Brett Redman switches on AGL’s big reinvention

AGL CEO Brett Redman. Picture: Britta Campion

On Tuesday, Brett Redman held the most important investor day he had ever had as chief executive of Australia’s largest electricity provider, AGL. “We have big challenges and we need to present big answers,” he says.

Those challenges are about climate and energy. “They are the ­issues that have changed the last five prime ministers. They are that big. Where would you rather be than with the biggest energy electricity generator, biggest renewable developer, biggest emitter of carbon? I’ve never shied away from that. From day one I’ve talked proudly about our coal-fired sites so that those people know that they are supported.”

On investor day, Redman was thinking as much about the government as his shareholders.

“Government is a very important stakeholder for us. I’m thinking about what the community is looking for here, because if we get that right, the government will fall in with it. If we get it wrong and the community thinks we’ve got it wrong, government will rightly challenge us.”

Much has changed at AGL. When Redman took over the business in August 2018, political brinkmanship on climate change and electricity prices was peaking, and the toxic government relationship with the “recalcitrant” AGL over the 2022 closure of the Liddell power station looked irretrievable.

The new CEO has not only retrieved that relationship, but he has reset how the company manages risk in the transition to renewable energy.

On Tuesday, his new strategy tackled how AGL must respond as a growing number of investors and lenders move away from coal.

AGL as the vertically integrated “gentailer” is no longer fit for purpose and Redman has split the business into two. New AGL will be the largest energy retailer in Australia, driving clean energy and housing the trading business. PrimeCo will be the nation’s largest electricity generator, housing the coal-fired power. Over time, generator sites will become energy storage hubs with batteries.

No one pretends it will be a breeze. Since Redman took the reins, the share prices of AGL and Origin have been hammered as the two listed gentailers grappled with the accelerating shift to renewables and government intervention.

“People are still coming to grips with the value of the two businesses,” says Redmond. “The logic of the split is landing well and people are going to the next phase, which is: ‘how do I value these businesses? What is the value proposition?’ The conversation we will now have with the market is why these are big strong businesses with good growth prospects built in.”

Macquarie Research, which had mooted a clear separation of coal-fired power station Loy Yang A ahead of the investor day, called the move “a breath of fresh air”. But will AGL go as far as a full demerger?

“The advantage of the full demerger option is that it is clean,” Redman says. “While the two businesses sit in the same corporate structure, they are always going to have some of the same problems we see today. Their messages get muddied and intertwined. The single biggest advan­tage is they will be able to articulate with clarity their message and their strategy, and for their stakeholders — be it funders, customers, communities — to have a clean engagement with the entity they want to engage with.”

A 15-year veteran at AGL, Redman spent six years as the CFO and has long been championing green energy. At a Macquarie investment conference in 2015, he told delegates if Australia were to move to 100 per cent renewables it would need $150bn of investment in renewable energy and $100bn in batteries. “I kind of stirred everyone up,” he says. “I said each megawatt hour of battery is about the size of a 44-foot shipping container. If you lay all those shipping containers together end to end they would stretch from Sydney to Perth and a third of the way back again.”

By October 2019, he was hailing the dawn of the battery age. “The leadership team here thought it sounded like a rock band. One of them got us all black T-shirts with Black Sabbath lettering saying ‘dawn of the battery age’ and I wore that to some of our management meetings. We’re believers. I’m a believer.”

Redman’s battery strategy will plays a critical role at PrimeCo. Battery storage projects at the huge coal and gas-powered generator sites are under way, with a final investment decision for a 250MW battery at Torrens Island in South Australia and plans lodged for a four-hour grid-scale battery at Loy Yang in Victoria. “I’ve been talking to the team almost as soon as I got in the big seat to show me these projects, and get them done, really urging the team to work it out,” he says.

Wind was where AGL first threw its support behind the nascent renewables market. From 2006, it built huge wind farms and put them into project finance vehicles. “It was a very immature market so you needed someone like AGL being the developer, ­operator, offtaker, financier — all these things to really make it work,” Redman says.

