This is a story about trust. More specifically, it is a story about just how little trust the major energy companies have for Angus Taylor and the rest of the Morrison government.
It was July last year when the chief executive of Origin Energy first contacted Matt Kean, the New South Wales Environment and Energy minister, about the planned early closure of Australia’s biggest coal-fired power station, Eraring, near Newcastle.
“When Frank Calabria came to me I said, ‘Let’s work together to see to make sure we do this in a responsible way that will ensure that we continue to deliver reliable and affordable electricity,’ ” Kean says. “And that’s what we did.”
A deal was eventually struck. Origin would provisionally bring forward Eraring’s closure by seven years, from 2032 to 2025, and would build a huge, 700-megawatt battery to help ensure stability in the power grid as new, large amounts of solar and wind energy came online.
“For the six months while we were working through the process, nothing leaked,” says Kean. “I think they trusted us to deal with them in good faith, and that we weren’t going to play politics with the issue. We got a good result because of that trust.”
The entire deal was negotiated without the involvement or knowledge of anyone in the Morrison government, including the relevant federal minister for Energy and Emissions Reduction, Angus Taylor.
Kean says the company wanted it kept confidential. He refers again to the “trust relationship” he and his office had with Calabria. When asked why Taylor, a fellow Liberal, was kept out of the loop, he says: “Perhaps because they didn’t have that same trust relationship.”
Tim Buckley, a leading energy analyst, puts it more bluntly: “Angus Taylor is irrelevant. Neither the state minister nor the CEO of Origin bothered to talk to him, even while they were negotiating for all those months.”
Buckley says it is increasingly the case that individual states and territories, all of which have more ambitious climate goals than the federal government, are running their own races, negotiating investment deals with little regard for the Morrison government.
“You’ve got the states competing with each other, now. They’re developing their own renewable energy zones, and it’s all about leveraging the renewable generation and then having the right grid infrastructure and putting the renewables near it. You’ve got 10 or 12 renewable energy zones across the country.”
Origin had reason to expect its announcement would not be greeted favourably by Taylor. The current federal government has a bleak track record when it comes to power companies proposing the closure of coal plants. Back in 2017, when AGL gave five years’ notice of its intention to close its Liddell power plant in 2022, then minister for the Environment and Energy Josh Frydenberg worked vigorously and personally to lobby the company’s board to remove chief executive Andy Vesey.
Frydenberg began calling directors. He pressured them to sack Vesey over the proposed Liddell closure. It was an extraordinary intervention from a federal minister into the operations of a listed company. As one executive described the now treasurer’s campaign against Vesey, who left the company months later: “Frydenberg was calling individual directors, suggesting [Vesey] be sacked over Liddell.”
This episode set the tone for the energy war that is still playing out. This year, only a week before Origin announced its intention to shut Eraring, Taylor reacted with negativity when AGL, under new chief executive and managing director Graeme Hunt, announced it was bringing forward plans to close two of its geriatric coal-fired plants – Loy Yang A in Victoria and Bayswater in NSW, both commissioned almost 40 years ago.
In a media release, Taylor claimed the early closures would “leave a considerable gap” in the National Electricity Market. He said the exit of such a considerable amount of “reliable” generation capacity was “a concern for the continued reliability and affordability of the system”.
“Delivery of new, timely, replacement dispatchable capacity will be critical in keeping prices low and the lights on,” Taylor claimed. “We have seen what happens when this does not occur, with prices skyrocketing by 85 per cent following the premature closure of the Hazelwood Power Station in 2017.”
But AGL was not proposing to shutter the plants imminently, like the owners of Hazelwood, who gave just five months’ notice. AGL was flagging its intention to close Bayswater some time between 2030 and 2033 and close Loy Yang from 2040 to 2045. The proposal was entirely compatible with the blueprint of the Australian Energy Market Operator (AEMO) for the future electricity grid, laid out in its draft integrated system plan.
Yet Taylor felt the need to warn of potential blackouts and price hikes. It prompts the question: How much advance warning is sufficient to mollify the Morrison government?
When Origin revealed on February 17 that it intended to the close Eraring, just a week after AGL’s announcement, Taylor was not happy. He was all the more unhappy because Origin planned to shut Eraring in just three-and-a-half years – the bare minimum under current rules – and because he had been blindsided by the company and Kean. He said as much on Sydney radio that morning.
“I was told about it last night,” Taylor said. “To find out last night with no warning, I have got to tell you, it’s very disappointing.”
Taylor said he was also “incredibly disappointed” on behalf of Eraring workers and electricity consumers. He rubbished the plan hammered out between Origin and Kean to install a big battery as part of the deal, misrepresenting its purpose in much the same way as the government – most notably Scott Morrison – misrepresented the purpose of the original 100-megawatt “big battery” installed in South Australia in 2017. He also argued the need for more gas generation.
Taylor released a media statement, parts of which might have been cut and pasted from the one the week before, warning the closure would leave a big gap in “reliable” generating capacity, risked higher prices and reduced reliability of power supply, again citing the example of Hazelwood and, incongruously, attacking the federal opposition over a deal stitched up between a Liberal state government and a listed company.
