assets; (ii) Brookfield Renewable would likely be subject to U.S. corporate income tax and potentially branch profits tax with respect to income, if any, that is effectively connected to a U.S. trade or business; (iii) distributions to U.S. Holders would be taxable as dividends to the extent of Brookfield Renewable’s earnings and profits; and (iv) Brookfield Renewable could be classified as a “passive foreign investment company” (as defined in the U.S. Internal Revenue Code), and such classification could have adverse tax consequences to U.S. Holders with respect to distributions and gain recognized on the sale of LP Units. If BRELP were to be treated as a corporation for U.S. federal income tax purposes, consequences similar to those described above would apply.

Neither Brookfield Renewable nor BRELP has requested or plans to request a ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the tax classification of either entity for U.S. federal income tax purposes.

Brookfield Renewable may be subject to U.S. backup withholding tax if any LP Unitholder fails to comply with U.S. federal tax reporting rules, and such excess withholding tax cost will be an expense borne by Brookfield Renewable and, therefore, by all of our LP Unitholders on a pro rata basis.

Brookfield Renewable may become subject to U.S. backup withholding tax with respect to any LP Unitholder who fails to timely provide Brookfield Renewable, or the applicable nominee, broker, clearing agent, or other intermediary, with an IRS Form W-9 or IRS Form W-8, as applicable. See “Tax Considerations — Material U.S. Federal Income Tax Considerations — Administrative Matters — Backup Withholding”. To the extent that any LP Unitholder fails to timely provide the applicable form (or such form is not properly completed), Brookfield Renewable might treat such U.S. backup withholding taxes as an expense, which would be borne indirectly by all LP Unitholders on a pro rata basis. As a result, LP Unitholders that fully comply with their U.S. tax reporting obligations may bear a share of such burden created by other LP Unitholders that do not comply with the U.S. tax reporting rules.

Tax-exempt organizations may face certain adverse U.S. tax consequences from owning LP Units.

The Managing General Partner and the BRELP General Partner intend to use commercially reasonable efforts to structure the activities of Brookfield Renewable and BRELP, respectively, to avoid generating income connected with the conduct of a trade or business (which income generally would constitute “unrelated business taxable income” (“UBTI”) to the extent allocated to a tax-exempt organization). Brookfield Renewable and BRELP are not prohibited from incurring indebtedness, and at times either or both may do so. If any such indebtedness were used to acquire property by Brookfield Renewable or by BRELP, such property generally would constitute “debt–financed property”, and any income from or gain from the disposition of such debt-financed property allocated to a tax-exempt organization generally would constitute UBTI. In addition, even if such indebtedness were not used by Brookfield Renewable or BRELP to acquire property but were instead used to fund distributions to LP Unitholders, if a tax-exempt organization otherwise exempt from taxation in the United States were to use such proceeds to make an investment outside Brookfield Renewable, the IRS could assert that such investment constituted debt-financed property to such LP Unitholder with the consequences noted above. Brookfield Renewable and BRELP currently do not have any outstanding indebtedness used to acquire property, and the Managing General Partner and the BRELP General Partner do not believe that Brookfield Renewable or BRELP will generate UBTI attributable to debt-financed property in the future. However, neither Brookfield Renewable nor BRELP is prohibited from incurring indebtedness, and no assurance can be provided that neither Brookfield Renewable nor BRELP will generate UBTI attributable to debt-financed property in the future. The potential for income to be characterized as UBTI could make LP Units an unsuitable investment for a tax-exempt organization. Each tax-exempt organization should consult an independent tax adviser to determine the U.S. federal income tax consequences with respect to an investment in LP Units.

 

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There may be limitations on the deductibility of Brookfield Renewable’s interest expense.

So long as Brookfield Renewable is treated as a partnership for U.S. federal income tax purposes, each of our LP Unitholders that is a U.S. Holder (as defined in “Tax Considerations — Material U.S. Federal Income Tax Considerations”) generally will be taxed on its share of Brookfield Renewable’s net taxable income. However, U.S. federal income tax law may limit the deductibility of such LP Unitholder’s share of Brookfield Renewable’s interest expense. In addition, deductions for such LP Unitholder’s share of Brookfield Renewable’s interest expense may be limited or disallowed for U.S. state and local tax purposes. Therefore, any such LP Unitholder may be taxed on amounts in excess of such LP Unitholder’s share of the net income of Brookfield Renewable. This could adversely impact the value of LP Units if Brookfield Renewable were to incur (either directly or indirectly) a significant amount of indebtedness. See “Tax Considerations — Material U.S. Federal Income Tax Considerations — Consequences to U.S. Holders — Holding of LP Units — Limitations on interest deductions”.

If Brookfield Renewable were engaged in a U.S. trade or business, non-U.S. persons would face certain adverse U.S. tax consequences from owning LP Units.

The Managing General Partner and the BRELP General Partner intend to use commercially reasonable efforts to structure the activities of Brookfield Renewable and BRELP, respectively, to avoid generating income treated as effectively connected with a U.S. trade or business, including effectively connected income attributable to the sale of a “United States real property interest”, as defined in the U.S. Internal Revenue Code. Accordingly, non-U.S. LP Unitholders generally will not be subject to U.S. federal income tax on interest, dividends, and gain realized by Brookfield Renewable from non-U.S. sources. It is possible, however, that the IRS could disagree with this conclusion or that the U.S. federal tax laws and Treasury Regulations could change and that Brookfield Renewable would be deemed to be engaged in a U.S. trade or business, which could have a material adverse effect on non-U.S. LP Unitholders. If, contrary to the Managing General Partner’s expectations, Brookfield Renewable is considered to be engaged in a U.S. trade or business or realizes gain from the sale or other disposition of a United States real property interest, non-U.S. LP Unitholders would be required to file U.S. federal income tax returns and would be subject to U.S. federal income tax at the regular graduated rates, which Brookfield Renewable could be required to withhold.

To meet U.S. federal income tax and other objectives, Brookfield Renewable and BRELP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax.

To meet U.S. federal income tax and other objectives, Brookfield Renewable and BRELP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax. Consequently, items of income, gain, loss, deduction, or credit realized in the first instance by the Operating Entities will not flow, for U.S. federal income tax purposes, directly to BRELP, Brookfield Renewable, or LP Unitholders, and any such income or gain may be subject to a corporate income tax, in the United States or other jurisdictions, at the level of the Holding Entity. Any such additional taxes may adversely affect Brookfield Renewable’s ability to maximize its cash flow.

LP Unitholders taxable in the United States may be viewed as holding an indirect interest in an entity classified as a “passive foreign investment company” for U.S. federal income tax purposes.

U.S. Holders may face adverse U.S. tax consequences arising from the ownership of a direct or indirect interest in a “passive foreign investment company” (“PFIC”). Based on the organizational structure of Brookfield Renewable, as well as Brookfield Renewable’s expected income and assets, the Managing General Partner and the BRELP General Partner currently believe that a U.S. Holder is unlikely to be regarded as owning an interest in a PFIC solely by reason of owning LP Units during the taxable year ending December 31, 2013. However, there can be no assurance that an existing Brookfield Renewable entity or a future entity in which Brookfield Renewable acquires an interest will not be classified as a PFIC with respect to a U.S. Holder, because

 

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PFIC status is a factual determination that depends on the assets and income of a given entity and must be made on an annual basis. In general, gain realized by a U.S. Holder from the sale of stock of a PFIC is subject to tax at ordinary income rates, and an interest charge generally applies. Alternatively, a U.S. Holder that makes certain elections with respect to a direct or indirect interest in a PFIC may be required to recognize taxable income prior to the receipt of cash relating to such income. The adverse consequences of owning an interest in a PFIC, as well as certain tax elections for mitigating these adverse consequences, are described in greater detail in “Tax Considerations — Material U.S. Federal Income Tax Considerations — Consequences to U.S. Holders — Passive Foreign Investment Companies”. Each U.S. Holder should consult an independent tax adviser regarding the implication of the PFIC rules for an investment in LP Units.

Tax gain or loss from the disposition of LP Units could be more or less than expected.

If a sale of LP Units by an LP Unitholder is taxable in the United States, the LP Unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and the LP Unitholder’s adjusted tax basis in those LP Units. Prior distributions to an LP Unitholder in excess of the total net taxable income allocated to such LP Unitholder will have decreased such holder’s tax basis in its LP Units. Therefore, such excess distributions will increase an LP Unitholder’s taxable gain or decrease such holder’s taxable loss when our LP Units are sold, and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, could be ordinary income to such LP Unitholder.

The Brookfield Renewable structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The tax characterization of the Brookfield Renewable structure is also subject to potential legislative, judicial, or administrative change and differing interpretations, possibly on a retroactive basis.

The U.S. federal income tax treatment of LP Unitholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. LP Unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review (including currently) by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the U.S. Treasury Department and the courts, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations, any of which could adversely affect the value of LP Units and be effective on a retroactive basis. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible for Brookfield Renewable to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, affect the tax considerations of owning LP Units, change the character or treatment of portions of Brookfield Renewable’s income, and adversely affect an investment in LP Units. Such changes could also affect or cause Brookfield Renewable to change the way it conducts its activities, affect the tax considerations of an investment in Brookfield Renewable, and otherwise change the character or treatment of portions of Brookfield Renewable’s income (including changes that recharacterize certain allocations as potentially non-deductible fees).

Brookfield Renewable’s organizational documents and agreements permit the Managing General Partner to modify the limited partnership agreement of Brookfield Renewable from time to time, without the consent of our LP Unitholders, to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all LP Unitholders.

The IRS may not agree with certain assumptions and conventions that Brookfield Renewable uses in order to comply with applicable U.S. federal income tax laws or that Brookfield Renewable uses to report income, gain, loss, deduction, and credit to LP Unitholders.

