AGL Energy has – as expected – firmly rejected a bid from Alinta Energy and its Chinese owner Chow Tai Fook Enterprises to buy the ageing and decrepit Liddell coal generator in New south Wales, despite intense pressure from the Coalition government to do so.
In a statement on Monday, AGL described the $250 million Alinta offer as an “unsolicited, non-binding, highly conditional indicative offer” – and most observers would say highly opportunistic, inadequate and unrealistic too.
AGL came to the same conclusion on the latter, saying the proposal significantly undervalued the value of Liddell and the site it operates. It told them they’re dreaming.
“AGL has completed a thorough assessment of the Offer and, after careful consideration, has advised Chow Tai Fook and Alinta that it will not proceed any further with the Offer,” the company said in a statement.
“The AGL Board has determined that the offer is not in the best interests of AGL or its shareholders. The offer significantly undervalues future cash flows to AGL of operating the Liddell Power Station until 2022 and the repurposing of the site thereafter.”
AGL says it had again sought third party expert advice about the reliability and safety of keeping Liddell open longer than its planned closure in 2022 – and has reaffirmed its decision to close it at that time, and replace it with gas, renewables and storage.
It notes that the Australian Energy Market Operator has confirmed that completion of its plan for the Liddell site will address the capacity shortfall that may occur as a result of Liddell’s closure.
The decision follows intense pressure from the Coalition government to try and force AGL to sell the power station, despite the government insisting at the same time that it only ever wanted to leave the fate of the sector to the market.
The decision – and the planning and considerations to replace the power stations with cheaper and cleaner and more reliable alternatives – is an important and significant one for the expected clean energy transition that most consider inevitable in the country.
The need to close Liddell has been a blindingly obvious one to anyone with a basic knowledge of economics and engineering, but it has become a flashpoint for the conservatives and the Coalition government in their never-ending campaign against renewables.
AGL has made it clear that a combination of wind, solar, storage, demand management, gas and an upgrade to the more modern Bayswater generator would provide cheaper, cleaner and more reliable power than extending the life of Liddell.
This has become a proxy for the clean energy transition across the country, a debate mired in the conservative attachment to last century ideas that excessive amounts of “baseload” is the only way to provide electricity to consumers.
Most networks, retailers and energy market institutions now recognise that the shift to cheap wind and solar – combined with storage, demand management and other smart ways to provide “flexible” capacity – is the way of the future.
The conservatives don’t get it. Not only do they want Liddell kept open, they also want new coal generators to be built, regardless of economics and environmental and climate issues.
Former prime minister Tony Abbott and former deputy prime minister Barnaby Joyce (pictured above) on Monday demanded that the government step in and forcibly buy the assets from AGL and then sell it to Alinta for that company’s nominated price.
“We need to grab AGL, cart them back in and say: ‘This is BS, you’re taking us for a ride, you think we’re fools’,” Joyce told reporters in Canberra.
“The Australian people are not, they are not going to pay for your market manipulation which is what is coming next.”
Abbott also described the decision of AGL as “striking against the national interest” and compared its actions to that of a militant union.
“My very strong view given that the federal government has effectively now got responsibility for energy security, the government should compulsorily acquire this power station for the price Alinta were prepared to pay and then it should sell it to Alinta,” he told 2GB.
He later tweeted this above. Disturbingly, environment and energy minister Josh Frydenberg was trotting out the same line to journalists.
Conservatives were horrified earlier this month when Energy Security Board chair Kerry Schott said that there would be no new coal fired generators built -– even under the proposed National Energy Guarantee – because they made no economic sense.
And despite insisting that the NEG would offer the “best chance” for existing coal generators, Frydenberg came under attack last week from 2GB’s Alan Jones who demanded that “this woman” Schott be brought to heel. Frydenberg did not defend her remarks.
AGL has made the point on repeated occasions that NSW has more than enough “baseload” capacity because of a massive overbuild in the state – and across the country – a decade ago.
And it says that its plans would ensure there was enough “flexible” and “dispatchable” generation to meet the demand peaks that might occur in hot summer days.
AEMO has agreed, and pointed out that this would be the case whether AGL went ahead with its projects, or an equivalent amount of dispatchable capacity was built by other parties.
But calls for intervention have increased. And while prime minister Malcolm Turnbull and Frydenberg have insisted they will let the market do its thing, they have put enormous pressure on AGL, and personally intervened to encourage Alinta to bid.
Frydenberg on Monday expressed his “disappointment” at the decision by AGL, claiming – like Abbott and Joyce – that it was not in the national interest.
He also claimed that AEMO had said the closure of Liddell risked further blackouts, but he is verbalising AEMO there, because they have made it clear that that observation wass only based on the assumption that no more investment occurs.
Even so, the reliability panel of the Australian Energy Market Commission recently suggested that the risk of supply shortfalls in NSW even after the closure of Liddell is 0.0000010 per cent – so small it barely registers on charts.
The government has also intervened in the market to buy out Snowy Hydro so that it can go ahead with the Snowy 2.0 pumped hydro plan, despite the fact that the company has yet to complete, or release, its engineering, environmental and economic analysis.
Turnbull would like Liddell to stay open as long as it takes to build and complete Snowy 2.0. That would result in the most extraordinary government intervention, and basically a red light against any competing technologies.
It would almost certainly slow down the pace of investment in wind and solar, and other technologies such as battery storage. The Snowy 2.0 modelling is based on that assumption.
Analysts said AGL was never going to sell the Liddell plant because it shares infrastructure with Bayswater, which would be difficult to untangle, and until 2022 will benefit from government subsidised low fuel costs.
It will likely make huge profits from Liddell in the meantime, as other generators will make out of their fossil fuel investments – because they can, and because Australia has hopelessly inadequate regulation, even when the gaming is obvious.
Joyce pointed to the possibility of “market manipulation”, but that’s an activity that is not centred around Liddell, but the whole of the wholesale electricity market.
The best way to address that is to encourage more competition, and the best way to do that is to encourage more “dipatchable” renewables, such as with wind and solar and storage.
The Tesla big battery in South Australia has already shown how it can slash prices previously gamed by the incumbent cartel by reducing the price of grid security services in South Australia by 90 per cent.
But who argues against battery storage and policies that would encourage more wind and solar? You guessed it, Abbott and Joyce and the rest of the so-called Monash Forum, who would have Australia’s electricity grid return to a by-gone era.
The Australia Institute, meanwhile, on Monday released a study that showed Liddell has failed four times in 2018 on days of peak demand because of high temperatures.
This follows Liddell’s failure in the 2017 heatwave, when the loss of 1000MW of capacity, and the tripping of the state’s two biggest gas generator, led to load shedding at the Tomago aluminium plant, and brought the coal-reliant state perilously close to a widespread outage.
“Liddell cannot be relied on to deliver power when we need it most,” Ben Oquist, Executive Director of The Australia Institute, said. “Hot days are when we need power most and coal power plants preform badly in the heat.”
