Cannon-Brookes says AGL bid may be “unicorn” for cheaper, faster energy transition

Tech billionaire and green energy investor Mike Cannon-Brookes says this week’s landmark bid for Australia’s biggest coal generator AGL could become a model for how the green energy transition can be achieved more quickly, at lower cost, and with less risk.

In an interview with RenewEconomy’s weekly Energy Insiders podcast, Cannon-Brookes said AGL’s decision late last year to split the company into good and bad, renewables-focused and thermal focused, didn’t make economic sense. “In fact, it was going to be retrograde, sort of backwards step,” he said.

It turns out that other big players in the market were thinking along the same lines, including the new transition fund led by former Bank of England governor Mark Carney at the huge Canadian asset manager Brookfield.

The two groups, Grok Ventures owned by Mike and Annie Cannon-Brookes, and the trillion-dollar Brookfield, pitched an $8 billion bid for AGL over the weekend.

It may have been rejected, at least at the current price, but there seems no doubt that the strategy of effecting change from within the fossil fuel industry will alter and hasten the course of the energy transition in Australia, if not the world.

“It’s a question of how can you get the cheapest power to people as fast as possible,” Cannon-Brookes told Energy Insiders.

“And I don’t have to tell anyone listening to this podcast that more renewables, if done sensibly, and smartly with the grid – and you can take all the FUD, and we can talk through all the different bits and pieces – but if broadly put, done honestly, I would say, will result in cheaper power prices.

“And so the question is, how fast can we get there? This may be a unicorn, there may be lots of other (cases) around the world that could copy this model. Actually doing that, in a singular entity may be a faster approach, and a more economic approach to doing that.

“And the more economic the approaches, that’ll mean that you get that cheaper power to those customers, and probably results in a better business of actually selling the power, right?

“Fundamentally, this business is about selling power to its customers. And they want that power to be as cheap as you can get it. And they increasingly want it to be clean. They have their own decarbonisation goals, whether they’re a manufacturer or a business or even a household.

“So I do think it’s a bit of a model. I think it’s how can we accelerate that decarbonisation and do it in an economic way that means jobs and that reduces prices.”

Cannon-Brookes, like Brookfield’s Asia Pacific CEO Stewart Upson, who we interviewed earlier this week, would not be drawn into exact timings of the closures of AGL’s last two generators, Bayswater in NSW and Loy Yang A in Victoria.

AGL recently edged the closure dates for the two plants forward by a few years – Bayswater to 2035 and Loy yang A to 2045, but that remains well outside most market forecasts, and the modelling for the new central “step change” scenario of AEMO’s Integrated System Plan, which has been endorsed by most stakeholders.

Cannon-Brookes said he admired AEMO’s work on the ISP. “The more I look around the world, it really is a world leading document. There are very few grids of our size and complexity doing anything like what they’re doing. It gets better every time and it provides a great exemplar.”

He was also supportive of the work that the NSW and Victorian governments, in particular, had been doing in seeking to ensure sufficient transmission capacity to support more renewables, and on the work of NSW in preparing its renewable transition plan.

“You would also be well familiar that uncertainty drives the cost of capital up, creates risk for project developers. Hopefully, the more there is certainty around here, we will see more supply come online,” Cannon-Brookes said.

“Some of that can be built by us as potential future AGL. Some of that can be contracted by us as a potential future AGL, some of it can just be put into the market as replacement capacity. All of that is possible.

“If there’s one thing we’ve seen over the last 10 years, if we create that stability, and create that low cost of capital, we will be blown away by how much renewable capacity will come online in that period of time.

“So I’m always plan of I think it’s sort of 8x or something like that, in that period of time. I think that’s that’s entirely feasible. And obviously, you’ve I’m sure seen a lot of the FUD that’s been thrown around where you need two and a half times three times the capacity, etc, to be replaced.

“And our modelling certainly doesn’t show that. I’d love to see the modeling that shows that that’s needed. But the replacement capacity of a lot of these things is already banked in a lot of those existing plans that are out there.”

He also indicated that the traditional Gentailer model will be usurped by smarter, faster, more agile technology. And that is one of the major problems with the AGL approach.

“The demerger, takes all of those assets, does not give them the capital to transform at all, and puts them into a singular entity. That entity ranges from struggling to bankrupt, depending on what happens with it.

“Now that is going to be very bad for everybody’s prices, because someone’s going to have to pick up the bill of both the remediations for the actual plant closures as well as how do you transition that sensibly? What do you do with all of the things that are there as they shut down?

“There’s a sort of narrative that (the demerger) is a lower price option for the consumer. I don’t believe it will be. I think it will be a higher price option.

“Is the “demerger” a better option for shareholders? No, I certainly don’t think it’s a better option for shareholders. And from a grid perspective, in terms of stability, I don’t think we want very large generators without the capacity to transform themselves.”