Sachin Shah - Chief Executive Officer of the General Partner Nicholas Goodman - Chief Financial Officer of the General Partner.

Sean Steuart - TD Securities Nelson Ng - RBC Capital Markets Rupert Merer - National Bank David Noseworthy - Macquarie Mark Jarvi - CIBC Ben Pham - BMO Capital Markets Andrew Kuske - Credit Suisse Sophie Karp - Guggenheim Securities Frederic Bastien - Raymond James.

Thank you for standing by. This is the conference operator. Welcome to the Brookfield Renewable Partners L.P. second quarter 2017 conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].

At this time, I would like to turn the conference over to Mr. Sachin Shah, Chief Executive Officer. Please go ahead, Mr. Shah..

Thanks you operator. Good morning everyone and thank you for joining us this morning for our second quarter conference call. Before we begin, I would like to remind you that a copy of our news release, investor supplement and letter to shareholders can be found on our website.

I also want to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks and our future results may differ materially. For more information, you are encouraged to review our regulatory filings available on SEDAR, EDGAR and on our website.

The business delivered strong performance in the second quarter supported by margin expansion, project development and growth. We remain on track to deliver compounded annual FFO per share growth of 8% to 10% for the five-year period beginning 2012.

To achieve this, we are focused on adding assets to our portfolio that are underpinned by stable long-term streams of cash flow, but ones that can be enhanced with operational levers.

These key operational initiatives which I will outline, give us confidence that we can continue to grow our per-share FFO by 5% to 9% annually without relying on rising power prices or acquisitions, both of which represent upside to our investors.

Firstly, we have embedded inflation escalators in many of our contracts are on track to contribute 1% to 2% to bottomline FFO growth this year as we keep our costs growing below inflation in our mature businesses. We also have ample room to reduce costs to new businesses that we acquire.

Accordingly, we expect to deliver 1% to 2% annual FFO growth from margin expansion across our business as we both improve productivity and optimize the revenue profile of our portfolios. Much of our emphasis in the next several years will be on our Colombian portfolio where we are executing our business plan to increase productivity.

Our proprietary development pipeline will contribute meaningful accretion to FFO, approximately 3% to 5% per year as our experienced development teams continue to work to deliver 15% to 20% returns on equity from these projects.

Over the next three years, the projects that we are currently working on are targeted to add $40 million to $50 million to our annual FFO and we expect to fund these largely with cash on hand. Turning to our operations in the quarter.

We operate a predominantly contracted portfolio in excess of 90% while maintaining a small but valuable level of upside optionality to our revenue profile. During the quarter, we cleared 900 megawatts in the PJM capacity auction to enhance revenues in the 2020 and 2021 timeframe.

These capacity and ancillary sales generally increase our revenue from North American operations by over 25% relative to current energy prices.

The trend towards long-term contracting opportunities from both corporate buyers and government procurement programs continues and we are actively engaged in a number of these processes across our business in North America and Europe.

In Brazil, the expectation of modest economic growth in 2017 and the fact that little new supply is being built is providing meaningful opportunities to our portfolio to capture premium prices. Power prices trended above BRL400/MWh during the quarter as electricity demand improved and hydrology remained below average.

In Colombia, we are advancing many of initiatives that we anticipated when we acquired the business. During the quarter, we signed our first 10-year power contract with a local utility for 60 GWh a year. We also advanced approximately 100 megawatts of late stage development with the objective of commercializing these projects in the next few years.

Finally, we continue to surface cost reductions in the business and are working with management to increase productivity and leverage resources in other parts of our business. As it relates acquisitions, we are making good progress on closing the TerraForm Power and TerraForm Global transactions.

Certain important milestone have been met, including bankruptcy court approval and the transactions are expected to close in the second half of this year. Following the quarter end, we also agreed to acquire a 25% interest in the U.K.'s largest pump storage asset for approximately £200 million alongside our institutional partners.

