The Turnbull government has refused to accept AGL Energy’s plan to replace the ageing Liddell coal power station with clean energy after the company laid out its case for the switch to shareholders in strong and detailed terms.
The instant burst of return fire from the Prime Minister and Resources Minister outlined the challenge facing the energy giant to convince a government feeling the heat from soaring energy prices that it can make the switch from coal power to clean energy and bring down prices at the same time.
AGL’s outgoing chairman Jerry Maycock and chief executive Andy Vesey delivered a defiant defence of the company’s plan to close the Liddell plant in NSW and replace it with cleaner power at the company’s annual general meeting, listing a host of reasons why the government’s push to extend its life makes no sense.
“It may be technically possible to extend the life of the power station: the costs … are certain to be substantial,” Mr Maycock said. “On the other hand, the sale of such an asset would be challenging.”
AGL Energy CEO Andy Vesey – 2017 AGM Presentation
Mr Vesey offered assurances that AGL’s replacement plan for Liddell would be up to the task and wouldn’t put upward pressure on electricity prices.
The Company operates Australia’s largest retail energy and dual fuel customer base and consist of a substantial portfolio of wholesale energy contracts and assets to support its retail customer base.
“We believe the bulk of energy needed to match Liddell’s output can come from new renewables projects, as we believe this is the most cost-effective option,” he said.
“No one has more to lose from failing to mitigate the market impact of Liddell’s closure than AGL.”
But Malcolm Turnbull immediately raised questions over AGL’s plan to replace Liddell with a combination of gas peaking plants, wind and solar power, a 100-megawatt expansion of the younger Bayswater coal power station and big batteries.
“Whether that will meet the requirements for ensuring reliable baseload power remains to be seen. We’ll certainly look at it, and most importantly the Australian Energy Market Operator will look at it,” Mr Turnbull told reporters.
‘It doesn’t stack up’
Deputy Prime Minister Barnaby Joyce said it was “odd” that AGL wouldn’t sell Liddell, after Mr Maycock had said a sale would be complicated by the fact that Liddell shares a site with the Bayswater coal plant, which isn’t scheduled to shut down until 2035, and a buyer would face a tricky set of calculations.
“It always sounds odd, the argument of, I’ve got this car and I just don’t think I can fix it, there’s nothing I can do with it, and then say to a person, well good, do you want to sell it to us? No, no I want to drive it off a cliff. It just doesn’t stack up,” Mr Joyce said.
Julian Vincent, an official of anti-fossil fuels group Market Forces, was applauded when he said the holders of $5.4 million worth of AGL shares that he represented believed not only that AGL should not extend Liddell’s life but that it should also close Bayswater and Loy Yang B – slated for closure in 2048 – early too.
Mr Joyce is one of the strongest advocates for power companies to build new “clean coal” power plants but most shareholders appeared to support AGL’s stance.
Mr Maycock told one shareholder who asked about “clean coal” plants that the company didn’t believe a new coal-fired power station could be competitive against the rapidly falling cost of renewable energy and batteries.
Billions for ‘clean coal’ is ‘last thing’ shareholders want
“I think the last thing our shareholders want us to do, frankly, is to spend billions of dollars on a new coal-fired facility only to fund that in eight years’ time or so when it’s … not competitive,” said Mr Maycock, who handed over the chairman’s role to Graeme Hunt at the end of the meeting.
The Australian Energy Market Operator said via a spokesman it didn’t comment on whether the agency had a direct role in negotiations between the government and AGL but said: “Any new committed generation or major withdrawals would trigger an update to our recently released Electricity Statement of Opportunities.”
Institutional investors also gave a thumbs-up to the company’s stance on Liddell. “It was good to see AGL stick to their guns with Liddell and resist their government pressure,” said Watermark Funds Management’s Matthew Blumberg.
“The question that needs to be asked is do we want to rely on a 50-year-old coal station or rather a brand new fast-start gas station with battery and demand response come 2022.”
The forceful, united stance of Mr Maycock and Mr Vesey at the shareholder meeting on Wednesday underscored AGL’s determination to gradually transition out of coal, despite the huge pressure spearheaded by Mr Turnbull.
AGL Energy CEO Andy Vesey – 2017 AGM Presentation
Mr Vincent said selling Liddell to a smaller company without AGL’s commitment to local communities would be irresponsible.
Confident of mitigating Liddell closure
“We are confident that between our actions and those of the market the impact of Liddell’s planned closure in 2022 will be mitigated,” said Mr Vesey, who kicked off his presentation with a corporate video that emphasised AGL’s commitment to more renewable energy and less coal generation.
Mr Vesey also said the company’s plan was developed with one eye on the government’s commitment to reduce emissions.
AGL’s resistance to government pressure on Liddell was backed by protesters outside the company’s Sydney office on Monday. It was also supported by several shareholders at the meeting, at which the board faced the risk of a “second strike” that would lead to a spill resolution after a large protest vote last year on pay.
A second strike was, however, avoided after proxy voting showed overwhelming support for the remuneration report this year, with 345.8 million votes in favour and just 6.77 million against, shareholders passed motions to issue “performance rights” to Mr Vesey and enhance termination rights for executives by similar margins.
On the question of an early closure of Loy Yang A, which is fuelled by carbon-intensive brown coal, Mr Vesey acknowledged concerns over whether the closure schedule was appropriate given the commitment to helping limit global warming to 2C. He said regulatory changes and technology developments were among factors that could accelerate the shutdown.
“We are open as the world changes each day to reassess the assumptions on which those decisions were made always in the interests of shareholders,” Mr Vesey said.
Another renewables fund
In response to a an investor who questioned whether AGL might consider expanding its $3 billion Powering Australian Renewables Fund, Mr Maycock acknowledged the fund’s success and said AGL “will certainly be looking at the prospect of replicating it”.
Mr Maycock says AGL’s board will weigh up the government’s preferred options for Liddell against the company’s investment plan to replace it. Keeping it open for another 10 years would cost about $900 million, AGL said last week.
The potential investments would be judged against criteria including financial returns, consistency with AGL’s greenhouse gas reduction targets and whether AGL customers would benefit over time, Mr Vesey said.
Shares in AGL, which reiterated its estimate for underlying profit for 2017-18 of $940 million-$1.04 billion, closed down nearly 1 per cent at $22.85.
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