AGL baulks at endorsing current fixed renewables target

The chances of the renewable energy target (RET) remaining at its current level may have diminished rapidly after one of its biggest supporters, AGL Energy, backed away from supporting the current target of 41,000GWh by 2020.

AGL boss Michael Fraser, who has recently bid $1.5 billion to buy 4.6GW of coal-fired generation in NSW, had been quizzed by analysts whether the purchase price of the Macquarie Generation (MacGen) assets would stack up if more aluminium smelters closed down and if the RET stayed as is.

Fraser insisted that the purchase had been “stress-tested”, but when asked by RenewEconomy whether AGL’s support for the RET had been changed by its commitment to added coal generation, Fraser said that the current policy would mean Australia would overshoot the minimum 20% target. He said AGL Energy favoured a fixed target, because a “floating 20% target” would constantly move the goal posts.

When pressed further by RE on whether that meant AGL supported the current 41,000GWh target to remain in place, in the current time-frame, Fraser said:

“I’m not going to be drawn on that …. the facts are matter that the original target will overshoot in percentage terms, over what it was originally intended to do.

“One of the concerns that I have, given all the uncertainty  … and people putting down shovels, as it were, for additional wind farms,  is a genune concern that if you left (the fixed RET target) where it was, what is the ability of the industry to actually meet the target. No one wants a target that can’t physically be met.”

Infigen Energy CEO Miles George contradicted this, telling RenewEconomy today in a separate interview that there is a sufficient pipeline of approved projects to meet the target. He said the only reason that projects were not being built now was because of the policy uncertainty and the refusal of large retailers to write contracts.

Fraser’s comments about the overshooting of the target, and the ability to meet it, suggests that compromise is in the air. There is intense debate in the industry, particularly between wind and solar developers, over whether the target can be met, and whether some sort of compromise should be reached.

Most other large generators have called for the target to be wound back significantly or scrapped altogether, a move that has support from some leading business groups, and from within the Coalition government. It recently appointed a review panel that will be led by climate sceptic Dick Warburton, and supported by other members who have spoken out against renewables.

AGL Energy has been regarded as one of the leading lights in the utilities industry for its decision to embrace renewables – it has the largest wind portfolio of any of the “big three” utilities, including the 420MW Macarthur wind farm, and it is beginning construction of two large solar farms in western NSW. Fraser chaired the Clean Energy Council until late last year. George is the current chairman.

However, the purchase of the 2.2GW Loy Yang A brown coal power station in Victoria in 2012, and the proposed purchase of the 2.6GW Bayswater and 2GW Liddell black coal generators in NSW, has turned its generation portfolio around – it will be leveraged around to coal generation over renewable generation by a ratio of 12:1, some analysts suggest.

Some analysts have noted that the purchase represents a “major strategic shift for AGL Energy”, while others have questioned a commitment to thermal generation in the face of falling demand and rising renewable generation. The assets purchased, however, sit low on the “merit order” so are more resilient to falling demand. AGL Energy expects a seven-year payback on the NSW coal assets, where it ascribes 40 per cent of the purchase price to the value of contracts for cheap coal supply.

Fraser said earlier today, in response to an analyst question about CSIRO’s Future Grid report – which predicted a dramatic increase in renewables and the ability of consumers to produce their own electricity – and the need to adapt business models, that coal generation will have a “big role to play in keeping the lights on for some to come.”  He said his company was watching new technologies with interest.

The AGL Energy December half report revealed that, like other generators, the company has experienced a sharp fall in demand in the last six months.

Electricity demand from its consumer market was down 5%, and average electricity consumption was down 10%. Most other generators have cited the role of rooftop solar PV in this reduction. AGL Energy cited the record warm temperatures and “energy efficiency” in the household. It did not mention rooftop solar once in its entire report. When RE asked if solar PV was playing a role, an executive said it was, without providing more details.

Note: This story was updated to note that Fraser is no longer chair of the Clean Energy Council and has been replaced by George.