The portfolio comprises 2.1 gigawatts of capacity and represents 75% of the U.K. pump storage capacity and 50% of its hydro capacity. With the U.K. facing tight supply margins, the closure of coal plants and the development of intermittent wind and solar plants, these facilities provide critical backup power and grid stabilization services.

We expect this acquisition to be completed in the third quarter of the year. I will now turn the call over to Nick to discuss our operating results and financial position..

Thank you Sachin and good morning everyone. In the second quarter, we delivered adjusted EBITDA of $457 million and FFO of $181 million. Performance was driven by above average hydrology in North America and Colombia, strong pricing in Brazil and continued growth in the size of our portfolio.

In North America, generation was above average in Canada and U.S. Northeast. In addition, through our active management of reservoirs, we are very well positioned to capture summer peak pricing. Our business in Europe achieved strong availability this quarter and we continue to successfully advance the development and construction program.

We commissioned our 15 megawatt Crockandun wind farm in Northern Ireland and are progressing an additional 82 megawatts of construction stage projects in Europe that are expected to be commissioned between 2017 and 2019. In Brazil, below average generation was more than offset by the high power prices experienced in the quarter.

Our wind portfolio also performed very strongly delivering generation over 20% above the long-term average. The construction of two small hydro facilities in Brazil with a combined capacity of 47 megawatts continues on scope, schedule and budget.

In addition, we have approximately 70 megawatts of advanced stage projects expected to come online in 2019 and 2020. Our business in Colombia continues to perform well. Asset availability was very high during the quarter. A significant precipitation resulted in generation levels being nearly 20% above the long-term average.

Approximately 70% of our generation in the country is contracted providing stability to cash flows. Our liquidity position today exceeds $2 billion, including the proceeds our recent equity issuance. Accordingly, we are very well positioned to fund growth opportunities.

In addition, we continue to surface capital from our operating portfolio holding one refinancing in the quarter and one shortly thereafter, raising approximately $100 million in incremental proceeds.

One of the refinancings was the issuance of our first ever green bond $475 million project financing that we secured against our 360 megawatts White Pine hydroelectric portfolio. At quarter end, the weighted average remaining duration of our project-level debt across the business was nine years and our exposure to floating rate debt was 17%.

In North America and Europe combined, approximately 90% of our debt is fixed rate with an average remaining duration of nine years providing strong protection to rising interest rates.

In the coming months, our focus will remain on optimizing the value of our operating assets, advancing our development projects and progressing our robust transaction pipeline. That concludes our formal remarks. Thank you for joining us this morning and we would be pleased to take your questions at this time.

Operator?.

[Operator Instructions]. Our first question is from Sean Steuart of TD Securities. Please go ahead..

Good morning. A few questions on the pump storage acquisition. You and the partners own 25% out of the gate.

Is there an opportunity to step up that ownership, like was the case with Safe Harbor? Your thoughts there?.

Sure. Hi Sean, it's Sachin. I think it's not something that I would say is out of the question. Today, our partner there is ENGIE, which is the former GDF SUEZ. They don't have any intention to sell their 75% today.

That being said, you know you could read their public statements around asset disposition programs, repatriation of capital and generally a shift away from commodity-oriented businesses. And so we think that over time, there may be an opportunity.

If not, we have structured a governance arrangement that we are really happy with that provides a level of co-control that we can influence the operations and work with them to optimize the facility, increase productivity and drive better training and marketing operations and drive cost reduction. So I think we are comfortable with the 25%.

But obviously if there is an opportunity to acquire more, it's something that we would seriously consider..

And is there any asset level debt on the asset right now?.

Yes. There is asset level debt. It's in the range of about £400 million..

Okay.

And any context you can give on capacity factor, production characteristics?.

Yes, sure. You know what, I would say, the best way to think about this is, over 85% of the revenue stream of that facility is by selling services to the grid.

So one of the things we really liked about it is, it's not really predicated on energy prices or capturing on/off peak spreads, which if you follow-up on storage in North America, that generally is a larger income stream. One of the nice things about the U.K. and the U.K.

market is that this is really a giant battery that provides meaningful services like stabilization, fast ramp-up, slow ramp up. And because these services are critical and are growing in light of coal retirement, it's a nice income stream that will be fairly stable even with price volatility going forward..