In short, Taylor played politics with the issue. This is just as Origin executives feared he would. He was promptly called out on it by Australia’s second-wealthiest individual, the iron ore magnate and renewable energy advocate Andrew Forrest.
In an address to the Queensland Media Club on February 25, spruiking his plans to generate massive amounts of emissions-free hydrogen using renewable energy, Forrest began his attack on Taylor by quoting Origin’s Calabria: “The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower-cost generation, including solar, wind and batteries.” And a reflection of his own: “When the coal sector itself says that, you know the end has well and truly come.”
Forrest continued: “Despite the flak that Frank Calabria got from minister Angus Taylor, he had the guts to tell the truth. This is the same flak that responsible directors of AGL received when they announced that it was shutting down coal-fired power stations as well.”
Forrest said Taylor was “standing in the road of both the market – never a wise decision – and the concluded science of climate change”.
“Taylor seeks to not only stand in front of the market and admonish coal companies as they face their own certainty, but also to accelerate the death of the natural ecosystems we know, through not taking responsibility to combat climate change. Minister Taylor, I believe, pays lip-service to green energy, but takes action for fossil fuels.”
There was much more in this vein, including a joke: the difference between God and Angus Taylor is that God doesn’t think he’s Angus Taylor.
The backdrop to Forrest’s speech was the government’s response to another fossil fuel play of the past couple of weeks, the biggest of them all. That was the announcement of an $8 billion takeover bid by tech billionaire Mike Cannon-Brookes and Canadian asset management company Brookfield for AGL. As part of the bid, they promised to close all of AGL’s coal-fired plants by 2030 and take the company carbon neutral by 2035. Again, Cannon-Brookes gave Taylor no advanced warning of the move on the country’s biggest energy company. Morrison government ministers lined up to attack the venture, led by the prime minister himself.
“Let me be really clear about something,” he said after the takeover bid was announced. “We need to ensure that our coal-fired generation of electricity runs to its life because if it doesn’t, electricity prices go up. They don’t go down. Our government is very committed to ensure we sweat those assets for their life to ensure that businesses can get access to the electricity and energy that they need at affordable prices to keep people in jobs.”
That is to say, he and his government want to ensure coal-fired power stations continue to pump out greenhouse gases for as long as possible.
Electricity generation remains by far the dirtiest sector of the Australian economy. Despite the growth of renewables over recent years – mostly wind and solar – power generation is responsible for about 40 per cent of Australia’s emissions of planet-heating carbon dioxide. And AGL is by far the most polluting entity in the most polluting sector. It emits about 8 per cent of the national total, more than 40 million tonnes of CO2 a year.
Were the Cannon-Brookes–Brookfield takeover to succeed, and were Bayswater and Loy Yang closed by 2030, instead of the current planned dates of 2033 and 2045, the cumulative total of avoided emissions would be 290 million tonnes of CO2, according to calculations provided for The Saturday Paper by Tim Buckley, of Climate Energy Finance.
That avoided pollution has a dollar value, Buckley says. Applying the current carbon price operating in the European Union, he says “that is $A40.94 billion of value being created in avoided emissions”.
While Australia does not have a carbon price, it has a less formalised instrument called Australian Carbon Credit Units, awarded for eligible energy efficiency, renewable energy generation and carbon sequestration projects by the Clean Energy Regulator. The ACCU value of those avoided emissions would be about $13 billion, Buckley says, if it could be realised.
The other notable thing about AGL, apart from its enormous greenhouse gas emissions, is that the company is in deep financial trouble. Five years ago, its share price was about $27. By last November, that was down more than 80 per cent, to just above $5 a share.
Ten years ago AGL – which was established in 1837 as the Australian Gaslight Company – was regarded as the national leader in rolling out renewable generation. Then it went on a coal-fired buying spree.
In 2012, it acquired Victoria’s Loy Yang A power station and associated mine. In 2014, it bought the Liddell and Bayswater power stations in NSW, among other fossil fuel interests.
Within only a couple of years, it became apparent that this was a big mistake and that the proliferation of renewables, particularly subsidised rooftop solar, was having a dramatic effect on the supply and demand for electricity during peak periods in the middle of the day.
As one former director put it to The Saturday Paper: “Renewables were eating our lunch.”
In February 2015, Andy Vesey was hired as AGL’s new chief executive and managing director. He immediately flagged a change of course away from coal. He commissioned a detailed internal report into how AGL might adapt to a “carbon constrained future” and in February 2016 said: “We need to be out of the CO2 emissions business.”
That same month, AGL announced its intention to close Liddell.
The timing of the Liddell announcement was embarrassing for the federal Coalition, a few months out from an election and running hard with an anti-renewables, pro-coal narrative it saw as politically advantageous.
The government insisted that AGL keep operating Liddell for five years longer or sell it to someone who would. Vesey refused.
In the protracted political fight that ensued, the government impugned Vesey’s motives, suggesting his plan was to remove generating capacity from the grid to push up power prices. Subjected to constant political pressure and internal white-anting, he left AGL in August 2018.
