Utilities hold renewables to ransom over coal pay-outs | RenewEconomy

Utilities hold renewables to ransom over coal pay-outs

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Australia’s largest utilities are being accused of holding the renewable energy industry to ransom, by suggesting they will not sign contracts for new large-scale renewables projects unless paid to close excess coal capacity.

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Australia’s largest utilities are being accused of holding the renewable energy industry to ransom, by suggesting that they will not sign contracts for new large-scale renewable energy projects unless they are paid to close excess coal capacity.

The renewable energy industry has reacted with outrage at suggestions from AGL Energy, the biggest utility, that renewable energy investment in Australia would remain frozen, even if the political deadlock over the renewable energy target was broken.


AGL managing director Michael Fraser, who steps down this month, claimed on Wednesday that the RET was “broken”, and because wholesale prices were so low, and there was so much excess capacity, then large utilities would not sign contracts for new renewable energy projects.

Fraser said this would remain the case even if the current 41,000GWh target was lowered by mutual agreement between the Abbott government and the Labor Opposition. Talks on the RET have resumed in the past week, with indications that a compromise target of around 34,000GWh to 37,000GWh could be reached.

One executive noted that Fraser had been a strong supporter of the RET, and happy with its structure, when AGL was a large investor in renewables. However, AGL has since change the colour of its business, from green to brown and black, with its $2 billion purchase of Loy Yang A, the single biggest emitter in the country, and another $1.6 billion on the Bayswater and Liddell coal plants in NSW.

The suggestion that coal generators should be paid to close is particularly galling since AGL Energy, by its own admission, effectively paid nothing for Liddell, based on the assumption that it was likely to close in 2017, if its major customer Tomago aluminium smelter also closed.

But AGL is now signaling that Liddell could operate beyond the 2022 “technical” end of its life. And it has argued that unless retiring coal-fired generators got payments for “remediation”, then the excess capacity would remain in the market.


The renewable energy industry is at a virtual standstill. Australia has slipped to 31st in terms of investment in large-scale renewables, falling behind Honduras and Myanmar. Once the Bald Hills project and the Portland wind farm expansion in Victoria are complete, there will be no wind generation under construction under the RET.

The renewable energy industry is now suggesting that either the “penalty price” for retailers not meeting their renewable energy quotas be increased, or the country should adopt the UK system, where retailers that meet their target are paid monies by retailers that don’t.

“The intent of the shortfall price within the renewable energy legislation was to discourage liable parties from boycotting the scheme, thereby preventing achievement of the public policy objective,” said Infigen Energy spokesman Richard Farrell.

“The big three retailers have pursued a campaign to reduce Australia’s renewable energy target so as to reduce competition from new entrant renewable energy in their generation and retailing operations.

“Their claims otherwise are clearly disingenuous. The modelling conducted to support the Warburton review showed the RET can be achieved at certificate prices well below the shortfall price, while delivering lower electricity prices for consumers.

“It’s clear that AGL’s intention is to continue to boycott the scheme at the expense of their customers. It is not up to me how to tell AGL to run its business but I suspect its customers would vote with their feet if such a strategy was employed.”

The Clean Energy Council, which Fraser chaired until late 2013, during the company’s “green” days, says the arguments from the fossil fuel generators are bunkum.

“The clean energy industry is confident that, if the current RET review is resolved swiftly, the 41,000 GWh by 2020 LRET can be met,” a spokeswoman said. “This is supported by the Warburton Review that showed the LRET could be delivered without the market going to penalty.

“While the Clean Energy Council acknowledges that there is a current surplus of generation in the market, it is clear that the problem is too much fossil fuel generation capacity – not too much renewable energy.”

The CEC pointed out in a paper last year that independent studies for the government when the current RET was being framed in 2009 made it clear that coal-fired generation would be closed as a result of increased renewables.

Since then, around 20,000MW of fossil fuel capacity has changed hands – including the 6,600MW of coal capacity bought by AGL. The inference is that the fossil fuel generators are trying to re-write the rules after a purchase.

“MMA concluded that reductions in wholesale prices would be offset when “additional renewable generation is matched by deferment of fossil fuel generation capacity and some additional retirement of existing plant”.

“It is erroneous and indeed disingenuous for the owners of fossil fuel generators to now argue that the RET has impacted their businesses in ways that were not anticipated,” the CEC wrote.

“Renewable energy is impacting on the electricity market more or less exactly as it was predicted to. It is clear that the problem in the NEM is too much fossil fuel generation capacity, not too much renewable energy capacity.”

Indeed, AGL itself admits that there is way too much fossil fuel capacity in the market.

It has said more than one-third of baseload plants are surplus to requirements. And as RenewEconomy has reported, most of the new capacity added since then have been fossil fuel plants, in the form of gas-fired generators, which are now being mothballed because gas is too expensive.