Got it. Last question, just pricing in Colombia, you referenced the contract you signed.

A little bit more context, Sachin, on your outlook for pricing there relative to current levels? How do you think about that market evolving?.

I think we take a very long-term view of that market. Today, it's a hydro-dominated country. So when there is lots of water, prices fall. And conversely when it's dry, prices go through the roof.

Given our portfolio is predominately hydro, we have actually brought the company's contracting level down to about 70% because our view would be that you don't want to get caught short in a hydro-dominated country, otherwise you end up buying for very high prices. At the same time, we want to start to term-out the contracts in the portfolios.

So you saw that we signed our first 10-year agreement in the quarter. Do we think that that's going to be a regular occurrence? No, it's something that we are helping create in fact, a long-term contracting market and that will take a number of years of working with counterparties.

But most importantly, it's a country of 50 million people with 3% or 4% GDP growth and a power sector 15,000 megawatts or the size of Alberta. So you can just do the simple math and realize, they don't have enough power in the country. They are running out of domestic gas resources.

And so you, in the end they need to not only increase their level of hydro development, which we are well-positioned to with our pipeline, but they need to add new resources to stabilize power prices. So we think it will be a tight market for many years to come, supported by strong growth prospects and limited supply in the marketplace..

Okay. Thanks Sachin. I will get back in the queue..

The next question is from Nelson Ng of RBC Capital Markets. Please go ahead..

Great. Thanks. Just a quick follow-up to Sean's question about the First Hydro. So Sachin, you mentioned that most or 85% of the revenue is based on services to the grid.

So is the asset long-term? So does that mean that there is like a long-term contract? And does that mean there is generally a big chunk of contracted revenues for that asset?.

No. I would say, you shouldn't think of this as contracted or uncontracted. It's providing services that are required by the grid. They don't contract for those. They are just critical services that our hydros often provide in the background. We can capture additional revenue through those services. But there is no contract framework.

This is not a hydro plant that sells into a wholesale market. This is effectively a battery that provides storage and grid stabilization services to the grid. And you need that to ensure frequency stabilization to provide backup power to manage on/off peak swings in power prices. So it's just got a different revenue profile.

And in light of our experience with our pump storage in North America, we have a lot of experience we can bring to bear with this asset and start to optimize it over time..

Okay. Got it.

So like how much volatility have you seen over the last number of years from that facility in terms of just like EBITDA? And then I guess the second question is, how is the seasonality over the course of the year?.

So I will start with the volatility. I think the volatility would generally come from the demand for different services. So, for example, the U.K. very recently started and put in place a capacity market. So having a capacity market for this type of facility is obviously a net plus.

And it's something that would create a higher revenue stream for this facility starting in 2018, which is something that we underwrote. On the flipside, competition from batteries is something that over time could erode the value of this facility. So we factored all of that into our underwriting.

We have considered the fact that there will be competition. But you are not competing against generation here. You are competing really against other storage type products. And we feel that given the flexibility of this asset, the number of services it provides that today even batteries can't provide, we feel the outlook for the plant is very good.

Whether it has a stable revenue profile, we believe it is very stable. But as services grow or decrease in demand, you are going to have to replace that with other sources of revenue. So there will be some volatility to it. That being said, it provides, like I said, it's not really a generation asset, it's a services asset..

Okay. Got it.

And then from a reporting perspective going forward, will there be a new Europe hydro segment? Is that the intention?.

Nelson, I think, given that it's a 25% interest, the likelihood is, it will be equity accounted at this stage. So probably not have its own segment. But we can work on the disclosure and will update you through the quarter..

Okay. Great. And then just one last question.

Just bigger picture, like in terms of the Massachusetts, that clean energy RFP, did like Brookfield as a group like do they look to bidding in the process? And I guess could you comment on your ability and interest to bid into that process or even like future processes? Like I know there is some assets that are contracted to them.