Brookfield Renewable will apply certain assumptions and conventions in order to comply with applicable tax laws and to report income, gain, deduction, loss, and credit to an LP Unitholder in a manner that reflects such

 

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LP Unitholder’s beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. Because Brookfield Renewable cannot match transferors and transferees of LP Units, Brookfield Renewable will adopt depreciation, amortization, and other tax accounting conventions that may not conform to all aspects of existing Treasury Regulations. In order to maintain the fungibility of our LP Units at all times, Brookfield Renewable will seek to achieve the uniformity of U.S. tax treatment for all purchasers of LP Units which are acquired at the same time and price (irrespective of the identity of the particular seller of LP Units or the time when LP Units are issued by Brookfield Renewable) through the application of certain accounting principles that Brookfield Renewable believes are reasonable. A successful IRS challenge to any of the foregoing assumptions or conventions could adversely affect the amount of tax benefits available to LP Unitholders and could require that items of income, gain, deduction, loss, or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects LP Unitholders. A successful challenge could also affect the timing of these tax benefits or the amount of gain from the sale of LP Units and could have a negative impact on the value of LP Units or result in audits of and adjustments to LP Unitholders’ tax returns.

Brookfield Renewable’s delivery of required tax information for a taxable year may be subject to delay, which could require an LP Unitholder who is a U.S. taxpayer to request an extension of the due date for such LP Unitholder’s income tax return.

Brookfield Renewable has agreed to use commercially reasonable efforts to provide U.S. tax information (including IRS Schedule K-1 information needed to determine an LP Unitholder’s allocable share of Brookfield Renewable’s income, gain, losses and deductions) no later than 90 days after the close of each calendar year. However, providing this U.S. tax information to LP Unitholders will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible that, in any taxable year, an LP Unitholder will need to apply for an extension of time to file such LP Unitholder’s tax returns. See “Tax Considerations — Material U.S. Federal Income Tax Considerations — Administrative Matters — Information Returns”.

The sale or exchange of 50% or more of our LP Units will result in the constructive termination of Brookfield Renewable for U.S. federal income tax purposes.

Brookfield Renewable will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of our LP Units within a 12-month period. A constructive termination of Brookfield Renewable would, among other things, result in the closing of its taxable year for U.S. federal income tax purposes for all LP Unitholders and could result in the possible acceleration of income to certain LP Unitholders and certain other consequences that could adversely affect the value of LP Units. However, the Managing General Partner does not expect a constructive termination, should it occur, to have a material impact on the computation of the future taxable income generated by Brookfield Renewable for U.S. income tax purposes. See “Tax Considerations — Material U.S. Federal Income Tax Considerations — Administrative Matters — Constructive Termination”.

The U.S. Congress has considered legislation that could, if enacted, adversely affect Brookfield Renewable’s qualification as a partnership for U.S. federal tax purposes under the publicly traded partnership rules and subject certain income and gains to tax at increased rates. If this or similar legislation were to be enacted and to apply to Brookfield Renewable, then the after-tax income of Brookfield Renewable, as well as the market price of LP Units, could be reduced.

Over the past several years, a number of legislative proposals have been introduced in the U.S. Congress which could have had adverse tax consequences for Brookfield Renewable or BRELP, including the recharacterization of certain items of capital gain income as ordinary income for U.S. federal income tax purposes. However, such legislation was not enacted into law.

 

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The Obama administration has indicated it supports such legislation and has proposed that the current law regarding the treatment of such items of capital gain income be changed to subject such income to ordinary income tax. For further detail on such proposed legislation, see “Tax Considerations — Material U.S. Federal Income Tax Considerations — Proposed Legislation”.

It remains unclear whether any legislation related to such revenue proposals or similar to the legislation described above will be proposed or enacted by the U.S. Congress and, if enacted, whether such legislation would affect an investment in Brookfield Renewable. Each LP Unitholder should consult an independent tax adviser as to the potential effect of any proposed or future legislation on an investment in Brookfield Renewable.

Under the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010, commonly known as “FATCA”, certain payments made or received by Brookfield Renewable on or after January 1, 2014 could be subject to a 30% federal withholding tax, unless certain requirements are met.

Under FATCA, certain payments of U.S.-source income made on or after January 1, 2014 to Brookfield Renewable, BRELP, the Holding Entities, or the Operating Entities, or by Brookfield Renewable to an LP Unitholder (as well as certain payments made on or after January 1, 2017 that are attributable to such income or that constitute gross proceeds from the disposition of property that could produce U.S.-source dividends or interest) could be subject to a 30% withholding tax, unless certain requirements are met, as described in greater detail in “Tax Considerations — Material U.S. Federal Income Tax Considerations — Administrative Matters — Foreign Account Tax Compliance”. In addition, to ensure compliance with FATCA, information regarding certain LP Unitholders’ ownership of our LP Units may be reported to the U.S. Internal Revenue Service or to a non-U.S. governmental authority. Each of our LP Unitholders should consult an independent tax adviser regarding the consequences under FATCA of an investment in LP Units.

Canada

The Canadian federal income tax consequences to LP Unitholders could be materially different in certain respects from those described in this prospectus if Brookfield Renewable or BRELP is a “SIFT partnership” (as defined in the Income Tax Act (Canada), together with the regulations thereunder (the “Tax Act”)).

Under the rules in the Tax Act applicable to a “SIFT partnership” (the “SIFT Rules”), certain income and gains earned by a “SIFT partnership” are subject to income tax at the partnership level at a rate similar to a corporation and allocations of such income and gains to its partners are taxed as a dividend from a taxable Canadian corporation. In particular, a “SIFT partnership” will be required to pay a tax on the total of its income from businesses carried on in Canada, income from “non-portfolio properties” (as defined in the Tax Act) other than taxable dividends, and taxable capital gains from dispositions of “non-portfolio properties”. “Non-portfolio properties” include, among other things, equity interests or debt of corporations, trusts or partnerships that are resident in Canada, and of non-resident persons or partnerships the principal source of income of which is one or any combination of sources in Canada, that are held by the “SIFT partnership” and have a fair market value that is greater than 10% of the equity value of such entity, or that have, together with debt or equity that the “SIFT partnership” holds of entities affiliated (within the meaning of the Tax Act) with such entity, an aggregate fair market value that is greater than 50% of the equity value of the “SIFT partnership”. The tax rate applied to the above mentioned sources of income and gains is set at a rate equal to the “net corporate income tax rate”, plus the “provincial SIFT tax rate” (each as defined in the Tax Act).

A partnership will be a “SIFT partnership” throughout a taxation year if at any time in the taxation year (i) it is a “Canadian resident partnership” (as defined in the Tax Act), (ii) “investments” (as defined in the Tax Act) in the partnership are listed or traded on a stock exchange or other public market, and (iii) it holds one or more “non-portfolio properties”. For these purposes, a partnership will be a “Canadian resident partnership” at a particular time if (a) it is a “Canadian partnership” (as defined in the Tax Act) at that time, (b) it would, if it were a corporation, be resident in Canada (including, for greater certainty, a partnership that has its central

 

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management and control located in Canada), or (c) it was formed under the laws of a province. A “Canadian partnership” for these purposes is a partnership all of whose members are resident in Canada or are partnerships that are “Canadian partnerships”.

Under the SIFT Rules, Brookfield Renewable and BRELP could each be a “SIFT partnership” if it is a “Canadian resident partnership”. However, BRELP would not be a “SIFT partnership” if Brookfield Renewable is a “SIFT partnership” regardless of whether BRELP is a “Canadian resident partnership” on the basis that BRELP would be an “excluded subsidiary entity” (as defined in the Tax Act as proposed to be amended under proposed amendments to the Tax Act announced by the Minister of Finance (Canada) (the “Minister”) on July 25, 2012).

Brookfield Renewable and BRELP will be a “Canadian resident partnership” if the central management and control of these partnerships is located in Canada. This determination is a question of fact and is expected to depend on where the Managing General Partner and the BRELP General Partner are located and exercise central management and control of the respective partnerships. The Managing General Partner and the BRELP General Partner will each take appropriate steps so that the central management and control of these entities is not located in Canada such that the SIFT Rules should not apply to Brookfield Renewable or BRELP at any relevant time. However, no assurance can be given in this regard. If Brookfield Renewable or BRELP is a “SIFT partnership”, the Canadian federal income tax consequences to our LP Unitholders could be materially different in certain respects from those described in “Tax Considerations — Material Canadian Federal Income Tax Considerations”. In addition, there can be no assurance that the SIFT Rules will not be revised or amended in the future such that the SIFT Rules will apply.

If the subsidiaries that are corporations and that are not resident or deemed to be resident in Canada for purposes of the Tax Act (“Non-Resident Subsidiaries”) and that are “controlled foreign affiliates” (as defined in the Tax Act and referred to in this prospectus as “CFAs”) in which BRELP directly invests earn income that is “foreign accrual property income” (as defined in the Tax Act and referred to in this prospectus as “FAPI”) our LP Unitholders may be required to include amounts allocated from Brookfield Renewable in computing their income for Canadian federal income tax purposes even though there may be no corresponding cash distribution.

Any Non-Resident Subsidiaries in which BRELP directly invests are expected to be CFAs of BRELP. If any CFA of BRELP or any direct or indirect subsidiary thereof that itself is a CFA of BRELP (an “Indirect CFA”) earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI allocable to BRELP must be included in computing the income of BRELP for Canadian federal income tax purposes for the fiscal period of BRELP in which the taxation year of that CFA or Indirect CFA ends, whether or not BRELP actually receives a distribution of that FAPI. Brookfield Renewable will include its share of such FAPI of BRELP in computing its income for Canadian federal income tax purposes and LP Unitholders will be required to include their proportionate share of such FAPI allocated from Brookfield Renewable in computing their income for Canadian federal income tax purposes. As a result, LP Unitholders may be required to include amounts in their income for Canadian federal income tax purposes even though they have not and may not receive an actual cash distribution of such amounts. Bill C-48, which is currently proceeding through the legislative process, contains anti-avoidance rules to address certain foreign tax credit generator transactions (the “Foreign Tax Credit Generator Proposals”). Under the Foreign Tax Credit Generator Proposals, the “foreign accrual tax” (as defined in the Tax Act) applicable to a particular amount of FAPI included in BRELP’s income in respect of a particular CFA of BRELP may be limited in certain specified circumstances. See “Tax Considerations — Material Canadian Federal Income Tax Considerations”.