But the problem of the company’s unwise investments in coal remained.
Last year AGL announced a plan to split the company in two, which it described as a “demerger”. One company would operate as a “retail, trading, storage and supply” business under the name AGL, and a second company, Accel Energy, would hold AGL’s power generation assets, mostly coal. Over time, the company said, it would move into more clean energy.
Analysts promptly dubbed the proposed new entities CleanCo and CarbonCo, or ShitCo, and questioned the viability of Accel. Buckley, speaking to The Saturday Paper last July, called the proposed demerger a “desperate” move, “not so much re-arranging the deckchairs on the Titanic as cutting the Titanic in half and hoping only half the ship goes down”.
The demerger, subject to approvals by government, the courts, tax office and shareholders, has yet to proceed. Meanwhile, AGL’s financial performance continues to slide. Last month its results announcement for the first half of the current financial year showed its profit down 41 per cent compared with the first half of last year.
Nonetheless, in a letter to shareholders sent earlier this week, AGL painted a rosy picture of its demerged future.
“The board believes this will be an important catalyst for the realisation of shareholder value…” said the letter, signed by chairman Peter Botten.
But if the company’s leaders are so confident, asks Dan Gocher, director of climate and environment with the Australasian Centre for Corporate Responsibility, a research and shareholder advocacy organisation, why have they not themselves invested more heavily in their own company’s stock?
The Cannon-Brookes–Brookfield bid offered $7.50 a share, which amounted to a 4.7 per cent premium on a price of $7.16 on the day it was announced, February 18. The board rejected it, saying it significantly undervalued the company.
Says Gocher: “If the directors think its shares are worth $9 or $10, why haven’t they been buying?”
Having trawled ASX records, he notes that the last time Botten purchased AGL shares was on September 1, 2020, when it was trading at $14.84. The last time the company’s chief executive spent his own money on AGL shares was on September 10, 2018, when they were trading at $19.66.
In fact, only one director has bought AGL shares since they fell below $10 in January 2021.
Ordinary shareholders appear to have little confidence in the company’s future, either.
On the first trading day after the Cannon-Brookes–Brookfield bid, the share price briefly rallied. But not by much and not for long. It hit $7.92 for one day, then began sliding. At the time of writing, it was back below the offered $7.50.
Gocher, like other analysts, has no doubt another offer will come, if not from the current suitors then from others.
“This is unlikely to be the last bid for AGL Energy, given how poorly the company has managed the energy transition,” he says. “While plenty of rumoured bidders have been mentioned in the media, none other than the Brookfield consortium have surfaced. The board would be foolish to dismiss them outright.”
Cannon-Brookes has publicly indicated he is not yet ready to walk away. It is expected the consortium will release further details in coming days of its intentions for AGL.
So why the lack of movement in the market?
One likely explanation is that potential small investors are worried the government will again take action to prevent the company from cleaning up its emissions act, just as it did five years ago, when it effectively was stymied on Vesey’s plans.
The government has warned darkly that it could block the current bid under foreign investment controls. Liberal Party insiders tell The Saturday Paper that such a move is being seriously considered. Frydenberg, the man who sought Vesey’s ousting, is now the treasurer.
Time will tell, but the Morrison government cannot hold back the renewables tide indefinitely.
Says Matt Kean: “We are being inundated. There’s no shortage of actors that want to build renewables; there’s no shortage of actors that want to build storage.”
He points to the recent evidence in his own state, which is being replicated in all the other jurisdictions.
“Our Central Coast, Hunter renewable energy zone closed their expressions of interest last week, and we had 40 gigawatts of interest. That is the private market saying, ‘We want to build 40 gigawatts of capacity. And that was worth about $100 billion – all private-sector capital.”
Kean considers himself a traditional Liberal. He believes in markets. Thus he has no fundamental problem with what Cannon-Brookes wants to do.
“This is the private market working,” he says. “This is a decision by investors and shareholders. And we work with, obviously, whoever owns those assets to make sure that we manage the transition in a sensible way.
“Mike is not going to be reckless. He’s told me that he thinks that he can buy the assets, keep them running, but replace them far quicker.
“If he wants to spend about $10 billion worth of his and Brookfield’s capital to build wind, solar, batteries and replacement capacity so that he can bring forward the closure dates of those big power stations, fine.”
Like Cannon-Brookes, Kean says, Vesey “saw the way things were going. He saw those [coal] assets were a dog, and you needed to get out and replace that capacity with stuff that was going to create long-term value for your shareholders.
“And he tried to do it, but I think he was just moving ahead of where the government was, the way the politics were.”
The trouble is, that is where the politics still are, at the federal level. The Morrison government has campaigned against stronger climate action at every election since it won office. Last time it ran on disinformation about electric cars.
And now, a scare campaign about electricity prices. Sooner or later, it’s got to stop working.
This article was first published in the print edition of The Saturday Paper on March 5, 2022 as "Revealed: Energy companies turn on Angus Taylor".
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