AGL plans to shut down coal, ‘decarbonise’ generation by 2050

AGL Energy, one of Australia’s largest utilities and its most polluting, has promised to ramp up investment in  renewable energy capacity and to shut down all of its existing coal plants over the next 35 years, as part of a new plan to decarbonise its generation portfolio by 2050.

AGL’s Greenhouse Gas Policy, released under the guidance of newly appointed CEO Andrew Vesey, marks an apparent turn-around for the company, which in recent years has spent billions on coal assets.

The coal buy-up – which transformed AGL from Australia’s greenest big power retailer, with the lowest emissions intensity, to its blackest – included 4.6GW of coal-fired generators in New South Wales’ Hunter Valley and the 2.2GW Loy Yang A brown coal generator in Victoria, Australia’s biggest single greenhouse gas emitter.

The new policy, however, states AGL will not extend the operating life of any of its existing coal-fired power stations, but rather close them all by 2050.

The company also stated it would not buy any new coal-fired generation capacity, unless it included carbon capture and storage.

Part of that is a statement of the obvious. It is hard to imagine any bank agreeing to finance a new coal-fired generator in Australia. And the pledge to increase renewables is non-specific. AGL Energy, which on Friday installed the last module in its 102MW solar farm in Nyngan, has argued for the renewable energy target to be removed. Well, at least its previous CEO did, and it has yet to publicly change that position.

Environmental NGOs welcomed the announcement as a step in the right direction. However, they also said the decarbonisation of Australia’s grid need to happen quicker, and 50 per cent cuts needed to be achieved by 2030 to help meet global climate goals.

In a statement on Friday, however, new CEO Vesey said the company recognised that it had a key role to play in gradually reducing greenhouse gas emissions while providing “secure and affordable” electricity to its 3.8 million-plus household and business customers.

“Australia currently relies significantly on coal and gas to power its homes and industries with 88 per cent of electricity produced from fossil fuels,” Vesey said.

“To support the Commonwealth Government’s commitment to work towards the 2°C goal, companies such as AGL need to take the lead.”

However, there is confusion about what the closure of coal plants actually means. Liddell, for instance, was slated to close in 2017, but AGL may keep it open to 2022 because the Tomago aluminium smelter is likely to continue operations. At least it is no longer talking about extending its life.

An AGL spokesperson also sent this graph to illustrate that Loy Yang A – Australia’s single biggest emitter – was not scheduled to close until 2048, 64 years after its opening. This means AGL Energy is effectively reserving the right to continue operations there for another 33 years.

This contrasts with a table supplied by the Bureau of Resource and Energy Economics (below), which shows that Loy Yang A was scheduled to close in 2035, after 51 years of operation. AGL extended its life by one-third for accounting purposes when it took control in 2012.

Analysts say bankers tend to view coal plants as having a 40 year life for financing purposes. They said technical life cycles can be changed with new technology additions. “The theoretical useful lives are rarely what drive things. Its nearly always economic obsolescence. Ie they just become the most expensive
unit in the market,” one told RenewEconomy.

As RenewEconomy has pointed out, analysts have suggested Australia could reach 100 per cent renewables relatively quickly, just by using renewables to replace coal power as it closes.

The new AGL policy also commits the company to improve the GHG efficiency of its operations; to continue to invest in new renewable energy and low-emission technologies; and to provide customers with smart energy solutions, including rooftop solar with storage, and demand management solutions.

To date, AGL says it has 1,766MW of renewable generation capacity, comprising 17 per cent of its total generation portfolio. In its release, the company notes that this makes it the largest ASX-listed owner, operator and developer of renewable energy generation in Australia. But considering how far behind the rest of the world Australia is on large-scale renewables – particularly solar – that’s probably not saying much.

Still, AGL can – for now, at least – boast ownership of Australia’s largest utility-scale solar plant, in the Nyngan project.

The gentailer has also committed to “continue” to advocate for “effective long-term government policy to reduce Australia’s emissions in a manner that is consistent with the long term interests of consumers and investors.”

But climate and green groups note that AGL’s ‘credible’ decarbonisation plans reinforce just how out of touch the Abbott government has become on the issue.

“AGL’s greenhouse gas policy shows the Abbott government is looking in the wrong direction when it comes to Australia’s energy future,” said Leigh Ewbank, Friends of the Earth renewable energy spokesperson.

“The Prime Minister is running out of excuses to delay resolving the Renewable Energy Target impasse. Australians want the RET increased, not axed,”  he said.

The Climate Institute’s Irwin Jackson said it was “welcome and significant” that Australia’s biggest emitter had begun to spell out what credible climate policy might look like.

“We look forward to other power companies disclosing how they’re preparing for decarbonisation,” Jackson said, adding that the “urgent transformation” of Australia’s power supply was hampered unless the Abbott government faced up to the necessary policy challenges.

“We need our electricity to cut its pollution by half by 2030 and reach net zero carbon pollution by 2050,” he said.