 

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LP Unitholders may be required to include imputed amounts in their income for Canadian federal income tax purposes in accordance with section 94.1 of the Tax Act as proposed to be amended under proposed amendments to the Tax Act announced on March 4, 2010 and contained in Bill C-48, which is currently proceeding through the legislative process.

On March 4, 2010, the Minister announced as part of the 2010 Canadian federal budget that the outstanding tax proposals regarding investments in “foreign investment entities” would be replaced with revised tax proposals under which the existing rules in section 94.1 of the Tax Act relating to investments in “offshore investment fund property” would remain in place subject to certain limited enhancements. Legislation to implement the revised tax proposals is contained in Bill C-48, which is currently proceeding through the legislative process. Section 94.1 of the Tax Act contains rules relating to investments in entities that are not resident or deemed to be resident for purposes of the Tax Act or not situated in Canada, other than a CFA of the taxpayer (“Non-Resident Entities”), that could in certain circumstances cause income to be imputed to LP Unitholders for Canadian federal income tax purposes, either directly or by way of allocation of such income imputed to Brookfield Renewable or to BRELP. See “Tax Considerations — Material Canadian Federal Income Tax Considerations”.

Our LP Units may not continue to be “qualified investments” under the Tax Act for registered plans.

Provided that our LP Units are listed on a “designated stock exchange” (as defined in the Tax Act), which currently includes the TSX and the NYSE, our LP Units will be “qualified investments” under the Tax Act for a trust governed by a registered retirement savings plan (“RRSP”), deferred profit sharing plan, registered retirement income fund (“RRIF”), registered education savings plan, registered disability savings plan, and a tax-free savings account (“TFSA”). However, there can be no assurance that tax laws relating to qualified investments will not be changed. Taxes may be imposed in respect of the acquisition or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or holding of “prohibited investments” (as defined in the Tax Act) by a TFSA or an RRSP or RRIF.

Notwithstanding the foregoing, a holder of a TFSA or an annuitant under an RRSP or RRIF, as the case may be, will be subject to a penalty tax if our LP Units held in the TFSA, RRSP or RRIF are a “prohibited investment” as defined in the Tax Act for the TFSA, RRSP or RRIF, as the case may be. Generally, our LP Units will not be a “prohibited investment” if the holder of the TFSA or the annuitant under the RRSP or RRIF, as applicable, (i) deals at arm’s length with Brookfield Renewable for purposes of the Tax Act and (ii) under Tax Proposals (as defined herein) announced by the Minister on December 21, 2012, does not have a “significant interest” as defined in the Tax Act in Brookfield Renewable. Prospective holders who intend to hold our LP Units in a TFSA, RRSP or RRIF should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules having regard to their particular circumstances.

Proposed amendments to the Tax Act may deny the deductibility of losses arising from our LP Unitholders’ LP Units in computing their income for Canadian federal income tax purposes.

On October 31, 2003, the Department of Finance (Canada) released for public comment proposed amendments to the Tax Act regarding the deductibility of interest and other expenses for purposes of the Tax Act (the “REOP Proposals”). Under the REOP Proposals, a taxpayer would be considered to have a loss from a source that is a business or property for a taxation year only if, in that year, it is reasonable to assume that the taxpayer will realize a cumulative profit (excluding capital gains or losses) from the business or property during the period that the business is carried on or that the property is held. In general, these proposals may deny the deduction of losses by our LP Unitholders arising from their investment in Brookfield Renewable in computing their income for Canadian federal income tax purposes in a particular taxation year, if, in the year the loss is claimed, it is not reasonable to expect that an overall cumulative profit would be earned from the investment in Brookfield Renewable for the period in which our LP Unitholders held and can reasonably be expected to hold the investment. The Managing General Partner and the BRELP General Partner do not anticipate that the activities of Brookfield Renewable and

 

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BRELP will, in and of themselves, generate losses. However, investors may incur expenses in connection with an acquisition of our LP Units that could result in a loss that could be affected by the REOP Proposals. As part of the 2005 Canadian federal budget, the Minister announced that an alternative proposal to reflect the REOP Proposals would be released for comment at an early opportunity. No such alternative proposal has been released to date. There can be no assurance that such alternative proposal will not adversely affect our LP Unitholders, or that any revised proposal may not differ significantly from the REOP Proposals described above and in “Tax Considerations — Material Canadian Federal Income Tax Considerations”.

LP Unitholders’ foreign tax credits for Canadian federal income tax purposes will be limited if the Foreign Tax Credit Generator Proposals apply in respect of the foreign “business-income tax” or “non-business-income tax” (each as defined in the Tax Act) paid by Brookfield Renewable or BRELP to a foreign country.

Under the Foreign Tax Credit Generator Proposals contained in Bill C-48, which is currently proceeding through the legislative process, the foreign “business-income tax” or “non-business-income tax” for Canadian federal income tax purposes for any taxation year may be limited in certain circumstances. If the Foreign Tax Credit Generator Proposals apply, the allocation to an LP Unitholder of foreign “business-income tax” or “non-business-income tax” paid by Brookfield Renewable or BRELP, and therefore such LP Unitholder’s foreign tax credits for Canadian federal income tax purposes, will be limited. See “Tax Considerations — Material Canadian Federal Income Tax Considerations”.

LP Unitholders who are not and are not deemed to be resident in Canada for purposes of the Tax Act and who do not use or hold and are not deemed to use or hold their LP Units in connection with a business carried on in Canada (“Non-Resident LP Unitholders”) may be subject to Canadian federal income tax with respect to any Canadian source business income earned by Brookfield Renewable or BRELP if Brookfield Renewable or BRELP were considered to carry on business in Canada.

If Brookfield Renewable or BRELP were considered to carry on a business in Canada for purposes of the Tax Act, Non-Resident LP Unitholders would be subject to Canadian federal income tax on their proportionate share of any Canadian source business income earned or considered to be earned by Brookfield Renewable, subject to the potential application of the safe harbor rule in section 115.2 of the Tax Act, as proposed to be amended under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, and any relief that may be provided by any relevant income tax treaty or convention.

The Managing General Partner and the BRELP General Partner intend to manage the affairs of Brookfield Renewable and BRELP, to the extent possible, so that they do not carry on business in Canada and are not considered or deemed to carry on business in Canada for purposes of the Tax Act. Nevertheless, because the determination of whether Brookfield Renewable or BRELP is carrying on business and, if so, whether that business is carried on in Canada, is a question of fact that is dependent upon the surrounding circumstances, the Canada Revenue Agency (“CRA”) might contend successfully that either or both of Brookfield Renewable and BRELP carries on business in Canada for purposes of the Tax Act.

If Brookfield Renewable or BRELP is considered to carry on business in Canada or is deemed to carry on business in Canada for the purposes of the Tax Act, Non-Resident LP Unitholders that are corporations would be required to file a Canadian federal income tax return for each taxation year in which they are a Non-Resident LP Unitholder regardless of whether relief from Canadian taxation is available under an applicable income tax treaty or convention. Non-Resident LP Unitholders who are individuals would be required to file a Canadian federal income tax return for any taxation year in which they are allocated income from Brookfield Renewable from carrying on business in Canada that is not exempt from Canadian taxation under the terms of an applicable income tax treaty or convention.

 

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Non-Resident LP Unitholders may be subject to Canadian federal income tax on capital gains realized by Brookfield Renewable or BRELP on dispositions of “taxable Canadian property” (as defined in the Tax Act).

A Non-Resident LP Unitholder will be subject to Canadian federal income tax on its proportionate share of capital gains realized by Brookfield Renewable or BRELP on the disposition of “taxable Canadian property” other than “treaty-protected property” (as defined in the Tax Act). “Taxable Canadian property” includes, but is not limited to, property that is used or held in a business carried on in Canada and shares of corporations that are not listed on a “designated stock exchange” if more than 50% of the fair market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the particular time. Property of Brookfield Renewable and BRELP generally will be “treaty-protected property” to a Non-Resident LP Unitholder if the gain from the disposition of the property would, because of an applicable income tax treaty or convention, be exempt from tax under the Tax Act. The Managing General Partner and the BRELP General Partner do not expect Brookfield Renewable and BRELP to realize capital gains or losses from dispositions of “taxable Canadian property”. However, no assurance can be given in this regard. Non-Resident LP Unitholders will be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by Brookfield Renewable or BRELP unless the disposition is an “excluded disposition” for the purposes of section 150 of the Tax Act. However, Non-Resident LP Unitholders that are corporations will still be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” that is an “excluded disposition” for purposes of section 150 of the Tax Act if tax would otherwise be payable under Part I of the Tax Act by such Non-Resident LP Unitholders in respect of the disposition but is not because of an applicable income tax treaty or convention (otherwise than in respect of a disposition of “taxable Canadian property” that is “treaty-protected property” of the corporation). In general, an “excluded disposition” is a disposition of property by a taxpayer in a taxation year where (a) the taxpayer is a non-resident of Canada at the time of the disposition; (b) no tax is payable by the taxpayer under Part I of the Tax Act for the taxation year; (c) the taxpayer is not liable to pay any amounts under the Tax Act in respect of any previous taxation year (other than certain amounts for which the CRA holds adequate security); and (d) each “taxable Canadian property” disposed of by the taxpayer in the taxation year is either (i) “excluded property” (as defined in subsection 116(6) of the Tax Act) or (ii) property in respect of the disposition of which a certificate under subsection 116(2), (4) or (5.2) has been issued by the CRA. Non-Resident LP Unitholders should consult their own tax advisors with respect to the requirements to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by Brookfield Renewable or BRELP.