Mark Wakeham, from Environment Victoria, says the coal-fired generators have only themselves to blame. They were too greedy when the opportunity for paid closures, through the contracts for closures scheme, was proposed (a mechanism that Environment Victoria supported at the time) and now they are continuing to try to distort the market.

Wakeham suggested the best mechanism may be emissions performance standards of the type that US president Barack Obama is imposing in the US, forcing more than 50GW of coal-fired capacity out of the market with no talk of compensation. The Greens have been mulling a similar proposal.

“Generators are quite happy to point to the ‘oversupply’ when they want to undermine the RET, but are less forthcoming when it comes to withdrawing their own capacity,” Wakeham said.

“As we predicted when contracts for closure was on the table, it was a once in a lifetime opportunity, and the generators blew it with their ambit claims.

“Until as a nation (or collection of states) we have the appetite for an effective price on carbon unadulterated by compensation handouts, we need to be looking more closely at blunter instruments like emissions performance standards to accelerate retirement of our oldest and dirtiest power stations.”

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  1. david_fta 5 years ago

    Seems to me anyone who’s invested in coal-fired power since atmospheric CO2 exceeded 350 ppm might have a case against their due diligence people, or were always just seeking rent.

    • wideEyedPupil 5 years ago

      Be good to see them in some kind of UN Genocide Court some time in the future too. 1/3 of Bangladesh lives less than one meter above sea level (~58m people). Western Antarctic Peninsula is in irreversible decline, that’s 3m of SL rise right there alone. Plus so many other negative effects for Sub-Saharan Africa and the parts of Asia that rely on glacial ice melt from the Himalayas.

  2. patb2009 5 years ago

    That’s fine, let people install PV and some storage… The utilities need to recognize they have a lot of stranded assets.

  3. John McKeon 5 years ago

    Over 30 years of warnings about carbon based energy and climate …. yeah, that’s enough warning. Plenty of time to get due business case diligence sorted out.

    Take home message: we have too much fossil fuel electricity and NOT ENOUGH RENEWABLE ENERGY PRODUCTION.

  4. Stan Hlegeris 5 years ago

    Whoa–when did we step through the looking glass?

    The whole idea of the RET was to encourage the uptake of clean energy. Once it was considered ambitious–remember?

    Now it has been perverted to a tool whose function is to put an upper limit on the extent to which renewables replace coal. Neither side of politics ever mentions this obvious truth.

    Nothing makes the case for a carbon tax more effectively than the spectacle of both major parties silently accepting this perversion.

    • John McKeon 5 years ago

      Indeed, bring back the carbon tax! Let’s not forget that Tony “Climate science is crap” Abbott himself admitted it was a sensible measure, long outside our short political memories. Here is a sample of news footage to remind us.


  5. RobS 5 years ago

    This article is absolutely bizarre. If AGL chooses not to make investments in renewable energy for whatever reason or even no reason at all that is NOT “holding the industry to ransom”, they are well within their rights to choose what projects they invest in. Other companies and individuals are free to look at renewable energy micro and macro projects on their merits and decide for themselves whether to invest or not.

    • Douglas Hynd 5 years ago

      Nothing bizarre at all – it is about strategic gaming of the current policy environment by the current utlities to extract windfall profits from the situation

      • RobS 5 years ago

        It seems to me to be about one company choosing not to make investments when they don’t feel they are justified. That is not “holding others to ransom” it is called free and private enterprise. If they were using regulatory powers to block other companies from making renewable investments then that would be holding the industry to ransom and gaming the policy environment. A private company choosing what they want to spend their own capital on is entirely their prerogative

        • wideEyedPupil 5 years ago

          Seems that way but what it really is AGL manipulating the market to suit there own short term profit objectives at considerable cost to the community. In short it may be legal but it’s certainly immoral, especially given their leading position on renewables at one time. Deeply cynical.

          • RobS 5 years ago

            If AGL’s directors, as officers of a publically listed company acted in anyway contrary to its profit objectives then they would face a class action lawsuit from their shareholders and face charges under corporate governance laws. AGL has not manipulate the RET market they have simply responded to it. You acknowledge that not investing in utility scale renewables has helped their profit objectives, that suggests the RET signal is inadequate to have its effect which is a problem with the RET not with AGL. I think we should look at the RET and other price signals like an emission trading scheme to make taking action less expensive than not taking action however it seems to me that attacking and abusing the largest utility in the country for not making investments you acknowledge would harm their profits is just counter productive and puerile.

          • wideEyedPupil 5 years ago

            Rubbish. Did they face a class action for investing in renewables at one time? The reason the RET is now ineffective is because it doesn’t have the full confidence of the legislature behind it. There is much less certainty it will not be tampered with. How can it be effective with a giant question mark stuck on it forehead?

