Climate wars shift to executive suite as Australia’s biggest fund seeks to block Origin deal

Not much has changed in the climate wars over the last few decades. The fossil fuel industry is still claiming it should be able to burn its fuels with impunity, the political right wing is still questioning the science and the costs of action, and social media has become a deep repository of denial, conspiracy and lies.

Australia is trying to rise above this: And for the first time the presence of federal and state governments more or less singing from same song sheet offers hope that Austalia’s green energy transition can finally move forward at the speed required, despite the problems in transmission, connections, market rules and policies.

But not everything is going to plan. The $20 billion bid for Origin Energy from a consortium led by Canadian funds giant Brookfield promises to do something about the inertia among Australia’s biggest energy utilities, who have become practiced at talking a lot about the switch to renewables, but not actually doing very much.

Brookfield’s boast is to try and change all that. It promises to spend up to $30 billion fast-tracking investment in wind, solar and storage, and build 14GW of new capacity in the next decade – more than the current big three energy utilities combined.

Its case was so compelling that the competition regulator overcame its own concerns about the competition aspects of Brookfield’s part ownership of the AusNet transmission network in Victoria to support the takeover, even if it had doubts about its ability to deliver on the full extent of its ambitions.

The Brookfield consortium has now thrown in an extra $1.2 billion to win over shareholders, and it appears to have succeeded, with all three major proxy advisors – ISS, Glass Lewis, and Ownership Matters – now recommending Origin investors accept the offer. 

But there is one notable holdout, the country’s largest superannuation fund, the $300 billion Australian Super.

The super fund argues, apparently, that it reckons Origin is worth $13 a share, or about 50 per cent more than the fair value range ascribed by Grant Samuel.

But it hasn’t released the justification of that estimate, prepared by Frontier Economics, or why Frontier went from saying initially that the price was too high, to now saying it is way too low.

“The price for Origin seems so out of step with the market,” Frontier’s principal Danny Price wrote in an opinion piece for the AFR last November.

There is no indication on whether the new valuation is assuming high electricity prices caused by a continuation of the global energy crisis, the extension of the Eraring coal plant, or a green energy switch at a pace that Origin itself has shown no interest in pursuing.

Australian Super isn’t simply saying no, it is in the market boosting its stake to a potential blocking holding of more than 15 per cent. If more than 25 per cent of shares are voted against the bid, then the Brookfield offer fails.

One of the questions that has been asked is on Australian Super’s motivations. It is rated poorly on climate issues by Market Forces, which notes in particular its support for the oil and gas supermajority Woodside Petroleum and the coal industry lobbyist Ian Macfarlane that it supported on the board.

Environmental NGOs have also stepped in, describing its actions on Origin as a “climate blocker”, and drawing comparisons with the blocking and delaying tactics of the fossil fuel lobbies and their supporters in right wing politics over the past decades.

Australian Super’s track record at Origin isn’t brilliant either. Emissions at the utility have actually increased in the past year and since Australian Super first came on board, its emissions intensity has risen.

Its done well from Origin’s return to shareholders. Like global Big Oil, Origin has responded to the price caps on coal and gas, various subsidies and soaring retail prices by increasing its dividend by 46 per cent rather than accelerating its investment in green energy.

Brookfield is arguing that if Origin remains as is, shareholders will be facing lower dividends and dilutive capital raisings in coming years because the world – and the electricity grid – will change around it.

“Origin is one of Australia’s top 10 carbon emitters,” says Luke Edwards, the head of renewable power and  transition at Brookfield Renewable Corp.

“We want to invest in Origin to accelerate the company’s transition from fossil fuels to clean energy sources by investing A$20 billion – A$30 billion to build up to 14GW of renewable generation capacity – this capital is committed and not contingent on any future capital raisings.”

“This type of investment or business plan cannot be achieved by passive shareholders in a listed market environment – it requires an active asset management approach.

“Brookfield’s credentials as a clean energy super major with decades of global experience and expertise in renewable generation and development.

“By the end of 2023, Brookfield Renewable is on track to add 5 GW of clean energy to its 31 GW of installed capacity across its global operations and expects a similar annual run rate in the coming years.”

Origin shareholders will vote on the proposal at a meeting on November 23.