Non-Resident LP Unitholders may be subject to Canadian federal income tax on capital gains realized on the disposition of LP Units if our LP Units are “taxable Canadian property”.

Any capital gain arising from the disposition or deemed disposition of LP Units by a Non-Resident LP Unitholder will be subject to taxation in Canada, if, at the time of the disposition or deemed disposition, our LP Units are “taxable Canadian property”, unless our LP Units are “treaty-protected property” to such Non-Resident LP Unitholder. In general, our LP Units will not constitute “taxable Canadian property” of any Non-Resident LP Unitholder at the time of disposition or deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or deemed disposition, more than 50% of the fair market value of our LP Units was derived, directly or indirectly (under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), from one or any combination of (i) real or immovable property situated in Canada, (ii) “Canadian resource property” (as defined in the Tax Act), (iii) “timber resource property” (as defined in the Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether or not such property exists, or (b) our LP Units are otherwise deemed to be “taxable Canadian property”. Since Brookfield Renewable’s assets will consist principally of units of BRELP, our LP Units would generally be “taxable Canadian property” at a particular time, if the units of BRELP held by Brookfield Renewable derived, directly or indirectly (under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable

 

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Canadian property”), more than 50% of their fair market value from properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. Our LP Units will be “treaty-protected property” if the gain on the disposition of our LP Units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. The Managing General Partner does not expect our LP Units to be “taxable Canadian property” of any Non-Resident LP Unitholder at any time but no assurance can be given in this regard. See “Tax Considerations — Material Canadian Federal Income Tax Considerations — Holders Not Resident in Canada”. Even if our LP Units constitute “taxable Canadian property”, our LP Units will be “treaty-protected property” if the gain on the disposition of our LP Units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. If our LP Units constitute “taxable Canadian property”, Non-Resident LP Unitholders will be required to file a Canadian federal income tax return in respect of a disposition of our LP Units unless the disposition is an “excluded disposition” (as discussed above). If our LP Units constitute “taxable Canadian property”, Non-Resident LP Unitholders should consult their own tax advisors with respect to the requirement to file a Canadian federal income tax return in respect of a disposition of LP Units.

Non-Resident LP Unitholders may be subject to Canadian federal income tax reporting and withholding tax requirements on the disposition of “taxable Canadian property”.

Non-Resident LP Unitholders who dispose of “taxable Canadian property”, other than “excluded property” (as defined in subsection 116(6) of the Tax Act) and certain other property described in subsection 116(5.2) of the Tax Act, (or who are considered to have disposed of such property on the disposition of such property by Brookfield Renewable or BRELP), are obligated to comply with the procedures set out in section 116 of the Tax Act and obtain a certificate pursuant to the Tax Act. In order to obtain such certificate, the Non-Resident LP Unitholder is required to report certain particulars relating to the transaction to the CRA not later than 10 days after the disposition occurs. The Managing General Partner and the BRELP General Partner do not expect our LP Units to be “taxable Canadian property” of any Non-Resident LP Unitholder and do not expect Brookfield Renewable or BRELP to dispose of property that is “taxable Canadian property” but no assurance can be given in these regards.

Payments of dividends or interest (other than interest exempt from Canadian federal withholding tax) by residents of Canada to BRELP will be subject to Canadian federal withholding tax and the payers may be unable to apply a reduced rate taking into account the residency or entitlement to relief under an applicable income tax treaty or convention of our LP Unitholders.

Brookfield Renewable and BRELP will be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest exempt from Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to BRELP will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA’s administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-resident limited partners may be entitled to under an applicable income tax treaty or convention provided that the residency status and entitlement to treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to BRELP, the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through BRELP and Brookfield Renewable to the residency of Brookfield Renewable’s partners (including partners who are residents of Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to BRELP. However, there can be no assurance that the CRA would apply its administrative practice in this context. If the CRA’s administrative practice is not applied and the Holding Entities withhold Canadian federal withholding tax from applicable payments on a look-through basis, the Holding Entities may be liable for

 

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additional amounts of Canadian federal withholding tax plus any associated interest and penalties. Under the Canada-United States Tax Convention (1980) (the “Treaty”), a Canadian-resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as Brookfield Renewable and BRELP, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty. Under the Amended and Restated Limited Partnership Agreement of BREP, the amount of any taxes withheld or paid by Brookfield Renewable, BRELP or the Holding Entities in respect of our LP Units may be treated either as a distribution to our LP Unitholders or as a general expense of Brookfield Renewable as determined by the Managing General Partner in its sole discretion. However, it is the current intention of the Managing General Partner to treat all such amounts as a distribution to our LP Unitholders.

While the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through Brookfield Renewable and BRELP in determining the rate of Canadian federal withholding tax applicable to amounts paid or deemed to be paid by the Holding Entities to BRELP, we may be unable to accurately or timely determine the residency of our LP Unitholders for purposes of establishing the extent to which Canadian federal withholding taxes apply or whether reduced rates of withholding tax apply to some or all of our LP Unitholders. In such a case, the Holding Entities will withhold Canadian federal withholding tax from all payments made to BRELP that are subject to Canadian federal withholding tax at the rate of 25%. Canadian-resident LP Unitholders will be entitled to claim a credit for such taxes against their Canadian federal income tax liability but Non-Resident LP Unitholders will need to take certain steps to receive a refund or credit in respect of any such Canadian federal withholding taxes withheld equal to the difference between the withholding tax at a rate of 25% and the withholding tax at the reduced rate they are entitled to under an applicable income tax treaty or convention. LP Unitholders should consult their own tax advisors concerning all aspects of Canadian federal withholding taxes.

 

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USE OF PROCEEDS

Based on the last reported sale price of our LP Units on the NYSE on             , 2013, of $         per LP Unit, we expect that the net proceeds of this offering to us, after deducting fees payable to the underwriters and other expenses related to this offering, will be approximately $         million (or approximately $         million if the underwriters exercise the Over-Allotment Option in full).

We intend to use the proceeds of this offering to repay outstanding indebtedness (which may include indebtedness outstanding under the credit facilities provided by lenders that are affiliates of certain of the underwriters) and for general corporate purposes.

The credit facilities provided by lenders that are affiliates of certain of the underwriters (the “Credit Facilities”) consist of four $90 million senior revolving facilities, which are repayable on October 31, 2016 and accrue interest at variable rates equal to: (i) a Canadian prime rate plus an applicable margin from time to time in effect, (ii) a U.S. base rate plus an applicable margin from time to time in effect, or (iii) LIBOR plus an applicable margin. The Credit Facilities also charge a standby fee of an applicable margin for undrawn amounts. Approximately $270 million was outstanding under the Credit Facilities as of May 31, 2013. Upon repayment, the Credit Facilities will remain available to be drawn as needed. We used the proceeds from prior draws on the Credit Facilities primarily to fund acquisitions. Each of Barclays Capital Inc., Deutsche Bank Securities Inc., CIBC World Markets Inc. and Scotia Capital Inc. is, or is an affiliate of, a financial institution which is a lender under a Credit Facility. As a result, we may be considered a “connected issuer” of each of those underwriters under Canadian securities legislation. Affiliates of Barclays Capital Inc., Deutsche Bank Securities Inc., CIBC World Markets Inc. and Scotia Capital Inc. will individually receive less than 5% of the net proceeds from this offering.

All obligations of the borrowers under the Credit Facilities are guaranteed by us and BRELP. The borrowers are in compliance with the terms of each Credit Facility, and there has been no breach of any Credit Facility since such Credit Facility’s execution. Except as disclosed in this prospectus, our financial position has not changed materially since the indebtedness under the Credit Facilities was incurred.

This offering was not required by Canadian chartered bank affiliates of the underwriters. The decision to distribute our LP Units and the determination of the terms of the distribution were made through negotiations between us and the underwriters. The underwriters have participated in the structuring and pricing of this offering. In addition, the underwriters have participated in due diligence meetings relating to this prospectus with us and our representatives, have reviewed this prospectus and have had the opportunity to propose such changes to this prospectus as they considered appropriate. Other than the underwriters’ fee to be paid in connection with this offering and the repayment of our outstanding indebtedness described above, the proceeds of this offering will not be applied for the benefit of the underwriters or their affiliates.

 

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DISTRIBUTION POLICY

We believe our high-quality assets and PPA portfolio will provide Brookfield Renewable with stable and predictable annual cash flow to fund our distributions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Historical Quarterly Results on a Consolidated Basis” for the quarterly distributions made by the Fund prior to the Combination. Distributions paid by the Fund from January 1, 2008 to completion of the Combination on November 28, 2011 were C$1.25 per trust unit in 2009, C$1.29 per trust unit in 2010, and C$0.975 per trust unit in 2011. In 2011, the Fund made distributions only in respect of the first three quarters as the Fund was wound up on November 28, 2011.

In December 2011, Brookfield Renewable declared its first cash distribution of $0.3375 ($1.35 annually) per LP Unit for the fourth quarter of 2011. The distribution was paid on January 31, 2012 to LP Unitholders of record on December 31, 2011. Brookfield Renewable increased its regular quarterly distribution to $0.345 ($1.38 annually) per LP Unit commencing with the declaration of the first quarter distribution for fiscal 2012. This distribution level remained in place until it was increased to $0.3625 ($1.45 annually) effective with the first quarter distribution in 2013. We intend to continue to operate as a growth-oriented entity with a focus on increasing the amount of cash available for distributions on each LP unit.

