AGL says political deal won’t lift renewable energy investment

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AGL Energy says investment in renewable energy in Australia will remain at standstill, even if government and Opposition reach new bipartisan deal on revised RET. That’s because there is too much coal capacity.

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AGL Energy says investment in renewable energy in Australia will remain at a standstill, even if the government and the Opposition reach a new bipartisan deal on a revised target.

MichaelFraserManaging director Michael Fraser says the renewable energy target is broken, and has suggested that major utilities will not come to the table to sign contracts even if an agreement on the RET is found.

The position by Fraser is not new, he called for the RET to be scrapped last year. But the fact that he is repeating this forcefully, just as the government and the Opposition sit down again to negotiate a new target , shows the challenges that still remain for large scale renewables in Australia.

AGL said that even with a locked-in target, the market-based mechanism will simply respond to depressed prices and not sign new contracts. “We fail to see how (big utilities) will invest with a surplus (of capacity) around,” Frasser said in response to a question from RenewEconomy at the company’s interim results presentation.

“In my view, even if there is a lower agreed target – somewehere in between 27,000GWh and 41,000GWh, nothing changes. We have still got the same policy mechanism in place.”

AGL Energy is the biggest, and therefore the most powerful utility in the country. Its position highlights the standoff in the industry between the incumbent fossil fuel generators and the emerging renewable energy industry.

AGL Energy, for instance, argues that there is 9,000MW of excess base load coal capacity in the National Electricity Market alone, but suggests none of this will be permanently closed unless the generators receive payments for “remediation”.

In the meantime, the utilities are using this over-supply as an argument not to sign up for new renewable energy generation, despite the legislated target. Investment in large scale renewables in Australia has been at a standstill because no new power purchase agreements have been entered into.

Even if there is a revised target, with bipartisan support, it indicates that the retailers are prepared to take the penalty price rather than sign PPAs in new renewables that they believe would further damage the profitability of their coal-fired generators

Effectively, they are threatening to shut the gate (or keep it shut), and unless the solar industry can find corporate customers to take their output, as First Solar has just done with Apple in an $848 million deal in California, then there will be few opportunities to get finance.

The assessment by Fraser comes as AGL Energy also said that the aluminium industry is now doing so well, it expected its contracts for the Tomago and Portland smelters to be extended for another 10 years, out to 2026 and 2027.

The vulnerability of the aluminium industry has been cited by the government as one of the main reasons to reduce the RET – and Labor and the clean energy industry has signaled its willingness to make a compromise.

But AGL says the aluminium industry appears in fine fettle, with prices rebounding, and the Australian dollar also falling.

liddellThat’s great news for AGL. It bought the 2,400MW Liddell coal generator from the NSW government for effectively zero, assuming it would lose its major customer when Tomago was closed, and would have to shut down in 2017.

Now, AGL says, Tomago is likely to continue, and the 44-year-old Liddell coal generator is likely to continue production, even beyond the 2022 date of its “technical life”

In other words, as long as AGL is making money out of Liddell it will continue production. It won’t shut it down unless it is paid to close a generator it bought for nothing. And in the meantime it sees no incentive to engage in any new large-scale renewable energy contracts. Such is the power of the energy incumbents in Australia.

The Abbott government, of course, has already delivered handsomely for the coal generators.

AGL Energy, and others, will do very well out of the carbon tax repeal. While it got $87 million less in revenues this year because “transitional assistance” for Loy Yang A.

The company says the removal of the carbon price is good news for the company and will “provide a material value uplift in the long term” to Loy Yang A, the country’s single biggest emitter of greenhouse gases.

Its results show that it made $51 million from the recently purchased Macquarie black coal generators, including Liddell, who benefit immediately from the carbon price removal, and another $111 million from the rising gas price as the LNG market comes into play, and domestic gas prices soar.

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  1. Robert Johnston 4 years ago

    Isn’t what Fraser is saying here effectively “signalling” to other retailers to act in a way that will frustrate the ability to meet the RET. Sure prices are low today ($35 for a LGC) because there is an oversupply still to wash through from when rooftop PV created what are now LGC’s. But unless new LGC are created via new large scale projects consensus seems to be market shortfall in 2017 which essentially means the cost to meet a RET obligation will increase to more than $92 per LGC. Lets estimate “fair market price” for an LGC is $50 (based on LRMC of wind) in a PPA – cost to carry to 2017 is WELL below $92 penalty. Why not contract? Because you think you can convince the govt to change in future – or you retire today and just cant be bothered thinking about what actually makes sense for your shareholders.

  2. Cooma Doug 4 years ago

    Did I hear the words “carbon price”?

  3. Harry Verberne 4 years ago

    An obvious approach to the over capacity is to retire the oldest, most fuel-inefficient and emissions-intensive brown coal plants, such as Hazelwood and Playford. As others have mentioned, this might have been achieved with a price on carbon or possibly the previous Labor government’s ‘pay to close” proposal.

  4. Chris Fraser 4 years ago

    And they say privatisation of assets in NSW will be social good. All I ever see is blackmail …

  5. Jen 4 years ago

    Fraser is scared of renewables … He knows it is only a matter of time!

  6. Peter D 4 years ago

    And that’s why I am switching from AGL to Diamond Energy

  7. Rob G 4 years ago

    They live in a bubble. The simple fact that we will have a price on carbon sometime soon will undo their feeble arguments. Their arrogance is such that they don’t see smaller players as a threat. Remember when IBM was big and Apple was small? Now look at them!

  8. wideEyedPupil 4 years ago

    So why don’t the government lift the penalty price until it’s higher than signing PPAs with RE generators. Oh maybe because they are giving away coal plants for free and carbon price compo and transition moneys and everything else to gift this industry which is cooking the climate. What a fucking joke of a nation.

    Sounds like the equivalent of insider trading AGL buying old coal stations all over the country just before Abbott govt abandons RET.

  9. Chris Co 4 years ago

    Michael Fraser is doing what most folk would do – protect his highest value asset class and his legacy as AGL CEO. The reality for utilities is that they know the energy mix has to change. The NEM Watch feed in Renew Economy shows this vividly – we are far too reliant on Coal. And it wasn’t that long ago that most of the big guys were out in public talking about how the energy mix needs to change. RET was a bipartisan policy – and our GHG reduction target still is (albeit 5% on 2000 by 2020 is not ambitious). But once the anachronistic Abbott is relegated to the dustbin of history, the next Turnball or Shorten govt will need to get us back on track and forcing some of the oldest dirtiest power stations to close should be first on the list. Maybe Direct Action will be given teeth or an EPA Emissions benchmark approach will be adopted either way I doubt there will be much sympathy for dirty coal producers who will be forced to pay a clean up bill to decommission their old power stations. These are now largely privately owned assets for which provisioning for shut down should be happening now. As these power stations close we will see the wholesale price increase and the RET come back into its own unless Abbott is willing to make another another unpopular ideological call to kneecap it. The obvious response to this set of events will see AGL and others set up companies to house their old coal assets to seek to limit the shareholder liability of the closures we all know have to come sooner or later. Tony has just bought them 5 more years to figure out the best way to do this.

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