AGL’s Redman: The gentailer model for utilities is breaking down

AGL CEO Brett Redman has conceded that the traditional “gentailer” model for Australian energy utilities is breaking down, unable to cope with the pace of change in the energy market driven by the uptake of large scale wind and solar, battery storage and rooftop PV installations.

A day after the awaited announcement on Tuesday that AGL will effectively split its business in two – “new AGL” and “PrimeCo, or old and new – Redman told the Energy Insiders podcast that the traditional business models of Australia’s energy utility giants, and the traditional views of “baseload” were no longer tenable.

“I think what we’re seeing is the traditional gentailer model is breaking down,” Redman says. “It was the classic model that everybody followed for the last couple of decades or more.

“But more and more what we’re seeing is new generation particularly being built in response to government demand in one sort or another, whether it’s direct agreements, offtakes, in some cases government building it directly, as well as corporates more and more entering into direct relationships and offtakes that will underpin the generation part of the business.

“So in that world the clear and absolute linkage between the two businesses is not what it used to be. The retail business increasingly is looking to manage risks through capacity management, so that’s your batteries, your pumped hydro, your gas peaking.

“AGL has been talking about that for the last couple of years as well leaning into wanting capacity management rather than just baseload. So in some ways you see the evolution of that starting to appear now and baseload will be able to sell to, you know, a variety of longer term off takers.

“Retail will look for how does it manage risk better and better, but managing risk will be more through the management of capacity as opposed to the management of just basic energy cost.”

The observations are significant because it represents more than just talk, and will have implications for all big gentailers – Origin, EnergyAustralia and even the federal government’s Snowy Hydro. AGL admits it has been caught out by the pace of the transition, hence the need to flag to the market and to its customers its readiness to change direction and smooth the path to a zero emissions grid by splitting into two.

The big question for many is what does this mean for the company’s big coal generators, given the growing climate emergency and with Bayswater not due to close until 2035 and Loy Yang A until 2048. Redman hints at possible early closures, and makes it clear that the coal generators will operate in a different setting, with mothballing and “cycling” as possibilities.

The first steps for that repurposing the big energy hubs around the coal and gas generators that will ultimately close are already taking place, with battery storage, floating solar, and new technologies such as “electrothermal” solar storage also considered.

But the real challenge will come from AGL’s ability to compete in the new “behind the meter” market tat provides services to customers with rooftop solar, battery storage, electric vehicles and demand management. Here, the competition will be fierce, including from the likes of big telcos and internet giants such as Google and Amazon.

“I’m looking forward to the fight,” Redman says. “I would say to you that in my years as CEO and before that as CFO, a regular question was big global competitor, sometimes a tech companies now sometimes an oil and gas majors, sometimes a different participant.

“So insert, big global name is coming into town to eat your lunch, how are you going to go our back office all day, every day and our ability to connect with our customers to be responsive for what they’re looking for, and to source the products that they’re after? I see the threat and I’m ready to meet it.”