          • RobS 5 years ago

            Of course not, they made those investment a time when the RET and other market forces made them justifiable expenditure so that shareholders could not accuse them of failing to act in the best interests of the company. I absolutely agree with you that policy uncertainty is crippling the RET, however to AGL the reason the RET is crippled is irrelevant, only that it is crippled. Whilst it is crippled AGLs directors would not be able to justify major renewable expenditure which would only stack up if the RET were maintained or extended, for were it not then they would have failed to act in the company’s best interests.
            My point is that the anger and pressure is misdirected, AGL can only respond to the policy environment, the policy environment is uncertain therefore AGL and others are treading water waiting on certainty. The pressure and anger should be directed at the legislators who are clearly deliberately manipulating the negotiations to continue the uncertainty.

      • Chris Fraser 5 years ago

        If any of us were a CEO of a narrow, shallow, single bottom line oriented company only interested in shareholder value … If any of us considered our shared atmosphere to be our personal dumping ground for whatever waste we liked (ie we didn’t recognise ‘externalities’ of what we were doing) … then of course, a RET that doesn’t put a price on pollution is fine as long as it lacks teeth to compel us to swap out polluting generation for clean generation.NOW we can see the strategic group thinking in watering down RET. It gives our polluting assets a much longer life, and all the better if they are given to us for free. As for the social and environmental value of what we’re doing … that’s beyond our job description. Those devilish palm-rubbing captains of industry, they are truly inspiring.

    • Jonathan Prendergast 5 years ago

      Less about investments, more about being unwilling to sign PPA’s with renewables and meet their RET obligations unless they get paid out to close coal generators.

      • RobS 5 years ago

        Signing a PPA with a renewable developer is an investment for a business regardless of how you slice it up. AGL has no “RET obligations” the RET is a system to incentivise investment renewable energy investment not compel it, it is a carrot to lure companies into particular investments not a stick to drive them. AGL has every right to decide what it does and does not invest in, there is no RET “obligation” for them to purchase PPAs only to buy the mandated certificates for their emitting activities and there is no suspicion they have not complied fully with that requirement.

        • adam 5 years ago

          He’s saying he won’t sign PPA’s. PPA’s are traditionally how renewables got built because they were on non-recourse debt finance, which needed low risk cash flow that a PPA provides.

          You could say the industry could just go merchant with all projects but that would be challenging and probably long-run expensive.

          So he is, in a way, threatening to hold the industry to ransom.

          reading b/w the lines he’s saying he’s not going to sign PPA’s and will pay the penalty price (which is the stick you say doesn’t exist).

          Presumably they’re taking this position because they want to get rid of the RET, again presumably because they stand to gain a lot if that happens.

          • RobS 5 years ago

            No he is simply saying the company he runs is not interested in investing in these projects directly or via a PPA, everyone else is perfectly free to, no one is held to ransom. Surely if he and his company were compelled to make investments they didnt feel were in shareholders best interests that would be being held to ransom. I clearly said they were paying the mandated certificates for their emitting activities so I certainly didn’t say that penalties didn’t exist. I simply said that the RET creates no obligation to make any particular investment it merely provides a framework to make renewable investment cheaper and fossil fuel investment more expensive, how each individual company responds to those price signals is entirely of their own choosing.

          • wideEyedPupil 5 years ago

            you make it sound so arms length. ha ha

        • wideEyedPupil 5 years ago

          Then we as the people have every right to increase the penalty rates on unfulfilled RET certificate obligations on Retailers. Hit them where it hurts. AGL basically bought up coal seeing a COALitliion Federal Government around the corner who they had the inside knowledge would destroy RET and eliminate CT as first order of business once in power. This is called crony capitalism and corruption.

          • RobS 5 years ago

            We most certainly do have the right to adjust the RET mechanism to increase the penalty and the incentive and should do so to make it more effective a price signal. However if the mechanism designed to create an effective price signal does not then one can hardly blame AGL for not acting. As for your claims that there was crony capitalism, corruption and use of inside knowledge because AGL had inside knowledge that a coalition government would dump a carbon tax if elected then I would say that was true only if your definition of inside knowledge includes watching any of tens of thousands of media interviews and public statements from almost every LNP member made whilst Labor was in power describing quite plainly and openly that scrapping a carbon tax would be an LNP governments first order of business if elected.

          • wideEyedPupil 5 years ago

            unless of course AGL was paying the LNP’s electoral expenses in return for the ‘right’ policy settings. Never happen.