The declaration and payment of distributions are subject to the discretion of the board of directors of the Managing General Partner. Distributions will be paid quarterly on the last business day of January, April, July and October of each year, to LP Unitholders of record on the last day of December, March, June and September, respectively. The amount of any distribution payable by us is always at the discretion of the board of directors of the Managing General Partner and will be evaluated periodically, and may be revised subject to business circumstances and expected capital requirements depending on, among other things, our earnings, financial requirements for our operations, growth opportunities, the satisfaction of applicable solvency tests for the declaration and payment of distributions and other conditions existing from time to time (see “Amended and Restated Limited Partnership Agreement of BREP — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP — Distributions”).

Our ability to continue paying or growing cash distributions are impacted by the cash we generate from our operations. The amount of cash we generate from our operations will fluctuate from quarter to quarter and will depend on various factors, several of which are outside our control, including the weather in the jurisdictions in which we operate, the level of our operating costs and prevailing economic conditions. As a result, cash distributions to the LP Unitholders are not guaranteed. Refer to “Risk Factors — Risks Related to our LP Units” for a list of the primary risks, whether at previous levels or higher, that impact our ability to continue paying comparable or growing cash distributions.

We expect to have a payout ratio of approximately 60-70% of FFO, allowing us to reinvest surplus cash flow in attractive and accretive opportunities in the renewable power sector and position us to grow our distributions per LP Unit over time. Historically, FFO was not used as a key financial measure for the Fund. However, prior to the Combination the Fund’s target payout ratio was approximately 80% of distributable cash (FFO less levelized capital expenditures and debt amortization). This is substantially equivalent to a 60%-70% target payout ratio based on FFO, which would approximate 80% of distributable cash, as defined above.

We are pursuing a long-term distribution growth rate target in the range of 3% to 5% annually. The 3% to 5% annual growth rate target for distributions compares to a historical annualized distribution growth rate of the Fund of 2.2% per LP Unit from inception in 1999 up to the date of the Combination. The increase from the historical growth rate of the Fund to the current target of 3% to 5% for Brookfield Renewable reflects the expected benefits of the Combination, including a broader set of growth opportunities from new and expanded geographies, significantly greater generating assets and capitalization and enhanced access to capital.

 

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Pursuant to the terms of the Preference Share Guarantees, if the declaration or payment of dividends on the Series 1 Shares or Series 2 Shares is in arrears, Brookfield Renewable will not make distributions on our LP Units. See “Amended and Restated Limited Partnership Agreement of BREP — BRP Equity”.

 

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MARKET PRICE OF UNITS

Our LP Units are listed on the TSX under the symbol “BEP.UN”. We have received conditional approval to list our LP Units on the NYSE under the symbol “BEP”. Listing on the NYSE will be subject to us fulfilling all of the listing requirements of the NYSE. Our LP Units do not have a par value.

Our LP Units began trading on the TSX on November 30, 2011 following the Combination. The following table sets forth the reported high and low prices and the trading volumes of our LP Units on the TSX for the periods indicated:

 

     High      Low      Volume  

2013

        

June 1, 2013 to June 6, 2013

   C$ 30.11       C$ 29.00         645,060   

May

   C$ 31.79       C$ 29.54         2,416,518   

April

   C$ 31.50       C$ 29.72         3,040,735   

March

   C$ 32.02       C$ 28.76         4,667,542   

February

   C$ 31.29       C$ 29.66         1,996,194   

January

   C$ 31.37       C$ 29.12         2,106,859   

April 1, 2013 to June 6, 2013

   C$ 31.79       C$ 29.00         6,102,313   

January 1, 2013 to March 31, 2013

   C$ 32.02       C$ 28.76         8,770,595   

2012

        

December

   C$ 30.54       C$ 28.78         1,490,769   

November

   C$ 30.24       C$ 28.18         1,827,392   

October

   C$ 29.95       C$ 28.30         1,399,669   

September

   C$ 30.35       C$ 27.25         4,094,821   

August

   C$ 31.38       C$ 29.00         1,690,375   

July

   C$ 29.94       C$ 28.12         2,170,318   

June

   C$ 28.76       C$ 25.70         2,095,218   

May

   C$ 28.37       C$ 26.50         1,936,705   

April

   C$ 27.67       C$ 25.70         1,572,901   

March

   C$ 27.97       C$ 25.65         2,157,069   

February

   C$ 27.75       C$ 26.23         3,993,660   

January

   C$ 27.86       C$ 26.16         3,784,546   

October 1, 2012 to December 31, 2012

   C$ 30.54       C$ 28.18         4,717,830   

July 1, 2012 to September 30, 2012

   C$ 31.38       C$ 27.25         7,955,514   

April 1, 2012 to June 30, 2012

   C$ 28.76       C$ 25.70         5,604,824   

January 1, 2012 to March 31, 2012

   C$ 27.97       C$ 25.65         9,935,275   

January 1, 2012 to December 31, 2012

   C$ 31.38       C$ 25.65      

2011

        

December

   C$ 27.39       C$ 25.30         4,780,868   

November 30(1)

   C$ 25.90       C$ 25.30         888,493   

November 30, 2011 to December 31, 2011

   C$ 27.39       C$ 25.30      

 

(1) Date LP Units commenced trading on the TSX.

 

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Prior to the Combination the Fund’s trust units, which were exchanged for our LP Units on a one-for-one basis pursuant to the Combination, were listed on the TSX under the symbol “BRC.UN”. The following table sets forth the reported high and low prices and the trading volumes of the Fund’s trust units on the TSX for the periods indicated:

 

     High      Low      Volume  

2011

        

November (to November 29)

   C$ 27.84       C$ 24.63         7,400,721   

October

   C$ 28.10       C$ 24.42         3,665,714   

September

   C$ 26.75       C$ 22.85         5,661,592   

August

   C$ 24.08       C$ 20.58         2,812,413   

July

   C$ 23.70       C$ 22.51         1,120,832   

June

   C$ 23.31       C$ 21.41         3,093,011   

May

   C$ 23.95       C$ 22.29         2,775,376   

April

   C$ 23.50       C$ 22.01         3,677,132   

March

   C$ 23.69       C$ 21.05         4,048,332   

February

   C$ 22.10       C$ 21.01         3,694,246   

January

   C$ 21.49       C$ 20.63         3,798,991   

October 1, 2011 to November 29, 2011

   C$ 28.10       C$ 24.42      

July 1, 2011 to September 30, 2011

   C$ 26.75       C$ 20.58      

April 1, 2011 to June 30, 2011

   C$ 23.95       C$ 21.41      

January 1, 2011 to March 31, 2011

   C$ 23.69       C$ 20.63      

2011

   C$ 28.10       C$ 20.58      

2010

   C$ 22.41       C$ 18.76      

2009

   C$ 20.00       C$ 14.70      

2008

   C$ 20.71       C$ 15.25      

 

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DILUTION

If you invest in our LP Units, your interest will be diluted to the extent of the difference between the offering price per LP Unit and the pro forma as adjusted net tangible book value per LP Unit immediately after this offering.

Our net tangible book value as of March 31, 2013 was $7.9 billion, or $29.95 per LP Unit. Our net tangible book value per LP Unit represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of LP Units outstanding as of March 31, 2013, after giving effect to the exchange of all outstanding Redeemable/Exchangeable partnership units.

After giving effect to (i) our sale in this offering of                  LP Units at an assumed offering price of $                 per LP Unit, the last reported sale price of our LP Units on the NYSE on                 , 2013, after deducting estimated fees and offering expenses payable by us and (ii) the Series 6 Preferred Share Offering, our pro forma as adjusted net tangible book value as of March 31, 2013 would have been approximately $                , or $                 per LP Unit. This represents an immediate increase in pro forma as adjusted net tangible book value of $                 per LP Unit to our existing LP Unitholders and an immediate dilution of $                 per LP Unit to investors purchasing LP Units in this offering.

The following table illustrates this per LP Unit dilution.

 

Assumed offering price per LP Unit

        $           

Net tangible book value per LP Unit as of March 31, 2013

     $29.95      

Increase in pro forma as adjusted net tangible book value per LP Unit attributable to investors purchasing LP Units in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per LP Unit after this offering

     
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per LP Unit to investors in this offering

      $     
     

 

 

 

A $1.00 increase (decrease) in the assumed offering price of $                 per LP Unit would increase (decrease) our pro forma as adjusted net tangible book value per LP Unit after this offering by $                , assuming that the number of LP Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated fees payable by us to the underwriters.

If the Over-Allotment Option is exercised in full, the pro forma as adjusted net tangible book value per LP Unit after giving effect to this offering would be approximately $                 per LP Unit, and the dilution in pro forma net tangible book value per LP Unit to investors in this offering would be approximately $                 per LP Unit.

The following table summarizes, as of March 31, 2013, the differences between the number of LP Units purchased from us, after giving effect to the exchange of all outstanding Redeemable/Exchangeable partnership units, the total cash consideration paid, and the average price per LP Unit paid by our existing LP Unitholders and by our new investors purchasing LP Units in this offering at the assumed offering price of the LP Unit of $                 per LP Unit, the last reported sale price of our LP Units on the NYSE on                 , 2013, before deducting estimated fees and offering expenses payable by us:

 

    

 

LP Units Purchased

    Total Consideration     Average
Price Per
LP Unit
 
   Number    Percent     Amount      Percent    

Existing LP Unitholders

                   $                             $            

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Total

            $              
  

 

  

 

 

   

 

 

    

 

 

   

 

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A $1.00 increase (decrease) in the assumed offering price of $                 per LP Unit would increase (decrease) total consideration paid by new investors by $                , assuming that the number of LP Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated fees payable by us to the underwriters.

