AGL may have knocked back a bid for the company by Canadian investment giant Brookfield and Atlassian’s Mike Cannon-Brookes this morning, but the issues behind the bid aren’t going away.
AGL, Australia’s biggest energy provider, is stuck with stranded assets in its large coal-fired power stations — especially Bayswater in NSW and Loy Yang A in Victoria. Two weeks ago it brought forward the closure dates for both, to 2033 at the latest for Bayswater and 2045 for Loy Yang A. Both will close much sooner. Coal-fired power is uncompetitive and only getting more so. That’s why Origin Energy announced last week its Eraring plant in NSW will shut in 2025.
Coal-fired plants, especially older ones, require high maintenance costs and ongoing investment. But no one wants to finance that investment — banks don’t want to lend for it, investors don’t want to fund it. Coal-fired power has become unbankable.
AGL’s answer to that problem was to move its coal-fired assets into a new company, Accel, along with some other, more attractive energy assets, while AGL ran its renewable assets. It would cost at least a quarter of a billion dollars to de-merge — with no guarantee investors would be keen on a company laden with stranded assets. Accel could be more like Crapcel as far as the markets were concerned.
AGL could not find an argument to reject the joint bid, except that the price was not high enough to reflect the change in control. AGL’s share price has fallen 69% since the most recent high of $22.96 in May, 2019, to $7.16 last Friday. That’s investors walking the walk on its coal assets and destroying the premium for control that would normally be paid for by a good business. A price of $8 a share or a bit more would win the day.
Some outlets — especially the climate denialists at News Corp — are portraying the Brookfield/Cannon-Brookes bid as driven by a desire to shut down AGL’s coal-fired plants. In fact it’s driven by commercial opportunity. AGL contains a range of renewable and gas assets as well as a dominant energy retail business, but Bayswater and Loy Yang A are poison. The bid is aimed at securing a range of high-value assets at a discount price because of the poison of coal-fired power. The fact that they would shut down Bayswater and Loy Yang A earlier is simply good commercial sense — the assets are costly and uncompetitive.
And that is the result of Angus Taylor and Scott Morrison’s total failure on energy policy. Origin, AGL and Energy Australia have been begging for years for a proper transition plan for the switch to renewables, one which would provide certainty for investors and for the owners of coal-fired power assets that would progressively be shut down under an orderly plan.
Taylor and Morrison have been unable to provide a transition plan, leaving the owners of coal-fired power assets at the mercy of a market that is rapidly turning against them as the cost of renewables keeps falling and investors demand climate action. The closest Taylor got to a transition plan was to suggest that households be taxed to pay subsidies to coal-fired power owners not to produce any power.
Brookfield and Cannon-Brookes are merely exploiting the effects of Taylor and Morrison’s failure. And if they’re not successful, someone else will try.
Morrison may have been congratulating himself on how his “net zero by 2050” fiction got climate off the political agenda. Maybe he thought he could have an election campaign untroubled by the climate issue. But the market has dictated otherwise. The market is saying coal-fired power is dying far more quickly than Morrison and Taylor want or hope, that it will die over the next decade, not in the 2030s or 2040s when Morrison, Taylor and Josh Frydenberg are safely free of all responsibility.
Taylor’s response has been remarkable — publicly admitting Australia’s biggest energy companies aren’t even informing him of their plans, let alone consulting him about the regulatory landscape in which they’re making decisions. Why would they? The experience of Andy Vesey, hounded out of AGL and out of Australia by the federal Coalition, tells them not to. Vesey dared to reveal that AGL would close its Liddell coal-fired power station by next year, and was tarred and feathered by the Turnbull government for it.
Taylor is now left yelling at clouds from his position of irrelevance, the alleged minister for energy with no energy policy and no interest in having one. It’s left to state governments and investors to run policy.
Taylor could always ask the government’s billionaire mates to help out. Perhaps Gina Rinehart or Kerry Stokes or Anthony Pratt could invest in coal-fired power as a favour for the federal government. Except they know what they’d do with their money, and fast. They understand what’s happening in energy as well as everyone else — and how fast it’s happening.