And I think it's the New York assets and would they look to or do they look at bidding those assets into clean energy RFPS?.

Sure. So we did bid into the RFP. We haven't made public our bid submission, although it could be made public at some point, if we get advanced. And I would say you have seen some of the public submissions from other stakeholders who have also bid into the process. It's obviously a large RFP for a very high volume of power and for a long duration.

So it's attractive.

To us though, it's really this is the first wave of what we have been saying for a few years, which is states, governments, provinces are all now facing this significant shortfall of clean energy, whether that comes from hydro, wind, solar, storage facilities as retirement of coal really takes hold and you cannot fill that gap solely with gas, in spite of it being cheap in the Northeast United States.

So we think this is still early days. We have bid into the RFP. But we will see how it evolves over the next few years..

Okay. Thanks Sachin. Those are my questions for now..

The next question is from Rupert Merer of National Bank. Please go ahead..

Good morning gentlemen..

Good morning..

So you have mentioned you cleared the 900 megawatts in PJM capacity auction for 2020/2021. And that's supposed to give you about 25% of your revenues in those facilities.

Is that an increase from what you have today for those facilities in the capacity market? And how is that capacity market evolving for you?.

Yes. So I would say today that capacity markets, so first, it's about bang on with our underwritten assumptions for assets that we have acquired in PJM. So it's not an increase. It's consistent with what we would have underwritten.

I would say capacity prices in PJM today are generally lower than we would like them to see, although as you know for a number of years, we have been buying hydro in this low price environment and the low prices in the capacity auctions are really a function of significant gas in the Marcellus and a lot of gas plants being built which is creating an overhang of supply.

So I would say, it's not a surprise energy prices are low, capacity prices are low. I think what's more important and I just want, the reason we are putting that out there is more so that people understand that when we acquired these hydros or even the hydros we have, simply looking at the headline energy price isn't a relevant measure.

There are a number of other services and products we do sell and those taken together would generally increase our total revenue by about 25% relative to where the energy price is. So it's just more an important data point to helping you assess the revenue streams that we can attract on these assets..

Okay. Great. And can you talk a little about how you think that's going to evolve. You mentioned batteries becoming more competitive and entering your thinking when you valuing assets like the U.K. pumped hydro, we have seen a number of contracts signed recently for renewable power and battery storage.

So how is your view on the future evolving? And how competitive do you think batteries will become?.

I think the proliferation of renewables and renewable storage will only be additive to our business. It will surface value from the plants that we own today and it will give us an additional asset class to invest in.

It's no different than us, just seven or eight years ago, having no wind or solar in our business and today having very, very significant amounts of it under management and as asset classes now that we can invest in. So one, I think it's positive for the outlook of growth.

And two, if you take battery specifically, they have the ability to unlock value that today you can't always get in your assets unless you can capture it through peak pricing. This allows you to shift power to different points of time in the day. It allows you to sell some ancillary services.

It has certainly impacted our view of underwriting, for example, in the pump storage, we would say that we are looking at this as a more finite life asset where services over time decline, if they get replaced by batteries and we have underwritten it that way. So we feel comfortable that our return on equity will be very strong.

And if battery growth is slower than we thought, then we are going to do exceptionally well on that asset. So I think batteries, for us, is a positive in the industry. It's a positive for our asset base. If the development of batteries is slower than we think it will be, it just means we will have to wait longer for those positives to be realized.

But with the assets we have, we have reflected that in our underwriting and we continue to be bullish on storage capabilities in the future for renewables..

How long do you think it will be before Brookfield makes its first investment in battery storage?.

We have been talking about doing a little bit on the margins just as an R&D exercise, but I think in the near-term, but I would say for a more meaningful investment, I think we are still five years away, at least..

All right. Very good. Thank you..

The next question is from David Noseworthy of Macquarie. Please go ahead..

Great. Thank you very much.

I am just wondering if you could walk us through the remaining required approvals for the Global acquisition?.

