Who will fund AGL’s green vision?

Mike Cannon-Brookes, AGL Energy’s largest investor. Picture: Kevin Dietsch/Getty Images

Difficult times ahead for the AGL Energy board as it attempts to find some $20bn to fund an accelerated decarbonisation strategy and create new clean electricity generation.

One unanswered question is how much of that funding the company will source from investors – AGL flagging it would be a mix of balance sheet, partnerships and offtakes.

“As I bore even myself saying, sadly the ‘IC’ in ROIC is invested capital, so you do only get the return on your own capital that you invest,” MST Marquee research analyst Mark Samter wrote in an early note to clients.

“The quantum of capital needed to even partially replace the coal capacity is eye-watering,” it reads. “Just how much of those earnings you are happy to see evaporate as a shareholder will determine how much equity you are willing to give to retain part of that earnings stream.”

It is “entirely unfathomable” that AGL won’t be raising more capital in the near term, Samter wrote, in particular if a bid for CWP Renewables is successful. Both AGL – through Tilt Renewables, which it owns alongside the Future Fund and QIC – and Origin, and Spanish utility Iberdrola, are in the final round to purchase the company being sold by Partners Group.

“For institutional investors to want to participate the discount is going to have to be enormous,” Samter wrote.

Part of the concern for those investors will be how much influence Mike Cannon-Brookes and his Grok Ventures vehicle has on AGL – and whether the billionaire will continue his siege of the company’s management. That Paula Dwyer was to be the next AGL chairman quickly made it into the public domain after the ex-Tabcorp director spoke to Grok earlier this month. (She subsequently withdrew.)

The Atlassian co-founder also released the names of four of his favoured board candidates hours before AGL announced the outcome of its strategic review on Thursday morning.

Some in the market are sceptical that investors will see Grok-suggested candidates as truly independent directors. If Cannon-Brookes does end up with outsize influence on the company, it may cool interest from other investors.

It should be noted, however, that all four of the proposed board members – ex-Energy Security Board chairman Kerry Schott, Tesla Energy director Mark Twidell, Swinburne chancellor John Pollaers and CSR director Christine Holman – have declared they are independent of Grok in their correspondence with AGL.

The $20bn price tag on the transition strategy is the same as that set aside by Cannon-Brookes and his bidding partner Brookfield in February. At the time, the consortium argued it would be far easier to raise that money as a private company.

On Thursday, AGL committed to the same expenditure. Its acting chief executive, Damien Nicks, admitted as much when he said the company had “heard it from our customers, communities, governments, capital providers and shareholders – the time is now for AGL to show leadership in the energy transition”.

Now it will just have to find the money. AGL is betting that the ESG overhang will disappear as the company transitions away from being the country’s largest carbon emitter. It hopes some of the investors who have either exited – or stayed away – will be back on the register as it proceeds with the strategy.

Meanwhile, AGL has also cancelled a $2bn energy transition funding deal it struck with Global Infrastructure Partners in May – although it provided no further detail. The company has not, however, closed the door to GIP about different funding deals.

But as MST Marquee’s Samter wrote: “Clearly, there are certain limitations to the new strategic direction … this, combined with an agitating major shareholder who, in my view, has no right/knowledge base to be forcing everyone else down his warped view of energy market, makes AGL very hard to touch still for me.”