AGL says political deal won’t lift renewable energy investment

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.

Managing 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.

That’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.

See also https://reneweconomy.wpengine.com/2015/australias-first-100mw-solar-plant-to-begin-generating-in-march-55326 and https://reneweconomy.wpengine.com/2015/agl-energy-says-battery-storage-already-interesting-28336