Sure. So we received bankruptcy court approval a couple of weeks ago. And now we have, obviously we have to have, for TerraForm Power, a proxy approved by the SEC such that we can go to a shareholder vote. And then there are a few regulatory approvals that would still be outstanding assuming all of that goes well.

So I think the combination of getting proxy circulars out there such that shareholders can vote on the transaction, that's number one. Number two is getting some remaining regulatory approvals. We have actually received the vast majority of regulatory approvals already. And so we feel pretty good that things are marching ahead as we expected..

Okay.

And then timing of the proxy approval, is that kind of like weeks away?.

Well, a first draft of TerraForm Power proxy circular was filed with the SEC this week. It's a public document and we don't control the SEC's timetable. So I wouldn't say it's weeks away. I think the SEC typically would take a month or a month-and-a-half before it provides comments. But it's a regulator and they can take as long as they need to.

So we will see..

Okay. And then [indiscernible] just a few quick questions. If you look historically and looked at the capacity and generation growth between 2014 and 2017, we have seen both capacity and generation grow to the tune of 65% to 40%, I guess you go 2017 over 2014 or 2017 or 2015, respectively.

But if I look at your maintenance CapEx, the growth in your maintenance CapEx has been much lower.

I just wondered if you can just give comments, 13% year-over-year and 20% over 2014, I was wondering why, what's changing with regards to your assets that your maintenance costs are not moving in line with the growth of your portfolio? What you doing differently today that you weren't doing in 2014 or 2015?.

Sure. Often what it has to do with is, age of facilities and the quality or upkeep of the facilities when we acquired them. So I would say, if you looked at our facilities that we are buying typically in the early to mid-2000s, often there was a bulge of CapEx that we had to put in very early, because we were buying them from industrial companies.

Those industrial companies didn't have the capital to invest properly in the hydro facilities. And so we would acquire them and we would end up having to frontload our CapEx. So what we are actually getting now is the benefit of that frontloaded CapEx in sort of the mid to late early 2000.

And that means that our CapEx programs in those older assets now is coming down and coming down to a more stable sustainable level.

And I would say, whereas recently, if you look at a lot of the hydros we bought, other than the Smoky Mountain Hydro, they were really bought from utilities and those utilities had programs that were more consistent with ours where the assets were in much better shape when we acquired them and their level of CapEx was sufficient so that we didn't have to frontload our CapEx programs.

And I could point to, White Pine that we bought from NextEra, great asset in great condition. NextEra put a lot of capital in. When we bought assets from Exelon, the same thing.

These were utilities who understood the capital requirements of these facilities and so we just carry on those programs as opposed to industrial owners who may be looked at these as a cost and didn't really put the time and effort to keep them at the level that we would..

Okay. Perfect. Thank you. And you may have answered this in an earlier question. So I apologize if it's a repeat.

But your Colombia contract, did you provide any detail just around power price escalators in that and how it compares to what you had previously?.

Sure. The contract was signed at just over COP200 per kilowatt hour. So that would be in the range of $70 a megawatt hour, if you want a U.S. dollar comparable. That would be well in excess of our underwritten value and it would be consistent with my earlier remarks which is, it is a market longer-term that's tight from a supply perspective.

And so fortunately for us, we were able to acquire that business without having to underwrite rising prices, but clearly we feel the backdrop there is positive..

Thank you very much. Those were my questions..

The next question is from Mark Jarvi of CIBC. Please go ahead..

Good morning..

Good morning..

A quick question on realized pricing, specifically in the U.S. just looking, the average pricing in the low-60s versus about $70 a year ago and down from last quarter, despite power prices being modestly up year-over-year in most markets.

Is that just a drop in capacity payments? Or is there some other factor contributing to that?.

Yes. It's not really a capacity driven outcome. It's the fact that, if you recall, about a year-and-a-half ago when we had a very cold winter and power prices spiked, we had signed a number of hedges out a couple of years and as those hedges roll off, we are re-signing short-term hedges at a lower price.

So it's really a function of power prices having come down in the last couple of years and the roll off of existing hedges that we had..

