Connor Teskey: I would say no. I don’t have a specific figure to provide here. But without doubt the most significant components of the discount to LTA are 1, just resource variability. And then secondly, those specific identified operational improvements that we are pushing through our assets. Curtailment of course does exist in this business, but I wouldn’t say it’s a material driver of our LTA results. Well, I hope that answers your question. There’s perhaps one thing I would add, which is you commented on batteries and increasingly the implementation of storage. That is a very strong dynamic we are seeing in our business. The, in particular, the addition of batteries on an increasing proportion of the new development activity we do. We’re seeing that as a very low-risk and attractive risk-adjusted return way to enhance a number of the assets that we’ve either recently acquired or are developing.
Rupert Merer: Great. Thank you for the color. I’ll leave it there.
Operator: Our next question comes from a line of Mark Jarvey with CIBC.
Mark Jarvi: Thanks. Good morning, everyone. Maybe just start building off your comment around interest rate stability, sort of opening up the M&A markets a little bit more. How would you frame the interest competitive dynamics around larger assets or portfolios? Is it the same as it was six months ago? Do you think the number I guess potential interested parties has increased in the last couple months?
Connor Teskey: I would say that the stabilization in interest rates absolutely has increased the number of interested parties. There’s no question about that. I would say we have really seen a fairly dramatic shift. Here we are the beginning of February, end of January. If you compare the market today versus where we were at, say, the end of September, four months ago. It is night and day in terms of the level of activity, the amount of interested parties, again, on both the buy side or the sell side. Maybe the only added point of color that we would make there, and it ties back to our answer to one of the previous questions, is really what we saw in 2023 was a number of businesses saw headwinds that we thought could largely be attributed to one of two things.
If you took significant basis risk in your development activities, the higher CapEx levels, increasing CapEx levels and higher funding costs really caught you short. And that really disrupted or negatively impacted a number of developers around the world, particularly those in the offshore space. That was one dynamic that was a key headwind to 2023. The other dynamic was simply the higher interest rates more materially impacted those businesses that were reliant on unfettered access for the capital markets and very cheap financing. And businesses that have relied on that sort of funding structure suffered in last year’s economic environment. Those two dynamics have seen a little bit of relief in the last, again, call it two to three months.
But we should be very clear that those dynamics haven’t gone completely away. We have not returned yet. And I don’t think we will return to the almost zero interest rates and unlimited access to capital that was there three or four years ago. So some of those business models still don’t work and we’ll need either capital or operating partners to get back on a stable footing. So while there is more activity in the markets, I would say it’s also still a relatively robust investment opportunity set.
Mark Jarvi: Okay. A couple of thoughts on that. Maybe, does that mean like an opportunity to do the Duke transactions is not as readily available at that valuation today? And I guess on the flip side, how does the market conditions inform, I guess, the pace and the types of assets you’re considering for capital recycling in 2024?
Connor Teskey: Yeah, both great questions. I would say the comments I made stand by everything and I would say are very, very vastly applicable. Transactions like what we did on the Duke transaction or the bank’s transactions, those were essentially bilateral deals of very significant scale where we offered something that essentially the other participants in the market could not. And while there are more people active in the market today, there is still a very, very large opportunity set for us to do bilateral deals where either the transaction structure we can own, the operating capabilities we can bring, or the scale we can provide is relatively unmatched. So, you know, for many transactions, is there more competition today? Yes, but are we seeing an inability to do bilateral transactions as we have done in the past? No, we are not.
Mark Jarvi: And then just maybe on asset sales in terms of the pace of potential asset sales this year versus last year, do you think that accelerates?
Connor Teskey: 100%. Sorry, I forgot to answer the second part of your question. Absolutely. And this is where we have seen some really strong demand to start 2024. It does seem to be still a lot of capital flowing into the sector. And that capital maybe took a pause for a couple of quarters in that more uncertain interest rate environment. It has not taken long for that capital to come back. So we would expect to be relatively active on the capital recycling side in 2024. And in terms of where we see that activity, same strategy that we’ve always executed. We will be unemotional in terms of geography, asset class, or technology, and we will look for opportunities where we can sell assets at greater values than we see in holding them in our own portfolio.
