Column: Coal will exit Australian power market despite AGL’s recalcitrance: Russell

AGL Energy’s Liddell coal-fired power station is pictured in the Hunter Valley, north of Sydney, Australia April 9, 2017. REUTERS/Jason Reed

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LAUNCESTON, Australia, Feb 22 (Reuters) – A green billionaire’s bid to buy Australia’s dirtiest company may have stumbled at the first hurdle, but the race is likely to be far from over completed.

AGL Energy Ltd., Australia’s biggest power producer, on Monday rejected an unsolicited takeover bid by tech tycoon Mike Cannon-Brookes and Canada’s Brookfield Asset Management. Read more

Cannon-Brookes, Australia’s second richest person and co-founder of software company Atlassian Corp. (TEAM.O), joined the private equity firm in offering A$7.50 per share to AGL, a small 4.7% premium to the closing price. on February 18, as part of a deal that valued the utility at around $3.54 billion.

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AGL’s share price has been battered in recent years, falling 72% from an all-time high of A$28.16 in April 2017 to trade around $7.81 on Tuesday.

The motivation for the tender offer was to accelerate AGL’s shutdown of its coal-fired generators and stimulate investment in renewable energy replacement.

Indeed, Cannon-Brookes and Brookfield propose to drive a faster transition away from coal than AGL anticipates, circumventing Australia’s lack of policy on ending fossil fuel use.

They want to shut down AGL’s remaining coal-fired generators, which account for around 8% of Australia’s carbon emissions, by 2030, instead of 2045 under AGL’s current plans.

AGL’s board of directors rejected the offer, saying the premium offered for control was too low.

They might well be right, certainly a higher offer may have made it harder for the board to reject the proposal outright.

But AGL also announced its own plan to split its operations into two companies, a renewable energy producer and retailer, and a generation company housing its old coal-fired plants.

The problem with this proposal, which must be voted on by shareholders in June, is that while the renewable energy and retail sector may be attractive to investors, the production sector is likely to be a pariah.

Very few institutional investors will want some of it, and banks are also likely to be reluctant to fund it.

That means the company, which AGL intends to call Accel Energy, will likely struggle to find the capital to maintain, operate and insure increasingly aging and expensive coal-fired units.

Overall, AGL’s future would likely be best secured by Cannon-Brookes and Brookfield’s plans, which involve investing up to 20 billion Australian dollars ($14.4 billion) in security solutions. renewable energy generation and storage, which they plan to bring online before shutting down any coal-fired plants. generators.

Cannon-Brookes and Brookfield have signaled that they aren’t quite ready to give up on the AGL takeover, so the story likely still has a few twists.

But their plan to take over AGL has wider implications, namely that there is now plenty of capital available to accelerate decarbonization, and conversely very little available to sustain fossil fuel production.

FOLLOW THE MONEY (GREEN)

The offer also shows that private investors are now ready to step in where governments or companies fail to lead the way.

Australia’s ruling Liberal-National Conservative coalition has long favored fossil fuels and even touted a “gas recovery” from the coronavirus pandemic, which has so far consisted of backing a new natural gas generator that, according to market experts, is not needed and will only operate for very short periods as a peaking power plant.

Prime Minister Scott Morrison said he wanted AGL’s coal-fired units to stay online until the end of their expected life, suggesting energy prices would rise if it wasn’t the case.

This seems like an illogical argument, given that the fall in electricity prices in Australia has been driven by the massive investment in cheap renewables, primarily household and utility scale solar. .

Coal-fired units can no longer compete on price with renewables at times, and Australia’s aging fleet is increasingly prone to breakdowns.

While a billionaire battling a fossil fuel giant makes for good headlines, it’s also worth noting that there are more low-key efforts underway in Asia to effectively buy coal-fired power plants and retire them sooner.

The Asian Development Bank has launched what it calls the Energy Transition Facility, which aims to bring green capital closer to coal-fired generators, with the aim of working to close factories and build renewable alternatives.

The proposals are intended to be collaborative and the ambition is to drive decarbonization in countries such as the Philippines, Indonesia and Vietnam.

The quiet lane and the noisy road chosen by Cannon-Brookes have the potential to reshape power generation in Asia.

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Editing by Alistair Bell

Our standards: The Thomson Reuters Trust Principles.

About Cassondra Durden

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