Okay. And then in Colombia, you talked about in the past power commitment that initial counterbalance in that market where pricing and generation generally offset each other because it is still hydro-dominated. This quarter, the generation was up dramatically, revenue was down year-over-year.

Was it just too far outside the norm for that counterbalance to work? Is that how we should think about it?.

Yes. The volumes were so strong this quarter in Colombia, that power prices plummeted but the business is still tracking on plan on its budget and still tracking consistently with our underwritten annual cash flow expectations..

Okay. And then looking at U.S.

hydro generation, in some of the data points we have seen hydrology was a really wet spring and just looking at unitholder, shareholder or unitholder commentary about well-positioned for Q3, did you hold back some in generation in terms of stocking up the reservoirs that you maybe get you above LTA in Q3?.

Look, we always plan to try to keep reservoirs at a high level coming into the end of the summer because you can get very hot periods where prices spike in the U.S. Northeast.

And so I wouldn't say we pulled back, I would say we just operated as planned where we try to keep reservoir levels high such that if you get peak pricing coming in, we are ready to respond and we can capture those peaks quickly..

Okay. Helpful.

And then just lastly, with the First Hydro acquisition in the U.K., you have got the Irish assets, you have got development projects in Scotland, maybe you can talk just a bit about how much more effort you guys are putting in that market going forward and how important it is to build scale and have a larger portfolio in that market to be relevant?.

Yes, sure. One is, look, we think Europe is a market that long-term continues to be very attractive, 500 million people on the continent, very strong support for renewables, a very strong economy. In spite of low growth, the fundamentals of the economies in most of those countries is very good and you have a very low risk regime in general.

So for us, we are going to be an investor in Europe for a long, long time. It's just about picking and choosing our spots and finding opportunities to deliver the value that we are targeting for our shareholders. And Europe is a tougher market in that regard because returns are often low.

So I would say, over the years, we have been just plotting our way through very carefully, first with Ireland on the back of the Eurozone prices and Ireland really trying to raise capital to repay IMF debt and EU debt.

Then we went to Iberia on the back of weak labor markets in Spain and Portugal and acquired some projects in Portugal and we have got a lot of people in the ground in that region continuing to look for opportunities. Scotland, very strong wind resource in that part of the U.K.

and we feel that over time as wind continues to be developed naturally and subsidies come down, the stronger wind regimes will be the winners and that's what we think about Scotland.

And with the U.K., we have been following the story of coal retirement and really it being an island effectively the need for renewables for potentially biomass for batteries and for storage and we found this opportunity to invest in a pump storage, we felt that it was just particularly unique, given the long-term outlook in a very sizable country that's going to be tight supply in the long-term in our view.

I would say, longer term we continue to look to Western Europe, but we are going to pick and choose our spots. But we will be there for 20 years plus because we think it's an excellent place to invest..

Okay. Thanks for that commentary. I appreciate it, guys..

The next question is from Ben Pham of BMO Capital Markets. Please go ahead..

Okay. Thanks. Just coming back to your prepared remarks on the historical growth you have delivered at 8% to 10%, higher up than your range and I know you also talked about the 5% to 9% going forward.

Can you comment on the timeframe you are looking at? And if you can also talk about the pace of distribution growth relative to that cash flow rate, when you kind of look at your historical 8% to 10%, even grown the dividend at 7%, but your payout ratio was much lower in 2013 timeframe?.

Sure. So I will with the fact that one is, we always look at sort of fundamental cash flow growth in the business, just to make sure that we are growing and that dividend growth is supported by real underlying business growth as opposed to just wanting to pay out more to our shareholders. So that's first and foremost.

I would say, if you look at the levers that drive that growth, contractual inflation escalations, that's something that we feel very confident about given the long duration of our contracts and how contracted our portfolio is. Looking at margin expansion, that's something that really just reflects our operating capabilities.

We have spent the better part of 20 years building an operating platform that has strong expertise around the world and we are constantly finding ways to improve productivity, lower costs and drive that margin expansion. And in particular when we buy new businesses, we find opportunities to leverage our existing capabilities.