  6. Chris Drongers 5 years ago

    The answer may be in the 2GW proposed Toowoomba Bulli Creek PV plant. Putting a foreign-funded 2GW of merchant power onto the NEM would upset a few plans especially as the solar plant has no lowest operating cost. Without fuel and with minimal staff virtually all its costs are fixed capital whereas coal burners have to pay for fuel, plant operators and probably a much higher hourly maintenance cost.
    Coal will take themselves off the market rather than burn money. All speculative at the moment as we do not know how likely Bulli Creek is to get up.

  7. Miles Harding 5 years ago

    How much worse could it get if Australia is dumb enough to sign up to the TPP with its secretive ISDS (Investor-state dispute settlement) provisions?

    This will likely leave the renewables industry, towns and cities open to vast claims by the evil Koch brothers and the likes of Peabody coal who will claim that the switch to renewable energy is damaging their (US corporate) profits by limiting their sales of coal in Australia.

    If we think that the Abbott government are a bunch of dangerous morons, what we have seen to date will be only the warm up for their finest terminally stupid effort.

    I sincerely hope the senate has the sense to kill that bill.

    • Roger Brown 5 years ago

      I only see the Greens doing that at the moment in the Senate , with Scot Ludlam leading the Charge.

      • Miles Harding 5 years ago

        This is true. The Greens have taken over the mantra of the Democrats.

        Scott, in particular, delivers beautiful late night speeches that have a reach far beyond the nearly empty senate chamber.

        In recent years, I have been drawn towards the Greens because it is the only political party that has publicly stated policies that recognise the needs of the people and environment in a balanced way.

        What is particularly concerning about the Abbott government negotiating this trade deal is their demonstrated contempt for the people and the environment and obvious subservience to certain big business sectors.

        The TPP has crafted by the US government, a government that has been colonised by those corporations that will most benefit from the inclusion of ISDS clauses.

        It is no wonder that the Greens strongly oppose this trade deal.

      • wideEyedPupil 5 years ago

        Spokesperson on TPP is Tasmanian Senator Peter Whish-Wilson


  8. fateyes 5 years ago

    Funny that the now abolished Carbon Price Mechanism included financial assistance to close coal generators…

    • wideEyedPupil 5 years ago

      They will probably try and salvage that with the direct action pay to pollute a little less free moneys.

  9. Blind Freddy of Cairns 5 years ago

    Gee welcome to the real world instead of being a bunch of mushrooms! Yes AGL are one of a handful of large scale power utilities that are commercially operated. What they are saying is the commercial reality. There is a massive surplus of generation capacity in Australia and subsidising more renewables, might be great for the world environment, but is not commercial for Australia. More renewables is adding to the surplus generation capacity, which is forcing down the market price, which might be good if the price was passed on, but only in the short term. In the longer term it is changing the mix to a more expensive base. It will also mean structural change to the industry, which is majority owned by the public, yes that is correct, get ready for hip pocket hits. Selling the QLD power assets was actually smarter than you even know!

    • adam 5 years ago

      The intent of the RE Act is to increase the penetration of renewable energy in the system. See Act, section 3 Objectives and also the parliamentary reading when the act was introduced.

      It is not to meet new demand. If there’s a surplus, it’s a market and you shut down the ones that aren’t profitable or strategically worth it.

      Will it make things more expensive? See ACIL Allen modelling for the RET review for the governments own answer.

      In the long term will it make it more expensive? Long term on the balance of probabilites there will be a price on carbon, operating carbon intensive generation will be net greater cost than actually having an efficient industry that can produce low carbon energy at a competitive price.

      If you want to gamble the other way then go for it but I wouldn’t.

    • wideEyedPupil 5 years ago

      It’s not the ‘surplus energy’ reducing the wholesale costs (“Commercial reality”) it is the near zero marginal costs of solar and wind that beat coal and gas into the spot price bidding market. Too bad and don’t slam the door on your way out coal and gas.

  10. Evan A 5 years ago

    Of course, there is no mention of who pays for mine site remediation too. That’s traditionally fallen into the too hard basket.

    • wideEyedPupil 5 years ago

      Yallorn are doing it this fire season. #horsestabledoor

  11. Laurence Campbell 5 years ago

    Large-scale wind/solar generators are physically and financially dependent on fossil generators for “backup” for the 67/90% of the time when they are producing below capacity. Thus fossil generators provide a huge effective subsidy to renewables, equal to what they would have to pay otherwise for energy storage. However, they expect people who have lost money investing (with government encouragement) in existing generators to subsidise new “investments” that will cause them to lose even more on their existing investments. I suppose the desired end-game is that when the fossil-fuel producers go broke they will then be expected to compensate the renewable industry for failure to provide the backup power that it needs to remain physically viable.

    • wideEyedPupil 5 years ago

      Coal and gas have comparable capacity factors. There have been three detailed studies for 100% RE stationary energy scenarios for Australia, the most recent by the conservative AEMO not less. In such scenarios FF are subsidising nobody cause they are thankfully out of business.

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