After giving effect to the sale of                  LP Units in this offering by us, if the Over-Allotment Option is exercised in full, our existing LP Unitholders would own                 % and our new investors would own                 % of the total number of LP Units outstanding after this offering.

 

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CAPITALIZATION AND INDEBTEDNESS

The following table presents Brookfield Renewable’s consolidated capitalization as at March 31, 2013 (i) on an actual basis, (ii) on an as adjusted basis to give effect to the offering by BRP Equity, a wholly-owned finance subsidiary of Brookfield Renewable, of 7,000,000 Series 6 Shares at C$25 per share for gross proceeds of C$175 million in May of 2013 and (iii) on a further adjusted basis to give effect to this offering.

 

(US$ millions)

   March 31, 2013
      Actual      As adjusted      As further adjusted

Credit facilities(1)

   $ 570         404      

Corporate borrowings(1)

     1,467         1,467      

Subsidiary borrowings(2)

     5,193         5,193      
  

 

 

    

 

 

    

 

     7,230         7,064      

Deferred income tax liabilities

     2,395         2,395      

Preferred equity

     659         825      

Participating non-controlling interests — in operating subsidiaries

     1,027         1,027      

General partnership interest in a holding subsidiary held by Brookfield

     62         62      

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     3,041         3,041      

Limited partners’ equity

     3,117         3,117      
  

 

 

    

 

 

    

 

 

(1) Issued by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable (and certain of its subsidiaries). The amounts are unsecured.
(2) Issued by a subsidiary of Brookfield Renewable and secured against its own assets. The amounts are not guaranteed.

You should read this table in conjunction with the unaudited consolidated financial statements of Brookfield Renewable as at March 31, 2013 and for the three months ended March 31, 2013 and 2012 and the related notes, the audited consolidated financial statements as at and for the years ended December 31, 2012, 2011 and 2010 and the related notes, “Selected Historical Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Results”, in each case, located elsewhere in this prospectus.

The significant components of our total consolidated equity are comprised of (a) interests of others in consolidated subsidiaries; (b) the Redeemable/Exchangeable partnership units of BRELP held by Brookfield Asset Management; and (c) the LP Units issued by Brookfield Renewable. The Redeemable/Exchangeable partnership units provide Brookfield Asset Management the direct economic benefits and exposures to the underlying performance of BRELP and accordingly to the variability of the distributions of BRELP, whereas our LP Unitholders have indirect access to the economic benefits and exposures, including the variability of the distributions, of BRELP through direct ownership interest in Brookfield Renewable which owns a direct interest in BRELP. Accordingly, the Redeemable/Exchangeable partnership units are presented as non-controlling interests rather than equity of parent company.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The 2013, 2012, 2011 and 2010 information in this section, excluding the Operational Information and distributions per share set forth in the tables below, is derived from and should be read in conjunction with: (i) the unaudited consolidated financial statements of Brookfield Renewable as at and for the three months ended March 31, 2013 and 2012 and related notes, (ii) the audited consolidated financial statements of Brookfield Renewable as at and for the years ended December 31, 2012, 2011and 2010 and related notes, and (iii) the unaudited pro forma condensed combined statement of income (loss) of Brookfield Renewable for the year ended December 31, 2011 and related notes, each of which is included elsewhere in this prospectus. The 2009 information in this section, excluding Operational Information set forth in the tables below, is derived from the audited consolidated financial statements of Brookfield’s renewable power division (a division of BRPI) as at and for the year ended December 31, 2009, which are not included in this prospectus. The results of operations for the three months ended March 31, 2013 are not measurably indicative of the results that can be expected for the full year or any future period.

We are providing unaudited pro forma financial results that include the impact of the Combination, new contracts and contract amendments, management service agreements along with the tax impacts resulting from the Combination, as if each had occurred as of January 1, 2011. The unaudited pro forma financial results have been prepared based upon currently available information and assumptions considered appropriate by management. The unaudited pro forma financial results are provided for information purposes only and may not be indicative of the results that would have occurred had the above transactions been effected on the date indicated. The accounting for certain of the Combination transactions in the audited consolidated financial statements of Brookfield Renewable for the year ended December 31, 2011 required the determination of fair value estimates at the date of the transaction on November 28, 2011 rather than the date assumed in the determination of the pro forma results of January 1, 2011. Capacity, long-term average and actual generation include facilities acquired or commissioned during the respective period ends. Long-term average and actual generation was calculated from the acquisition date or the commercial operation date, whichever is later.

Unless otherwise indicated, the financial data included in this section are presented in millions of U.S. dollars and have been prepared in accordance with IFRS.

 

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The following tables present consolidated financial data for Brookfield Renewable as at and for the periods indicated:

 

    

As of and for the three
months ended

March 31,

         

As at and for the year

ended December 31,(2)(3)

 

(US$ millions, unless otherwise stated)

   2013     2012     2012     2011     2010     2009  

Operational Information(1):

            

Capacity (MW)

     5,858        4,909        5,304        4,536        4,309        4,198   

Long-term average (GWh)

     5,325        4,549        18,202        16,297        15,887        15,529   

Actual generation (GWh)

     5,535        4,817        15,942        15,877        14,480        15,833   

Average revenue per MWh

     79        88        82        74        72        62   

Selected Financial Information:

            

Revenues

   $ 437      $ 426      $ 1,309      $ 1,169      $ 1,045      $ 984   

Adjusted EBITDA(4)

     319        318        852        804        751        743   

Funds from operations(4)

     162        175        347        332        269        324   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     85        31        (95     (451     294        (580

Distributions per share

            

Preferred equity(5)

     0.30        0.33        1.27        1.34        1.03     

General Partnership interest in a holding subsidiary held by Brookfield

     0.36        0.35        1.38        0.34        —       

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     0.36        0.35        1.38        0.34        —       

Limited Partners’ equity

     0.36        0.35        1.38        0.34        —       
    

As at

March 31,

2013

   

2012

    As at December 31,        
          2012     2011     2010         
           Restated(7)                          

Balance sheet data:

            

Property, plant and equipment at fair value

   $ 16,813      $ 15,658      $ 15,658      $ 13,945      $ 12,173     

Equity-accounted investments

     326        344        344        405        269     

Total assets

     18,268        16,925        16,925        15,708        13,874     

Long-term debt and credit facilities

     7,230        6,119        6,119        5,519        4,994     

Fund unit liability

     —          —          —          —          1,355     

Preferred equity

     659        500        500        241        252     

Participating non-controlling interests - in operating subsidiaries

     1,027        1,028        1,028        629        206     

General partnership interest in a holding subsidiary held by Brookfield

     62        63        63        64        34     

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     3,041        3,070        3,081        3,097        1,649     

Limited partners’ equity

     3,117        3,147        3,158        3,169        1,689     

Total liabilities and equity

     18,268        16,925        16,925        15,708        13,784     

Net asset value(4)

   $ 8,647      $ 8,548      $ 8,579      $ 8,398      $ 7,480     

Net asset value per LP Unit(4)(6)

   $ 32.60      $ 32.23      $ 32.35      $ 31.67      $ 28.21     

Debt to total capitalization(4)

     41     38     38     37     40  

 

(1) Includes 100% of generation from equity-accounted investments.
(2) The 2011 balance sheet reflects changes in the accounting policy for construction work-in-progress. See note 2 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this prospectus.
(3) The 2011 results reflect changes arising from the Combination. See notes 2, 8, 10 and 18 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this prospectus.
(4) Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.
(5) Represents the weighted-average distribution to the Series 1 Shares, Series 3 Shares and Series 5 Shares, where applicable.
(6) Average LP Units outstanding during the period totaled 132.9 million, (2010 and 2011: 132.8 million).
(7) See note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

 

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The following table reflects the Adjusted EBITDA, funds from operations and the reconciliation to net income (loss) for the periods indicated:

 

    

For the
three months
ended March 31,

     For the year ended December 31,  

(US$ millions, unless otherwise stated)

   2013      2012      2012      2011      2010      2009  

Generation (GWh) (1)

     5,535         4,817         15,942         15,877         14,480         15,833   

Revenues

     $437         $426       $ 1,309       $ 1,169       $ 1,045       $ 984   

Other income

     2         5         16         19         12         9   

Share of cash earnings from equity-accounted investments and long-term investments

     6         4         13         23         22         29   

Direct operating costs

     (126)         (117)         (486)         (407)         (328)         (279)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (2)

     319         318         852         804         751         743   

Interest expense - borrowings

     (102)         (110)         (411)         (411)         (404)         (348)   

Management service costs

     (12)         (7)         (36)         (1)         —           —     

Current income taxes

     (3)         (6)         (14)         (8)         (32)         (23)   

Cash portion of non-controlling interests

     (40)         (20)         (44)         (52)         (46)         (48)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Funds from operations (2)

     162         175         347         332         269         324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash portion of non-controlling interests included in funds from operations

     40         20         44         52         46         48   

Other items:

                 

Depreciation and amortization

     (128)         (126)         (483)         (468)         (446)         (321)   

Unrealized financial instrument (losses) gains

     16         (9)         (23)         (20)         584         (791)   

Fund unit liability revaluation

     —           —           —           (376)         (159)         (244)   

Share of non-cash losses from equity-accounted investments

     (2)         (3)         (18)         (13)         (7)         (13)   

Deferred income tax recovery

     (1)         (13)         54         50         3         335   

Other

     (2)         (13)         (16)         (8)         4         82   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     $85         $31       $ (95)       $ (451)       $ 294       $ (580)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to:

                 

Preferred equity

     $7         $3       $ 16       $ 13       $ 10       $ —     

Participating non-controlling interests — in operating subsidiaries

     16         (1)         (40)         11         25         28   

General partnership interest in a holding subsidiary held by Brookfield

     1         —           (1)         (5)         3         (6)   

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     30         14         (35)         (232)         127         (297)   

Limited partners’ equity

     31         15         (35)         (238)         129         (305)   

Basic and diluted earnings (loss) per LP Unit(3)

     $0.23         $0.11       $ (0.26)       $ (1.79)       $ 0.97       $ (2.29)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Variations in generation are described under Item 5.A “Operating Results — Segmented Disclosures.”

