Big energy consumers like the Hunter’s Tomago Aluminium don’t give two hoots about who owns AGL’s coal-fired generation assets. That’s also true of household consumers. They do though care about electricity prices and supply reliability.
The issue therefore is whether Brookfield and Mike Cannon-Brookes can provide them with any more comfort than AGL. Unfortunately, the answer may yet be neither can.
There are three certainties. First, each of AGL’s coal-fired generators will be gone by 2040, regardless of who owns them. Second, bringing their closure forward three or five years will make very little difference to global carbon emissions. Finally, neither of the bidders is driven primarily by environmental concerns. Rather, they are driven by economics and in the case of AGL, shareholder value. Of course.
Cannon-Brookes may believe he can replace generation capacity more quickly without compromising commercial returns. But if so, he is yet to tell us how.
AGL has had more time to share its ambitions. It says it will deliver around 2,000 Megawatts (MW) of renewable generation by 2024 through wind and pumped hydro projects across three states. Battery projects with a combined capacity of 450 MW will provide storage and firming capacity. For perspective, between them AGL’s three existing coal-fired generators are capable of delivering around 6,000 MW of reliable base-load power.
When you throw in Origin’s shock announcement last week it will close its 2,800 MW Eraring plant seven years early (2025), it’s easy to conclude the numbers don’t stack up.
So, what is really going on here? AGL’s plan has been clear for all to see, its decision to split off its coal generation assets is part of its commitment to reduce emissions although some might accuse them of “green washing”. The irony of that game is that no matter who owns them, coal generators emit the same volume of carbon.
Unlike AGL, Brookfield is not publicly listed and doesn’t have to worry about woke fund managers. That gives Brookfield a commercial advantage through lower borrowing costs.
Bringing Cannon-Brookes into the play is interesting and the optics certainly won’t hurt Brookfield’s chances. The Fund may be able to reduce the life of the assets compared to AGL’s current plan but they’ll factor that into the price. In that way AGL current shareholders effectively pay for the accelerated shutdown but for them hopefully less damage to their share price. But there is no comfort here for consumers.
The suitors have cast doubt over the capacity of AGL’s spin off to fund the transition with a “reduced balance sheet”. It’s a tactic sure to focus the minds of AGL shareholders, as is no doubt intended.
All of this leaves us certain about one other thing, Australia’s coal-fired generators remain assets of considerable value, particularly while the Energy Security Board’s proposal to pay – or have consumers pay – their owners to keep them on line remains on the table. Why anyone would want to close them prior to the end of their physical and economic lives is a mystery to the majority who don’t come to this debate with an ideological view.
In its 2020 Integrated Systems Plan, the Australian Energy Market Operator canvassed a number of future scenarios for the National Electricity Market (NEM). Based on those scenarios, it concluded that by 2040, the system will need between 6,000 to 19,000 MW of new flexible utility scale dispatchable resources to firm up inherently variable wind and solar generation. That’s the equivalent of between three and ten Liddell Power Stations. AGL plans to close Liddell next year.
Should consumers turn their anger and fear on AGL or Brookfield? I suggest they do neither. Rather, their rage should be directed at the political class which has spent the last 20 years weaponising climate change. In doing so, they’ve destroyed every prospect of securing a sensible policy response to what is a serious challenge.
Investors have been left with too little policy guidance and long ago tired of waiting for it to emerge. As a result, the market is looking like the wild west and it’s more and more likely power station workers and consumers will be caught in the crossfire.
Hon Joel Fitzgibbon MP
Federal Member for Hunter