AGL Energy calls for renewable energy target to be scrapped

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AGL Energy – once the ‘greenest’ retailer in the country and now the largest producer of coal-fired energy – has called for the renewable energy target to be scrapped altogether.

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AGL Energy – once the “greenest” retailer in the country and now the largest producer of coal-fired energy – has called for the renewable energy target to be scrapped altogether.

As speculation increased in Canberra and media circles that the Abbott government and Labor would agree on a compromise that would result in a significant hair-cut to the current 41,000GWh target, AGL intervened in the debate by saying that was not good enough – the RET should be dumped completely.

MichaelFraserChief executive Michael Fraser, who has overseen the change in AGL Energy’s business model from green to black, says the RET policy is broken. He endorses the controversial Warburton Review’s more extreme finding that the target should be dumped altogether.

Fraser argued in an interview on Radio National on Friday that Australia should go “back to the drawing board” and consider alternative mechanisms such as feed-in tariffs, or tax incentives – and then consider how much renewable energy it wants to have in the system.

There are a couple of issues with what Fraser has said. For a start, as all the inquiries to date have found, the RET has actually worked very well. It spurred billions of dollars of investment, thousands of jobs, and in states such as South Australia has caused dramatic falls in emissions.

What has caused the hiatus in the last two years is the uncertainty caused by the Abbott government’s review, and the inability of developers to get power purchase agreements from the likes of AGL Energy and others, and therefore to get finance. Still, the government likes to use the “target is impossible” argument – despite its own modelling rejecting the idea. Environment Minister Greg Hunt this week has used it to raise the spectre of a $90/tonne carbon price from renewables.

AGL Energy has an interest in not having a carbon price, or a renewable energy target, particularly since its purchase of the 2.2GW Loy Yang A brown coal generator, and the 4.6GW Bayswater and Liddell coal-fired generators in NSW. That changed the colour of its revenues to $12 black for every $1 of green energy.

As it made clear in July, its long-term business interests now lie firmly in removing environmental policies such as the carbon price and renewables:

“While the removal of the carbon tax and associated transitional assistance has a negative impact on the short-term earnings of the Loy Yang A power station, it has a materially positive impact on its long-term value. Any reduction in the Renewable Energy Target would also have a positive impact on the value of Loy Yang A.” Ditto for Macquarie Generation.

coal renewAGL Energy, therefore, has an interest in ensuring that carbon and renewables do not trouble its business plan. Earlier this year, it said – and Fraser repeated again on Friday – that the renewable target cannot be reached. Even ACIL Allen, the Warburton Review’s modelers, disagree with that, as do most others in the industry – although any further long-term delays will make it difficult.

Fraser says the EU and the US rely on alternative mechanisms, and maybe Australia should consider things like feed in tariffs. That’s kind of ironic, seeing it was AGL Energy that fought so heavily against the feed in tariffs for solar. It repeated the call for an end to household incentives this year. It also ignores the fact that the EU has a renewable energy target of its own – it has just lifted it to 27% by 2030 (including transport), and so do 29 states in the US. This has underpinned development in renewables in the US, and now tough emission standards are doing the same.

(There is no doubt that mechanisms such as reverse auctions – used to set a feed in tariff – have been effective, in the ACT, in South Africa and in Brazil and elsewhere – the popular in the US too. But again, the size and scope of these auction are subject to constant reviews by the government of the day).

And it is clear that Fraser is talking his own book when he calls for payments to be made for closure for coal-fired generators. It is no doubt attractive for AGL Energy, which says it bought 2,000MW Liddell generator in NSW effectively for zero. It would like nothing better than to get a payment from the government – say from $100 to $300 million – to help with the “remediation costs” of full closure. Many owners of unused coal-fired generators are choosing to mothball them rather than close them, because doing the latter will require them to clean up their mess.

The issue of payments is a hot point of debate within the industry and the environmental groups. Origin Energy CEO Grant King doesn’t like it, Ross Garnaut has dismissed it, arguing that the market should sort itself out. But some say there is no other way than to clear it out of the system.

Fraser even used the “lights may go out” line popularised by former Energy Australia chief executive Richard McIndoe. (To give you some idea of how bizarre Australian energy politics are, McIndoe was Fraser’s predecessor as chairman of the Clean Energy Council, the primary lobby group for renewables. Fraser gave up that role late last year).

Fraser argues that if wholesale prices continue to fall – because of the impact of renewables – then that will drive generation out of the market. We need coal generators, he says, to allow people to “keep the lights on” and “cook dinner”. The “lights will go out” argument is trucked around, despite the fact that the industry itself reckons that more than one-third of Australia’s coal-fired capacity is surplus to requirements.