(2) 

Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

(3) 

Average LP Units outstanding during the period totaled 132.9 million, (2009 to 2011: 132.8 million).

Brookfield Renewable has not included financial information for the year ended December 31, 2008, as such information is not available on a basis consistent with the consolidated financial information for the years ended December 31, 2012, 2011, 2010 and 2009 and cannot be provided on an IFRS basis without unreasonable effort or expense.

 

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The following table presents unaudited pro forma condensed combined financial data for Brookfield Renewable giving effect to the Combination for the periods indicated as if the Combination had occurred as of January 1, 2011:

 

(US$ millions, unless otherwise stated)

   For the year ended
December 31,
2011
 

Selected Financial Information:

  

Revenues

   $ 1,309   

Average revenues per MWh

     82   

Adjusted EBITDA(1)

     926   

Funds from operations(1)

     433   

Net income

  

Preferred equity

     13   

Participating non-controlling interests — in operating subsidiaries

     11   

General partnership interest in a holding subsidiary held by Brookfield

     —     

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable partnership units held by Brookfield

     27   

Limited partners’ equity

     28   
  

 

 

 
     79   
  

 

 

 

Basic and diluted earnings per LP Unit(2)

     0.21   

 

(1) Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.
(2) Average LP Units outstanding during the period totaled 132.8 million.

There are no differences in capacity, long-term average and actual generation since the pro forma results reflect the same portfolio of assets as are reflected in the historical table.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OPERATING RESULTS

Basis of Presentation

Brookfield Renewable Group’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.

The Combination

The Combination does not represent a business combination in accordance with IFRS 3 Business Combinations (“IFRS 3R”) as it represents a reorganization of entities under common control of Brookfield Asset Management. Accordingly, the consolidated financial statements of Brookfield Renewable are presented to reflect such continuing control and no adjustments were made to reflect fair values or to recognize any new assets or liabilities, as a result of the Combination. Brookfield Renewable’s consolidated balance sheets, statements of income (loss), and statements of cash flows are presented as if these arrangements had been in place from the time that the operations were originally acquired by Brookfield Asset Management. For periods prior to November 28, 2011, the financial information for Brookfield Renewable represents the combined financial information for the Brookfield Renewable Power Division, a division of Brookfield Asset Management. Transactions entered into as part of the Combination are accounted for effective November 28, 2011.

Voting Agreements with Affiliates

Effective December 2011, Brookfield Renewable entered into voting arrangements with various affiliates of Brookfield Asset Management, whereby Brookfield Renewable gained control of the entities that own certain United States and Brazil renewable power generating operations (the “Voting Arrangements”). The Voting Arrangements provide Brookfield Renewable with all of the voting rights to elect the boards of directors of the relevant entities and therefore provides Brookfield Renewable with control. Accordingly, Brookfield Renewable consolidates the accounts of these entities.

The Combination and the Voting Arrangements do not represent business combinations in accordance with IFRS 3R, as all combining businesses are ultimately controlled by Brookfield Asset Management both before and after the transactions were completed. Brookfield Renewable accounts for these reorganizations of entities under common control in a manner similar to a pooling of interest, which requires the presentation of pre-Combination and Voting Arrangement financial information as if the transactions had always been in place. Refer to Note 2(o)(ii) in our audited consolidated financial statements for the year ended December 31, 2012 for our policy on accounting for transactions under common control.

Reconciliations of each of Adjusted EBITDA and funds from operations to net income on a consolidated basis are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

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

PRESENTATION TO PUBLIC STAKEHOLDERS

Brookfield Renewable’s consolidated equity interests include LP Units held by public unitholders and Redeemable/Exchangeable partnership units in BRELP, a holding subsidiary of Brookfield Renewable, held by Brookfield (“Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable

 

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units held by Brookfield”). Our 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 after two years from the date of issuance. 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 our 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 our LP Units and the Redeemable/Exchangeable partnership units as separate components of consolidated equity. This presentation does not impact the total income (loss), per unit or share information, or total consolidated equity. For information on our restatement due to a change in accounting policy, see Note 26 - Restatement in the audited consolidated financial statements of Brookfield Renewable included elsewhere in this prospectus.

PERFORMANCE MEASUREMENT

We present our key financial metrics based on total results prior to distributions made to both LP Unitholders and the Redeemable/Exchangeable unitholders. In addition, our operations are segmented by country geography and asset type (i.e., Hydroelectric and Wind), as that is how we review our results, manage operations and allocate resources. Accordingly, we report our results in accordance with these segments.

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; (ii) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization; (iii) funds from operations; and (iv) net asset value.

We also present these same measurements for our 2011 results on a pro forma basis (since Brookfield Renewable was only formed in November 2011) as if new contracts and contract amendments, along with the tax implications of the Combination, had each occurred as of January 1, 2011.

It is important to highlight that Adjusted EBITDA, funds from operations, and net asset value 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 net asset value and we provide reconciliations to net income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Income, Adjusted EBITDA, and Funds from Operations on a Consolidated Basis” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reconciliation of Pro Forma Results.”

 

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FINANCIAL REVIEW FOR THE THREE MONTHS ENDED MARCH 31, 2013

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

 

                                 Variance of Results  
     Actual Generation      LTA Generation      Actual vs. LTA      Actual vs.
Prior Year
 

GENERATION (GWh)

   2013      2012      2013      2012      2013      2012         

Hydroelectric generation

                    

United States

     2,561         1,958         2,389         1,883         172         75         603   

Canada

     1,282         1,308         1,196         1,158         86         150         (26)   

Brazil(1)

     936         867         936         867         —           —           69   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     4,779         4,133         4,521         3,908         258         225         646   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Wind energy

                    

United States

     216         90         258         100         (42)         (10)         126   

Canada

     323         368         324         324         (1)         44         (45)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     539         458         582         424         (43)         34         81   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     217         226         222         217         (5)         9         (9)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total generation(2)

     5,535         4,817         5,325         4,549         210         268         718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

In Brazil, assured generation levels are used as a proxy for long-term average.

(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 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. Accordingly, we present our generation and the corresponding Adjusted EBITDA and funds from operations on both an actual generation and a long-term average basis. See “— Adjusted EBITDA and Funds from Operations on a Pro Forma Basis”.

Generation levels during the three months ended March 31, 2013 totaled 5,535 GWh, an increase of 718 GWh as compared to the same period of the prior year.

Generation from the hydroelectric portfolio totaled 4,779 GWh, an increase of 646 GWh as compared to the same period of the prior year. The recently acquired portfolios in Tennessee, North Carolina and Maine provided additional generation of 750 GWh compared to prior year.

The variance in year-over-year results from existing facilities reflects generation levels that were above long-term average across many regions in the prior year. Generation from our hydroelectric portfolio in Brazil was positively impacted by facilities acquired and commissioned in the last 12 months.

Generation from the wind portfolio totaled 539 GWh, an increase of 81 GWh, as compared to the same period of the prior year with contributions from facilities acquired or commissioned in California and New England during the last 12 months.

 

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NET INCOME, ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A CONSOLIDATED BASIS

The following table reflects Adjusted EBITDA, funds from operations, and reconciliation to net income for the three months ended March 31:

 

(MILLIONS, EXCEPT AS NOTED)

   2013     2012  

Generation (GWh)

     5,535        4,817   
  

 

 

   

 

 

 

Revenues

   $ 437      $ 426   

Other income

     2        5   

Share of cash earnings from equity-accounted investments

     6        4   

Direct operating costs

     (126     (117
  

 

 

   

 

 

 

Adjusted EBITDA(1)

     319        318   

Interest expense — borrowings

     (102     (110

Management service costs

     (12     (7

Current income taxes

     (3     (6

Less: cash portion of non-controlling interests

     (40     (20
  

 

 

   

 

 

 

Funds from operations(1)

     162        175   

Add: cash portion of non-controlling interests

     40        20   

Other items:

    

Depreciation and amortization

     (128     (126

Unrealized financial instrument gain (loss)

     16        (9

Share of non-cash loss from equity-accounted investments

     (2     (3

Deferred income tax recovery

     (1     (13

Other

     (2     (13
  

 

 

   

 

 

 

Net income

   $ 85      $ 31   
  

 

 

   

 

 

 

Net income (loss) attributable to:

    

Non-controlling interests

    

Preferred equity

   $ 7      $ 3   

Participating non-controlling interests — in operating subsidiaries

     16        (1

General partnership interest in a holding subsidiary held by Brookfield

     1        —     

Participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable units held by Brookfield

     30        14   

Limited partners’ equity

     31        15   
  

 

 

   

 

 

 

Basic and diluted earnings per LP Unit(2)

   $ 0.23      $ 0.11   
  

 

 

   

 

 

 

 

(1) 

Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

(2) 

Average LP Units outstanding during the period totaled 132.9 million.

Net income (loss) is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income (loss) on an IFRS basis for our business will often lead to the recognition of a loss even though the underlying cash flow generated by the assets is supported by high margins and stable, long-term contracts. 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 net asset value 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 $437 million for the three months ended March 31, 2013, representing a year-over-year increase of $11 million. Approximately $50 million of the increase in revenues was attributable to generation

 

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from facilities acquired or commissioned during the past 12 months. Offsetting the increase was approximately $27 million from generation levels and wind conditions at existing facilities that while in line with the long-term average this quarter, were modestly below the prior year which experienced above average precipitation, particularly in regions with higher priced power purchase agreements.

