Its promise to spend $20bn to build 14 gigawatts of renewable power or 20 per cent of the nation’s requirements was made to satisfy national interest grounds and offset any ACCC competition concerns over its Origin bid.
Given the surplus of capital chasing renewables, questions must be raised over whether the Brookfield promise adds much to the national interest and truly offsets any competition concerns.
The ACCC also needs to be sure such a promise will be fulfilled before accepting the claim, because after all Brookfield’s Stewart Upson may commit to fly to the moon but that doesn’t necessarily mean he will do it.
Brookfield argues the investment is necessary given Origin’s generation deficit and the commercial benefits in controlling both. This is more a private benefit than in the national interest.
The screaming need for more renewable investments isn’t due to a lack of available capital but a lack of long-term government commitments.
Brookfield has massive investments in renewable energy around the world, in every region but Australia, it seems. So what makes it so certain it will change this time around and if so, why now? Brookfield has 25GW in renewable generation in place around the world and another 110GW under development in North and South America, Europe, India and China.
Upson argues renewables are an obvious investment today, given Origin is short of generation capacity, and with 24 per cent of Australia’s energy retail customers there is a clear need to fill the gap with renewables.
The economics of energy retailing is such that it’s better if you also own the generation. That way you tend to get better pricing and risk control. The best way to get better returns is through higher energy prices. That is not on the national wishlist.
Brookfield’s only known investment in renewables in Australia was back in 2018 when it acquired 9 per cent of then listed wind farm operator Infigen.
It sold out in February 2020 at 71c a share, generating a handy return on the original 58c investment, but without building any new capacity.
The list of known renewable investors in Australia include Andrew Forrest who paid about $4bn for CWP Renewables after an auction in which Origin and CDPQ went quiet after Brookfield’s interest in Origin was revealed.
QIC and AGL paid $3bn for Tilt in 2021, beating bids from CDPQ, APA and Engie.
Petronas spent $1bn on solar firm Wirsol, and other owners and bidders include Shell, Acciona, Macquarie, Neoen and Inpex. The Victorian government has thrown its hat into the ring with a promise to spend $2bn on renewables at a time when the new NSW government has declared privatisation off limits.
This is just a sample to show that availability of capital is not the issue in Australia – it has more to do with lack of long-term government policy, regulations and alternative projects.
Hopefully that is being corrected now in Canberra.
Brookfield money is relatively expensive, given its threshold investment hurdle of 13 per cent. That’s not necessarily unreasonable given the long process of dreaming up a project, finding the sites, getting the approvals, acquiring the equipment and then getting started.
Origin sold its only renewable asset, the Stockyard Hill wind farm, to Goldwind in 2017.
If you wanted to buy renewable developments, then AGL is more prospective than Origin. If it all gets too hard Brookfield can just drop the planned renewable investments. How would the ACCC look then? How can it monitor such a promise?
The Brookfield offer is a 10-year investment plan which is commercially reasonable but tough for the ACCC to monitor, even if the Mortlake gas peaker was ring-fenced from the deal.
Its future connections to new projects are where the competition concerns lie.
Brookfield will lodge an intention to make an authorisation application next week and then go through the processes with the ACCC to make sure the forms are filled in correctly, before a three-month clock is set ticking in clearing the deal.
Authorisation applications are considered a safer bet because there is a timeline for both the original application and the appeal. If the deal is found to be anti-competitive you get clearance if it is deemed to be in the national interest and this outweighs competition concerns.
Brookfield owns Ausnet, the Victorian transmission company, and arguably owning both would give it some say over what projects to connect and when.
That is why the assets were split in the first place, to promote competition.
The counterargument is Ausnet only serves one Origin asset now, the Mortlake gas peaking generator, so the present danger is low.
This is more so given Ausnet is subject to regulatory controls and electricity prices are set against an AEMP benchmark.
The generators set their own prices by bidding into the daily auctions and it’s only the default offer cap that is set.
The regulatory mess around energy works by setting price caps, which means the retailers can compete below that price line and competition is the best regulator.
The good news is Brookfield acknowledges that if it charges too much customers will walk.
It is also a big fan of Origin’s 20 per cent stake in British operator Octopus Energy, whose Kaken software is used by the Origin customer relations team.
That is of course if Brookfield gets its hands on the keys.
One question the ACCC will consider is what happens if Brookfield doesn’t get control. The evidence suggests life goes on without a major impediment to competition.
Competition concerns
When the ACCC boss’s own past behaviour is offered as a reason why new rules should be imposed one might think Treasury might ask some questions.
Back in 2021 Gilbert & Tobin’s antitrust leader, Gina Cass-Gottlieb, was advising Adore Fertility in its $12m takeover of Virtus Health.
The deal was controversial because Cass-Gottlieb tried to ram the deal through without giving the ACCC time to consider the matter. The ACCC took the parties to court and the merger was abandoned.
The very same deal was suggested as a reason why the ACCC should have compulsory notification powers.
Cass-Gottlieb is now the ACCC boss.
If the compulsory notification powers were in place, there would be a deal threshold and $12m would be too low.
But the ACCC would have “call in” powers so it could hear about a deal and ask the parties to please explain.
There would also be time limits, which on present form the ACCC fails.
One reason for the delays is the increase in resource-intensive authorisation applications which take 150 per cent more resources than the standard merger approval (Brookfield to be added to ANZ-Suncorp and Armaguard).
The parties (Telstra and TPG) normally end up in the tribunal (court), and appeals are only on material already presented to ACCC upfront, so submissions are front loaded.
The ACCC may just seek compulsory notification for digital platform deals but this would be dumb and run counter to the laudable aim of having economy-wide enforcement rules.
Spotted in the losing Hawthorn AFL club coach’s box last week was the busy former ACCC chief Rod Sims, on a one-off basis, but more external job announcements are to come.
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Brookfield’s belated love for Australian renewable assets – designed to help its $18.7bn bid for Origin – should be assessed against a track record of $80bn in investments in Australia. They range from ports to hospitals, but none are in renewable energy.