The big generators in Germany spent a decade arguing the same line. The German government refused to buckle, and – somewhat belatedly – those big utilities are now investing in future technologies as they should have done all along, having burned billions of shareholder funds in the meantime.

When AGL Energy first bought Loy Yang A, Fraser argued that the company was not changing its stripes and that the huge profits being spun off Loy Yang A were better in its hands, because it was more likely to invest back into green energy. Easy coal profits can be addictive, however, and that is why AGL Energy were so keen to pick up the NSW coal assets for a song. Increased renewables simply translate into lower returns from those assets, as the Warburton Review made clear.

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24 Comments
  1. Keith 5 years ago

    What a load of rubbish. Surely AGL Energy’s views have no currency as they are so invested in fossil fuels?

    The only curious thing is that their views are even being considered.

    • johnnewton 5 years ago

      Maybe why they have currency. Glad I dumped them

    • michael 5 years ago

      curious that a major energy company is part of the conversation on energy matters? (whether you agree with their position or not)

  2. Zvyozdochka 5 years ago

    We desperately need a movement to take back into community ownership, the grids we have paid for.

    • johnnewton 5 years ago

      Very interesting argument on this point in Klein’s This Changes Everything. And examples of communities taking back privately owned power.

      • Kathleen 4 years ago

        Yes! This book is excellent! Read it and act for your children, and your children’s children. PEOPLE POWER!

  3. Ken Fabian 5 years ago

    Lobbying power combined with compliant politicians can delay but it can’t prevent the transformation of energy supply and use.

    There may be a case for maintaining some interim fossil fuel capacity, planned and accommodated in the role of backup to renewables – with priority given to low emissions, as part of an ongoing goal of decarbonising, not it’s unprofitability used as the excuse to exclude renewables. I think storage is the new frontier and it will catch up as incentives for it grow, so using existing fossil fuels in the backup role looks more reasonable than building new, dedicated plant for the purpose. Although lots of older plant – and some newer – is looking obsolete in the changing energy market.

  4. Colin Nicholson 5 years ago

    Then we all must redouble our efforts not to use one joule of coal generated energy

  5. Chris Fraser 5 years ago

    Readers of course know about the surplus of energy in the NEM, with both fossil and wind energy being dispatched at rock-bottom half-hourly prices. So clearly there is much to gain in buying coal generators cheap and then holding out your hand to taxpayers to have them “remediated”. What a cynical exercise.The cost of remediating will be conflated by goodness knows what. But i won’t agree. Even reasonable due diligence would have told Fraser there was a remediation cost before he acquired the generators.He builds the argument that dirty generation should be “swapped” for clean generation, 1 GW at a time, without expense to us.

  6. Jennifer Gow 5 years ago

    This vindicates our decision to dump AGL as our electricity supplier. If things keep going the way they are we will dump all energy suppliers and go off grid.

    • Michael McCaughey 5 years ago

      yes…I agree, the hassles I had dumping them…are well worth it

      • Kathleen 4 years ago

        Yep. We’re *still* trying to complete the cancellation process and we have been harassed with several phone calls and letters asking us to stay with them. They can’t take no for an answer and everytime someone calls they have no record of our concerns. We are leaving them because they can’t even provide basic service and because they are being anti-RET. They are a hopeless company and I wouldn’t give them one more cent. Let’s make 2015 the year we really vote with our hearts and our wallets for a better world. If these companies can’t ‘get with the program’, then let’s leave them behind!

  7. barrie harrop 5 years ago

    Over next 3–5 years as solar storage becomes a proposition say 4–5 year payback ,i wouldn’t want to be owning shares in any company that holds a big portfolio of dirty coal fired energy and or vast amount capital in pole/wires, seems lots of stranded assets on horizon to me.

  8. Jay Inott 5 years ago

    They are either riding the train in arrogance that they will know when it is best to get off, or they are doing so in negligence.

    Either way, no matter how much they kick and scream now, it is a train that will get derailed as the benefits of renewables are realised & the dangers of their actions become (sadly) further manifested through environmental destruction that impacts our lives. It is key that we just need to stay positive and focus on the benefits of renewables which will overshadow these regressive policies. The fear mongering of our lights going out, is just a reflection of their own fear, inertia & incompetence to manage the switch which will, as they imply, inevitably reach a point where electricity generation in its’ current form will no longer be viable- from a business as well as an ecological point of view.

    From a business perspective they (and all of those who invest in utility companies) have 2 choices;

    – Wait until they are overhauled and risk a huge crash in the value of their exiting reserves & infrastructure.
    or
    – Facilitate the change by providing people with the technology in return electricity services from the new technology.