And then our development pipeline, as I alluded to. Today it's stronger than it's been ever. We have made it a point in the last five years to keep adding to the development pipeline.

It exceeds 7,000 megawatts today and it's really spread out around the world and we can move capital to parts of that pipeline where either capital is scarce or supply is tight and you can secure a high priced long-term contract. And so again, we have a very good outlook on the development pipeline.

I think your last point on payout ratio, when we launched BREF, we launched it with a couple of assets that had declining contracts or contracts that were going to roll off.

And the two in particular, Louisiana Hydro and our gas plant in Ontario, both of those when we launched the company back in late-2011, were things that we knew would be headwinds. And I would say that the fact that -- and they obviously had a large impact on our payout ratio.

But the fact that we have been able to grow, buy assets, build out our development pipeline, continue to reduce costs and grow the underlying cash flow in the business to offset all of that decline and continue to grow the business speaks to the growth profile of this business and really this sector and how positive it can be long-term that you can withstand short-term decreases in contractual assets and still continue to deliver strong dividend growth, growing value to our shareholders and significant upside optionality in the backend by buying the merchant hydros..

And is this a five-year outlook then? Or is it something different?.

Look, I think it's a long-term outlook. We generally plan for the business in five to 10 year increments. We are not really focused on short-term. Obviously, today in the short-term, we feel very good. The business is performing well and we feel that cash flow growth is well supported with the pieces that are in place.

But I would say, we generally look out five to 10 years and we are pretty confident that our 5% to 9% target is something that's quite achievable. And as you alluded, we have been paying out around 6% to 7% per year in addition to having 5.5% dividend yield.

And we think that combined those two, is allowing us to deliver the total return that we promise to our shareholders. But more importantly, all of that is supported by the underlying growth in the business..

Can you clarify also just how you calculate this average return? Are you guys taking 2016 numbers and normalizing that for production and you are looking out your cash flow in five or 10 years and just taking the average as your business also grows each year as well?.

Yes. So for normalize, what we do is we try to just show people that if you had constant FX and constant generation, is there same-store growth in the business. And so for us, that's a really important measure.

Just to make sure the business is growing year-over-year without the vagaries of foreign currencies or generation or a particular pricing change in a contract.

We wanted to show that the baseline business continues to grow and if it's continuing to grow and we know that we have a strong development program and we know that we have a strong M&A program then we feel pretty confident that fundamentally the business is in good shape..

And maybe just last on some of the commentary about the construction ready projects of almost 150 megs.

Where are you guys with that? And is any of that the Columbia 100 megawatts? Or is it something else?.

No. It's not Colombia. It's actually a combination of Ireland and Brazil..

Okay.

And is it just mostly permits at this stage you are waiting for?.

No. For the most part, those are substantially ready to go. It's just that we are being patient on pricing. In Brazil, there continues to be government market auctions and given the market is tight there, we are just making sure that when we do selling into those auctions, we get a price that hits our target return threshold..

Okay. Great. Okay. Thanks guys..

Thanks..

The next question is from Andrew Kuske of Credit Suisse. Please go ahead..

Thank you. Good morning. You are acknowledging that you have contracts in place in a number of the assets, but when we look at your asset mix and especially by geography, is your inflation expectation, in your letter to unitholders, rather tame and really rather conservative at the 1% to 2%..

Yes. I mean, that's a fair point, Andrew. I think we are always mindful that in Europe and even in North America, the inflation environment is low and in Europe, in particular you could argue that inflation is zero or 0.5%. So I think we tend to temper our expectations around that just given that the weighting of those to markets.

Now obviously, if you look at Brazil and Colombia, inflation in the more recent past has been higher and that generally goes to, I guess what you are getting at, which is we will likely do better than that.

But that being said, I think 1% to 2% is something we feel we can comfortably deliver over the long-term, if you go to long-term inflationary outlooks for the countries that we are invested in..

Maybe just diving into that a little bit more, because even in the OECD markets, where you have exposure, the overall inflation might be nil to 1% or 2% but the power price inflation might be greater given the transition towards renewable in certain markets as a requirement basis.

