Archive for October, 2015
The comments to shareholders by AGL Energy chairman Jerry Maycock at yesterday’s company annual general meeting in Melbourne make interesting reading — not just for current investors but for those of us more generally who are concerned about Australia’s energy policy.
The big ticket point (for policy hounds), interpreted somewhat differently today by the “Australian Financial Review” and the “The Australian” (which, incredibly, has a photograph of Maycock and previous CEO Michael Fraser rather than the current one, Andy Vesey, adorning its report) is is the need for a national policy to facilitate the removal of coal generation from (in particular) the east coast marketplace.
For the “Fin,” this indicates a revival of talk of government support for closure of coal-burning plants in the NEM. Questioned after the AGM by media, Vesey is reported to have argued that AGL has “never advocated” taxpayers supporting closures, saying the company wanted “market fundamentals and regulation” to drive any such shift. The “regulation” bit raises the question of whether the company’s board would favour an Obama-style regulation to put a limit on emissions per megawatt hour, effectively pushing less efficient coal-burning plant to close?
When I see this sort of stuff in the media, I immediately head for the source and, in this case, Maycock’s speech is on the AGL website.
With respect to coal generation and carbon abatement, it is well worth reading.
AGL, of course, has ventured in to building wind and solar farms (spending about $3 billion) in recent years — but the capacity involved and the power able to be produced from such renewables is outweighed by a very long way by its acquisition of Loy Yang A power station in Victoria and the associated brown coal mine producing 30 million tonnes a year plus the Macquarie Generation plants (black coal, delivering an eighth of electricity consumed in eastern Australia) in the New South Wales Hunter Valley.
(The Latrobe and Hunter valley operations together involve 6,850 megawatts of capacity. By comparison, all AGL’s renewables activities in 2014-15, including hydro power, added up to 1,700 MW.)
The business reason for doing so is made clear by Maycock: “Both these businesses were acquired on attractive terms and are producing significant profits and cash flow.”
Maycock tackled the issue of how AGL squares its much-publicised support for renewable generation with these purchases (apart from the obvious point that the coal plants are real money makers) and he explained this way: “AGL explicitly supports global action to progressively transition away from fossil fuel generation. We have set out our intention not to construct further coal-fired generation in the absence of (mitigation) technology such as carbon capture and storage.
“Given our baseload capacity is now adequate to meet our needs, we will not acquire any further coal plants nor will we extend the technical lives of our existing coal generators.”
He went on: “While we hold the view that the need for purposeful plan to decarbonise Australia’s power generation is clear, this requires the introduction of a coherent national plan and support of relevant government policies. Realistically, this will take several decades if we are to avoid immense and unaffordable cost impacts on consumers and the economy.”
Maycock’s third point in defence of his board’s approach is “the profits and cash flow from (our) coal-fired generators will help us to continue to invest in renewable assets if and when the (market) climate improves as well as funding investment in new technology (such as) energy storage.”
(What a nonsense this last statement makes of a national newspaper headline only last April — when Vesey said Liddell would close in 2022 — reading “AGL turns its back on coal-fired power.”)
The bottom line, said the AGL chairman yesterday, is the company is trying to play its part in supporting Australian carbon reduction “while taking care of our obligations to our shareholders” and while “providing secure, reliable and affordable electricity and gas” to its 3.8 million customers.
All this is worth reading in conjunction with Maycock’s opening comments in the company’s 2015 annual report (also on its website).
” The realities in Australia are that fossil-fuelled electricity generation accounts for more than 80 per cent of the market and, in the medium term, is critical to maintaining a secure, reliable and affordable supply. It is important to manage the transition away from fossil fuel dependency over a period of time that balances the need for change with these realities.”
It isn’t hard to throw green rocks at the corporate stance — I see one such commenting that “while AGL thinks climate change is a really serious problem, (it) thinks the profitability of existing generation capacity is a higher priority” and you can find 444 Google News current entries combining “dirty” and the company name — but AGL’s efforts to cope with its responsibility to shareholders now and in the future as well as with the social and political need to be on the front foot with respect to sustainability are on public display. Only the naive, the facile and ideological warriors think or claim the choices are easy and capable of swift resolution.
The annual report also makes the point that “complementary policies” will be needed (beyond the RET, a measure still burdened with uncertainty) to “address barriers to exit for ageing emissions-intensive power stations.”
What stands out if you try to be objective is that the power of coal in Australian electricity supply is not just high right now but is going to remain so for years ahead. Moving towards a lower emissions mix requires a lot of time, as the AGL chairman is clearly saying, and progress isn’t helped by our national inability to forge a durable, clear and efficient melding of energy and carbon abatement policies — or the national inability to have a literate discussion about energy supply.