    With the political arena looking so dire & the pervasive inability to look into the long term the most effective way I can see to encourage this change is to ensure that the changes we want to see are voiced through all of our lifestyle choices and permeate as far into our communities as possible. Ensuring that all of our money, investments & supers are speaking for us may really help us raise a megaphone to deaf ears.

    http://www.marketforces.org.au/banks/compare

    It is ludicrous that anyone would need to talk of renewables having to make it on the “free market” given the subsidies given to fossil fuels & externalisation of environmental costs. This is not a free market but renewables will still prevail, I at least know the bet I would like to place with my money.

    • Harry Verberne 5 years ago

      “The fear mongering of our lights going out”.

      Sadly that resonates with some who uncritically accept the mantra of the coal lobby. I had to to correct a good friend who asserted we need another base load coal-fired station to ensure reliability of supply. I told him that the truth is that electricity demand has been falling and not to accept the pronouncements of the industry without evidence.

      • Jay Inott 5 years ago

        Yes, very sad that these one phrase slogans can spread so virulently by people who have money to publicise them. Sometimes only a one to one chat can untangle some of these misconceptions to come to an understanding between you…. I have found this too, but all communications play the part and I think the Australian public are more receptive to hearing about benefits rather than moral obligation or threats. I have 100% renewable from Momentum Energy more for the feel good factor and hardly notice the slight increase in tariff. I acknowledge that I am not normal in this respect though and finances are more of a concern for some… Surely we are close to even the economic benefits of solar surpassing fossil fuels, even without the RET? Would be good to see these figures. I guess this is the goal that now needs to be aimed for with an unsupportive government.

  9. Robert Johnston 5 years ago

    AGL has built a business model on rent seeking from its inception as exclusive supplier of street lighting in Sydney, a legislative bailout in the 1970’s when they mismanaged their monopoly position as a gas supplier to NSW to such an extent they nearly were bankrupt and taken over by Ron Brierley, dare I say jumping whole heartedly into the RET with total confidence from 2005 to 2011 and a whole lot in between. Now they have heavily invested in antiquated coal assets, they want to paid to close them down.
    Anyone actually surprised at these comment from retiring CEO Fraser? Surely not. Probably as surely as he will pop up on the board of other generators, gas companies or even coal companies in the not distant future. It makes total business and personal sense if you stand in Michael Fraser’s shoes and only are concerned about your financial bottom line.
    Once stability is returned to the legislative and political framework of the RET as now finally appears to be starting to happen, the only instability in investor confidence will be that created by Michael Fraser, Grant King and the chinese masters at Energy Australia in an effort to protect or enhance the value of their coal and gas investments.
    Let’s all just hope the government and opposition don’t cave to the blatant self interest of our energy oligarch’s!

  10. James Townsend 5 years ago

    I would encourage all supporter to let AGL, their supporter and customers know that they are holding back low prices #AGLincreasesPrices calling to scrap the #ret and #AGLiscostingJOBS

  11. Peter Thomson 5 years ago

    Yep, time to vote with our feet and churn out of AGL. And make sure they know exactly why we are doing it…

  12. Sean Sweetser 5 years ago

    a few years ago… AGL we are green and support the RET. AGL invests in renewable assets.

    recently … AGL picks up some fossil fuel generators at bargain prices. Ones which were firesold rather than closed as they should have been.

    now…AGL advocates scrappin RET. um wonder why? It couldn’t possibly be that those assets would gain 30% extra value overnight? Naww…

  13. john 5 years ago

    AGL now a leaner.
    The investment in generation based on making you money in 4 days in a year is now broken.
    Nothing else to say frankly

  14. Rob G 5 years ago

    Some companies just go backwards. Poor leadership and the inevitable gradual demise. An opportunity to be an industry leader goes begging.

  15. Jon 5 years ago

    To some extent AGL are right in that the RET is uninvestable in its current form. It is solar on rooftops and the merit order effect of large scale renewables that is making it impossible to build a business case for any new investment. eg. When the wind blows in SA the price for wholesale electricity drops to around $20/MWh or even negative at some times, which means the price of LGCs increase substantially. All retailers are obliged to buy LGCs to cover their RET liabilities and no doubt will do so, but I wouldn’t expect they will want to take the risk on the future prices out to 2030.
    Developers on the other hand need this certainty in order to finance their projects.

    One way to create demand for renewables is to buy 100% green energy, which judging by the passion in the comments here I assume all commenters have committed to. It would be hypocritical to buy cheap black energy at the same time as arguing for others to pay for renewables

  16. lin 5 years ago

    And I call for all customers of AGL to move their business somewhere else.
    Origin is no better. Join me in dumping them too.

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