Is that a fair comment?.

Yes. That is absolutely a fair comment. And I think that's something that I would say is really where that 10% merchant option our business should drive lots of value.

Again we are tempered because we have been in a low-price environment for seven years now and so when you are in something that's that protracted, it's just doesn't help from a credibility perspective to push it. But we obviously think the option has tremendous value..

Okay. That's helpful. And then just one final question.

How much dry powder is in BREF III that's available to BREF assuming that you close off the TerraForm deals later this year?.

Well, that's a good question. We probably still have in excess of $2 billion to $2.5 billion left..

Okay. Great..

It's very meaningful, yes..

Thank you..

The next question is from Sophie Karp of Guggenheim Securities. Please go ahead..

Hi. Good morning. Thank you for taking my questions. I wanted to get some color, maybe on the regulatory environment in the U.S. and the specifically there is a couple of bills that are going through the Congress right now. There is Hydropower Policy Modernization Act of 2017, the House Bill 3043.

There are other ones and they mostly deal with they are trying to ease the license and permitting requirements in the U.S. to build new hydro facilities. And this is something that you guys highlighted many times in the past that it's impossible to build hydro in the U.S. This is what makes your acquisition strategy so successful.

And so where do see that going? Are you involved with the industry and groups that are advising lawmakers on this? And how do you think this could affect your operations going forward?.

Sure. First, I would say, we are proponents of anything that drives the further advancement of hydro in the U.S. We think that if the U.S. can open up and ease the restrictions on permitting for hydro, that's a good thing for the sector more generally. I think what it does is, it signals to people simply how valuable hydro is.

They wouldn't be doing it if something wasn't valuable from an economic perspective and from an asset quality perspective and also to help meet green or decarbonization initiatives in the different regions in the country.

I would say more practically speaking, in the markets where we have hydro, largely in the Northeast and then a little bit in the Southeast, the development potential in those markets is pretty low, absent permitting restrictions.

And it's a function of not having really high head sites that have the quality where you can drive high capacity factors and build out facilities with storage and with peaking capability. Are there some small run of the fiver facilities that can be built? Yes. But they won't move the dial.

I think a lot of that might help in the Northwest of the United States, where you have got very, very large river basins and significant coal that's going to be retired. Those markets were not really invested in.

It's really the mid-sea market that I am talking about, not a large base of population lives there and power prices there have been low for decades and really the market's been controlled by utilities.

So I guess my view would be that, one, it's positive broadly from a macro perspective, because I think it speaks to the quality of the assets that we own, which we talk about a lot. But two, I don't think in the markets we are in, it will have a really meaningful impact..

Thank you. That's all I had..

Thanks Sophie..

The next question is from Frederic Bastien of Raymond James. Please go ahead..

Hi. Good morning.

I was wondering if you could provide an update on your capital recycling efforts?.

Sure. So we did complete the wind farm sale in Ireland. I think it was in the second quarter. And today, just given our liquidity position in excess of $2 billion, we are not ramping up our capital recycling at this stage.

As we have always said, it's an opportunistic program, one where if we feel that values in the marketplace have drifted well above intrinsic value and we think that we can recycle the capital for better returns, then we are a seller.

I think we still have a lot of assets in the portfolio that are candidates for it and we are always looking to take a little bit of that gain off the table and crystallize it. But it's not something right now that we are pushing hard, just in light of our liquidity and our access to capital.

But obviously, if the market continues to ebb in the direction of significant overpayment above intrinsic value, we can't ignore that and we will look for opportunities to sell..

Great. Sounds like you are more in favor of deploying capital right now. So that's good. I am all set. Thank you. My other questions have been answered..

Thanks Fred..

This concludes today's question-and-answer session. I will now hand the call back over to the presenters for closing remarks..

Okay. Thank you everyone again for joining us this morning. We appreciate your support as always and we look forward to updating you at the balance of the year at our year-end call. Thank you..

Thank you for participating. You may now disconnect your lines. Have a pleasant day..