Interview: AGL Energy’s Michael Fraser

AGL Energy managing director Michael Fraser spoke at Clean Energy Week in Brisbane. RenewEconomy joined the queues for one-on-one interviews and sought his views on the politics around the renewable energy target.

RenewEconomy: The government has said today that it will legislate for the a four-year rather than a two year review of the Renewable Energy Target. That suggests that the next review will not be in 2014. Is that good news?

Michael Fraser: They are going to conduct a review in 2014, that’s my understanding, and the outcome of that would be to remove two-yearly reviews and go to a four-yearly review. But government can revoke legislation at any point in time. My point is a legislated review is an unnecessary piece of legislation and just creates uncertainty for the industry.

RE: You will have uncertainty for another year and a half, it seems.

MF: We are going to run for at least another 12 months, depending on how quickly they get the review under way. If we look at the last one, they took most of 2012 to complete the review and put recommendations to government. Yes, potentially 18 months, but at least 12 months.

RE: You’ve raised concerns about the industry to acquit that target…

MF: That’s correct. I just give the example of the Silverton wind farm – a fully accredited project. It was a long way through the EPC process, but we sat and looked where we were at, the fact that there is another legislative review, that people are calling for change. You can’t go to shareholders and ask them for another half a billion dollars to invest in a project and have the goalposts moved. That’s why we pulled back from it; that uncertainty is going to make it a real challenge to meet that target. So we say, let’s get bipartisan support for the target, let’s get rid of the legislated review and then the government can just step back and let the industry get on with it

RE: What are the implications if you can’t meet the target?

MF: It’s a major problem. No one wants to have a policy, or have a target that is unachievable.

RE: There is a danger, then, that policy may be deferred or diluted to make it achievable?

MF: That’s why we need to see what comes out of 2014 review. One area I agree is that the target has to be realistic. The sooner that we get certainty around that, and certainty that we won’t have another review two years down the track, the industry will know what it’s aiming at.

RE: What does the change in carbon trading mean for renewables? Higher RECs (renewable energy certificates) presumably. It complicates the issues as well…

MF: In theory, what you will get if you get lower black price, you will end up with higher REC price. You’ve still got a surplus of RECs that are there. That complicates that thinking. We won’t get an automatic REC price until we clear the surplus, which on current forecasts is out to 2016.

RE: How will that affect the mix of generation?

MF: In relation to AGL, we’ve never been supporter of carbon tax. They are going to take off one year on compensation, but proposing to bring forward to get two years worth of permits, so there are swings and roundabouts. But there is a net deficit for us in terms of compensation. As to what happens with the generation mix, it is all very well to get caught up in short term, but reality this is an industry that invests for the long term. And these are policies that should be in place for the long term.

RE: You mentioned about the impact of household solar. You talked about it as a future game changer. How will the industry change?

MF: As regards AGL, we have got a solar business, at large scale and household scale. It depends on a number of things, changes to feed in tariffs, the review of the RET which  impacts on rofotp solar as well. So for our business it comes back to what are the rules of the game. Lets be certain about those rules and we will shape our business accordingly. What a company like ours has to do, frankly, is to build optionality into our business, because the strategy is very much dependent on where policy heads.

RE: What do you mean about solar being a game-changer though?

MF: I think about it in terms of impact on demand. You have had 2500MW of solar being installed, that’s more capacity than at Loy Yang, which is 2,200MW. It’s changing the way people are thinking about peak demand, to the extent that additional investment will be required. It is certainly having a dampening impact on the wholesale price of electricity. It’s the yin and yang in all of that. It might lower the black price, but it makes it more difficult to get renewables up if it lowers black prices and you have got a surplus of RECs.

RE: You’ve released a report on wind turbine noise from the Macarthur wind farm. Why have you done that?

MF: At the end of the day, you have got a group of the community that has raised concerns about it. So, we said, OK, we hear you, let’s test it with science and test with facts. What it demonstrates is that there is no measurable  change in infrasound level since the introduction of the Macarthur wind farm. We did all this work up front, prior to construction, during and after construction. So to all the naysayers out there – this is biggest wind farm in the Southern Hemisphere, it is just us saying to the community, here is the evidence, it’s been independently reviewed, here are the facts, you don’t need to be concerned about this.

RE: And you will be making parliamentarians aware of these findings.

MF: Absolutely.