AGL may mothball coal units, or shut them down over weekends, to make way for solar, hints at wind contract

AGL Energy, the country’s biggest supplier of coal fired electricity, has flagged it may mothball or close some of the units at its remaining generators, and has also hinted at a major new wind contract that it could announce soon.

AGL, along with the other “big three” gentailers – Origin Energy and EnergyAustralia – is facing criticism for the lack of new wind and solar capacity that they are building or contracting to fill the gap from planned coal closures in coming years.

Origin plans to close the country’s biggest coal generator, at Eraring, in August, 2027, having already won an underwriting agreement with the state government to delay the 2025 closure because of fears that not enough new capacity has been brought online. EnergyAustralia is due to close Yallourn in 2028.

AGL has a longer time frame, with Bayswater in NSW currently scheduled to close by 2033, and Loy Yang A in Victoria by 2035.

That means the company, on its current trajectory, could still be sourcing two thirds of its generation needs from coal in the early 2030s, even as the rest of the grid is dominated by renewables. The federal government target is 82 per cent renewables by 2030.

In an interview in the latest episode of Renew Economy’s weekly Energy Insiders podcast, AGL CEO Damien Nicks says the future of Bayswater and Loy Yang A will look similar to what occurred at Liddell, where units were progressively closed before being shut down for the final time in April, 2023.

See: “She didn’t want to go:” Tears and hugs as oldest coal generator shuts down for last time

“So I think you’re going to see mothballing,” Nicks told Energy Insiders. “You’re going to see us potentially do two-shifting in time. We’re going to run the units very, very differently, and we’ll continue to flex those units as well.

“We’ve spent money on the Bayswater power station, and quite a lot of it over a period of time. We can now flex that power station down to 80%. So 80% all the way down.

“And you see that through the middle of the day, we do that Loy Yang A to about 40% we’re going to try and get another 5% out of that, if we can. That’s also an important piece of this story.

“It allows more renewables into the market in the middle of the day, and therefore you’ve got those assets there at the back end of the day, whilst the rest of the market is being built out.”

The “two-shifting” involve switching off a unit for a short period of time when demand is low.

“It’s still early days , but you might, as an example, shut the power station on a Friday and bring it back up on a Monday morning,” Nicks says. (Renew Economy wrote about those trials last October: Coal generator switches off to make room for solar in significant boost to renewable switch).

“We’ve taken the unit out at 10 o’clock on a Saturday morning, brought it back in at four o’clock. But we need to do a huge amount of work to make sure we’re comfortable with those sort of mechanisms.”

Nicks’ biggest near term challenge, however, will be negotiating the upcoming annual general meeting, and the response – and potential shareholder pushback, including from Mike Cannon-Brookes’ Grok Investments – on its Climate Transition Action Plan.

There is disappointment that the CTAP does not materially advance its coal fired retirements, apart from the tweaks mentioned above. Nicks says it is about dealing with the multiple challenges of reliability, shareholder returns, climate outcomes, and consumer expectations.

The strategy of AGL, like Origin and EnergyAustralia, is to invest heavily in battery storage, which Nicks says has the happy advantage of protecting its earnings (it can dispatch into high price periods), improve reliability, and support renewables – assuming someone gets round to actually building some.

AGL is already building the 500 MW, 1,000 MWh Liddell battery, and recently reached financial close at the even bigger Tomago battery, which will be twice the size (500 MWm 2,000 MWh) but half the price (per megawatt hour of capacity installed). That’s thanks to the improved density of the battery units.

Other battery investments are being considered, including another 500 MW, 2,000 MWh battery project in Queensland, and the 400 MW, 1,600 MWh battery that will be part of the Pottinger renewable energy park in the south-west of NSW, which is likely to go ahead despite having a haircut from the allocation of its grid access rights.

“There is a huge amount of work going on behind the scenes,” Nicks tells Energy Insiders.

“You’ve got the Pottinger wind farm (now 831 MW), we’ve got one down in Barn Hill (in South Australia, with 360 MW of wind capacity and a potential 270MW, four-hour battery).

“There’s another one in Victoria. They are continually moving along in the pipeline. And then, if you then go further out in the horizon, we’ve got two pumped hydros as well … that’s even a longer burn.

“But you just need to make sure you continuing push them through, so that when you’re ready to take FiD, you can do that, and you’ve got the right economics behind it. So it’s not one or the other. The market is going to need all of these things. It absolutely will …

“Let’s watch this space,” Nicks said, when asked specifically about potential wind farm PPAs.

Nicks says the CTAP is designed to “get the balance right” on the energy supply and capacity, hence the focus on battery storage.

“The reason we’ve focused on batteries this time around our results is because that’s what’s right in front of us right now. Because we’re taking FIDS on those things. It doesn’t mean wind and those other renewable resources aren’t also important.

“We’re continuing to push as hard as we can to get more into the system. I think what the constraint is right now is both that planning and connection piece is still taking far too long bringing wind into the grid.”

The other challenge is getting the offering right for customers, particularly those with the ability and resources to install not just rooftop solar, but now also household batteries (with the help of the federal rebate scheme) and electric vehicles.

The traditional retailers are still trying to figure out exactly what that business model looks like – given the rise of consumer energy resources and the emergence of smart retailers who are making market volatility their friend and ally, and not an existential threat.

“And so at home, it’s going to have a solar battery, Ev, hot water, and so forth,” Nicks says. “That is where the value of a future customer will come from, for the customer point of view, but also from an AGL point of view, technology has to be at the centre of everything that we do in this space.”

Nicks says the market – i.e. the analysts – want to know where the earnings of the future will come from, and what will replace the billion dollar or so of pre tax profits generated by its fossil fuel portfolio.

“The market is sitting there saying to us, show us how you’re going to not only replace earnings, but grow earnings. So what we’re able to show through the results is just those batteries, the Liddell battery, the Tomago battery, the Torrens Island battery, will more than offset that impact (of fossil fuel contracts that are due to close in coming years).

“Can we replace earnings? Absolutely, we’re going to be able to replace earnings over time by building out our portfolio. That’s exactly why we’re doing it.

“At the same time, we want to also work with our customer and orchestrate the customer, using the assets in the home to also help generate value for both the customer and also in the market as well, so that we can share that value.

“What you’re seeing in terms of the home, it’s going to be a very, very, very different customer of the future. That customer of the future is going to need to be fully connected.

“It’s about how we shift load, how we orchestrate loads. If it is just in the home, the whole market won’t get the necessary benefit, whereas if we can orchestrate that load and we can share that value with the customer, there’s more value for the customer, but there’s also a better outcome for the grid as well.

“So I think that, you know, technology is going to play such a critical role in this space going forward, and that’s why one we’ve invested in, Kaluza, we’re going through the transformation.”

Nicks has already seen a shift in load demands, particularly through its offer of three hours of free power in the middle of the day, kicked off in the country’s most renewable state (in terms of wind and solar), South Australia.

“We’ve actually seen customers shifting load into the middle of the day. That’s a really good thing for the system. So as we think about load, we have to think about the whole portfolio we manage.

“We manage risk effectively on behalf of customers, and that’s what we’re endeavoring to do to get that load shifting to where we need it to be. So that, you know, again, we’re not getting these big peaks and troughs through the day.”

You can listen to the full interview with Nicks in the latest episode of Energy Insiders, which you can find here:

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