Direct operating costs totaled $126 million for the three months ended March 31, 2013, representing a year-over-year increase of $9 million. The increase is primarily attributable to facilities acquired or commissioned during the past 12 months, partially offset by cost savings due to appreciation of the U.S. dollar relative to the Brazilian real.

Interest expense totaled $102 million for the three months ended March 31, 2013, representing a year-over-year decrease of $8 million. Interest expense on borrowings reflects the $5.2 billion of non-recourse asset-specific borrowings and $2.0 billion of corporate borrowings and credit facilities. In 2012, we repaid higher yielding subsidiary borrowings and thus lowered borrowing costs by $30 million. Borrowing costs increased by $22 million with the financing related to the growth in our portfolio.

Management service costs reflect a base fee of $20 million annually plus 1.25% of the growth in total capitalization value. The total capitalization value increased from the initial value of $8.1 billion to $10.3 billion at March 31, 2013, primarily due to the increase in the fair market value of LP Units and the issuance of the preferred equity, on an accretive basis.

Funds from operations totaled $162 million for the three months ended March 31, 2013, which while in line with plan, was $13 million lower year-over-year as generation in 2012 exceeded long-term average, particularly for assets with higher priced long-term contracts. Funds from operations were impacted by the increase in non-controlling interests and management service costs and the net interest expense savings.

Depreciation expense for the three months ended March 31, 2013 increased by $12 million due to assets acquired or commissioned within the past 12 months, offset by $10 million decrease in depreciation due to change in estimated service lives of certain assets.

The net income was $85 million for the three months ended March 31, 2013 (2012: $31 million).

SEGMENTED DISCLOSURES

HYDROELECTRIC

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

 

(MILLIONS, EXCEPT AS NOTED)

   2013  
     United
States
    Canada     Brazil     Total  

Generation (GWh) — LTA(1)

     2,389        1,196        936        4,521   

Generation (GWh) — actual(1)

     2,561        1,282        936        4,779   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 185      $ 94      $ 75      $ 354   

Other income

     —          —          2        2   

Share of cash earnings from equity-accounted investments

     3        1        2        6   

Direct operating costs

     (45     (17     (24     (86
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(2)

     143        78        55        276   

Interest expense — borrowings

     (35     (16     (7     (58

Current income taxes

     —          —          (4     (4

Cash portion of non-controlling interests

     (26     —          (2     (28
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations(2)

   $ 82      $ 62      $ 42      $ 186   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes 100% generation from equity-accounted investments.

(2) 

Non-IFRS measures. See “— Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

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(MILLIONS, EXCEPT AS NOTED)

   2012  
     United
States
    Canada     Brazil     Total  

Generation (GWh) — LTA(1)

     1,883        1,158        867        3,908   

Generation (GWh) — actual(1)

     1,958        1,308        867        4,133   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 164      $ 100      $ 91      $ 355   

Other income

     1        —          4        5   

Share of cash earnings from equity-accounted investments

     3        —          1        4   

Direct operating costs

     (38     (17     (28     (83
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(2)

     130        83        68        281   

Interest expense — borrowings

     (34     (17     (31     (82

Current income taxes

     (2     —          (4     (6

Cash portion of non-controlling interests

     (11     —          (3     (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations(2)

   $ 83      $ 66      $ 30      $ 179   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes 100% generation from equity-accounted investments.

(2) 

Non-IFRS measures. See “ — Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

United States

Generation from the U.S. portfolio was 2,561 GWh for the three months ended March 31, 2013 compared to the long-term average of 2,389 GWh and compared to the prior year generation of 1,958 GWh. The increase of 750 GWh from the recently acquired assets located in Tennessee, North Carolina, and in Maine, was partly offset by lower generation from the facilities in New York and Louisiana. In 2012, extremely wet conditions and above average inflows on the Mississippi River, and higher levels of precipitation in the eastern United States, resulted in generation levels being well above long-term average.

Revenues totaled $185 million for the three months ended March 31, 2013 representing a year-over-year increase of $21 million. Approximately $36 million of the increase in revenues is attributable to generation from the facilities acquired in the last 12 months. Offsetting the increase was approximately $15 million resulting from generation returning to long-term average levels in New York and Louisiana. The decrease in generation occurred at facilities where the power purchase agreement prices are higher than our average, thus having a disproportionate impact on financial results.

Funds from operations totaled $82 million for the three months ended March 31, 2013, virtually unchanged from prior year. Funds from operations were impacted by the increase in Adjusted EBITDA net of non-controlling interests.

Canada

Generation from the Canadian portfolio was 1,282 GWh for the three months ended March 31, 2013 compared to the long-term average of 1,196 GWh and compared to prior year generation of 1,308 GWh. Results were above long-term average overall, with strong inflows at our Quebec assets and some regions in Ontario. The decrease in generation from prior year was primarily due to the well above average hydrological conditions with the early arrival of spring conditions across eastern Canada in the prior year.

Revenues totaled $94 million for the three months ended March 31, 2013, representing a year-over-year decrease of $6 million, primarily due to generation levels returning to average conditions in the current quarter.

Funds from operations totaled $62 million for the three months ended March 31, 2013, representing a year-over-year decrease of $4 million.

 

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Brazil

Generation from the Brazilian portfolio was 936 GWh for the three months ended March 31, 2013 compared to the prior year generation of 867 GWh. The increase in generation is primarily attributable to one facility acquired and one commissioned during the past 12 months.

Our risk of a generation shortfall in Brazil 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 reference amount of electricity (assured energy), irrespective of the actual volume of energy generated. The program reallocates energy, transferring surplus energy from those who generated in excess of their assured energy to those who generate less than their assured energy, up to the total generation within the pool.

Revenues totaled $75 million for the three months ended March 31, 2013, representing a year-over-year decrease of $16 million. Revenues were higher by $3 million with generation from facilities acquired or commissioned in the last 12 months. Revenues declined with appreciation of the U.S. dollar compared to the Brazilian real by $11 million. In addition, lower allocated energy volumes which allow us to purchase power at cost and re-sell at contracted rates added $8 million to costs, with incremental revenues included in revenues.

Funds from operations totaled $42 million for the three months ended March 31, 2013 representing a year-over-year increase of $12 million. Fund from operations were positively impacted by the $25 million reduction in interest expense from the repayment of subsidiary borrowing during the first quarter of 2012. Partly offsetting the increase in funds from operations was the decrease in revenues.

WIND

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

 

(MILLIONS, EXCEPT FOR AS NOTED)

   2013  
     United
States
    Canada     Total  

Generation (GWh) — LTA(1)

     258        324        582   

Generation (GWh) — actual(1)

     216        323        539   
  

 

 

   

 

 

   

 

 

 

Revenues

   $ 23      $ 40      $ 63   

Direct operating costs

     (9     (5     (14
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(2)

     14        35        49   

Interest expense — borrowings

     (8     (14     (22

Cash portion of non-controlling interests

     (5     —          (5
  

 

 

   

 

 

   

 

 

 

Funds from operations(2)

   $ 1      $ 21      $ 22   
  

 

 

   

 

 

   

 

 

 

 

(1) 

Includes 100% generation from equity-accounted investments.

(2) 

Non-IFRS measures. See “— Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

(MILLIONS, EXCEPT FOR AS NOTED)

   2012  
     United
States
    Canada     Total  

Generation (GWh) — LTA(1)

     100        324        424   

Generation (GWh) — actual(1)

     90        368        458   
  

 

 

   

 

 

   

 

 

 

Revenues

   $ 7      $ 44      $ 51   

Direct operating costs

     (2     (5     (7
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(2)

     5        39        44   

Interest expense — borrowings

     —          (10     (10

Cash portion of non-controlling interests

     (3     —          (3
  

 

 

   

 

 

   

 

 

 

Funds from operations(2)

   $ 2      $ 29      $ 31   
  

 

 

   

 

 

   

 

 

 

 

(1) 

Includes 100% generation from equity-accounted investments.

(2) 

Non-IFRS measures. See “— Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

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United States

Generation from our U.S. wind portfolio was 216 GWh for the three months ended March 31, 2013 compared to the long-term average of 258 GWh and compared to the prior year generation of 90 GWh. The increase in generation from prior year is primarily attributable to the facilities acquired or commissioned in California and New England during the last 12 months. Generation was below long-term average in the quarter as a result of lower wind conditions.

Revenues totaled $23 million for the three months ended March 31, 2013, representing a year-over-year increase of $16 million. The increase in revenues is attributable to generation from the assets acquired or commissioned.

Funds from operations totaled $1 million for the three months ended March 31, 2013, virtually unchanged from same period in prior year. Funds from operations were positively impacted by the increase in revenues, which was offset by interest expense and direct operating costs associated with the recently acquired assets in California. The prior year result also does not reflect a full quarter of operations for assets acquired or commissioned.

Canada

Generation from our Canadian wind portfolio was 323 GWh for the three months ended March 31, 2013 and in line with the long-term average of 324 GWh, and compared to the prior year generation of 368 GWh. Generation was lower than the prior year due to stronger wind conditions experienced in the first quarter of 2012.

Revenues totaled $40 million for the three months ended March 31, 2013, representing a year-over-year decrease of $4 million. The decrease is primarily attributable to lower generation.

Funds from operations totaled $21 million for the three months ended March 31, 2013, representing a year-over-year decrease of $8 million. The decrease is attributable to the decrease in revenue and increase in interest expense associated with the re-financing of an Ontario wind facility.

 

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ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION

NET ASSET VALUE

The following table presents our net asset value:

 

      Total     Per Share  

(MILLIONS, EXCEPT AS NOTED)

   Mar 31
2013
    Dec 31
2012
    Mar 31
2013
    Dec 31
2012
 

Property, plant and equipment, at fair value

        

Hydroelectric(1)

   $ 13,946      $ 13,005      $ 52.58      $ 49.04   

Wind energy

     2,629        2,244