The problem was that AGL investors expected higher returns than infrastructure could deliver. As CFO, Redman knew AGL needed to develop renewable energy but no longer wanted to be the main financier. His solution was to create a renewables fund and bring in the big investors. “It was the hottest game in town when we did it,” he says. The ­Future Fund and QIC came on board. AGL took 20 per cent of the equity but 100 per cent of the energy output for customers.

Two weeks ago that fund, Powering Energy Renewables or PowAR, won the hotly contested takeover for Tilt Renewables, paying $2.7bn for a pipeline of wind and other assets. “AGL is here not necessarily to own infrastructure,” Redman says. “At our heart, we are here to manage risk. Our customers want a fixed price and reliability. They don’t want to know all the stuff we’re doing in the background, matching up all the different demand and all the ­prices sorted out.”

To manage risk, AGL is adding new assets. In Adelaide, it built the first gas peaker in the country for seven years. But Redman sees a ­future dominated by batteries and some hydro, rather than gas.

“Think about gas peaking in the future as diesel back-up forms today,” he says. “What you are now seeing is delivery through action, with that Tilt acquisition ­cementing the pipeline for big ­renewables and the battery announcements this week including firm funding decisions to get the big batteries going.”

In February, AGL was forced to write down its onerous legacy wind contracts by $1.9bn. The game had changed radically: wholesale prices fell, technology costs dropped and government intervened to underwrite new generation.

Redman sees this as a lesson in risk allocation, but insists he would do it all again. “They are good contracts that have paid well in the past. They have now gone the other way for the balance of their term.”

The other side of the ledger is retail. When Redman took over the business, customer numbers were declining. That trend has been reversed and today AGL touches about 30 per cent of homes with the best net promoter score of any tier-one retailer.

It is households and businesses where Redman sees opportunity for the big trader: managing risk for its 4.2 million customers. “This is a future where every home is generating, every business is generating and taking energy and moving things around. It’s about time-shifting energy: huge complexity, but for the average customer nothing changes when they flick a switch, they just want it to work.”

In a stack of announcements last week, AGL is now the leading installer for commercial solar after buying Epho and Solgen; and a joint venture with OVO Energy in Britain will deliver the next big systems upgrade to the digital platform. There was also a setback, with the Victorian government knocking back AGL’s Cribb Point import jetty.

From June, every AGL product will have a carbon-neutral option. But coal-fired power still delivers the bulk of Australia’s electricity and it remains a major part of the business. “If that ceased tomorrow, the lights would go off,” Redman says. “And a large section of the community are big supporters of the role that part of the business is playing. The future is firmed renewables. What we’re talking about is transition.”

It is now up to the investors in AGL to digest and deliver their verdict on Redman’s corporate split and whether a full demerger of PrimeCo is the best proposition.

“There is no part of our business that doesn’t have a big important role to play in the economy,” he says. “All of them have their place for customers. All of them are investable.”

Using the cards dealt by Canberra shift

Brett Redman was announced as AGL’s new chief executive on August 24, 2018, the same day Scott Morrison spectacularly took out Malcolm Turnbull as prime minister in the now infamous second leadership spill.

“The conspiracy theorists thought that the board had rushed out the announcement under the cover of the change of prime minister, which we all thought was hilarious,” recalls Redman.

Within two days of his appointment, the federal energy minister had changed. Angus Taylor had the job. After months of being the government’s punching bag in the increasingly fractious energy debate, this was the break Redman desperately needed to rebuild the relationship. “Part of it was just ‘use the card you are dealt’. Use that reset of ‘I’m new, let’s have a new conversation’,” he says. Taylor and Redman had similar backgrounds. “I actually grew up in Camden, which is in his electorate, so there was a bit of shared history we could talk over. And that was the beginning of just saying, ‘let’s have a conversation about what we’re doing’.”

AGL had fallen out with the government under former CEO Andy Vesey, after it gave notice it would shut down the Liddell coal-fired power station in 2022. Politicians panicked about blackouts with a fig leaf of energy policy to fall back on. Relations hit rock bottom when AGL refused to consider the option of selling Liddell to competitor Alinta Energy, even after then-PM Turnbull had rung to give the AGL chairman a nudge. The then treasurer Scott Morrison accused AGL of misusing market power.

It was an extraordinary government intervention, but AGL was raking in profits and the optics played into the government’s hand. “Back then I used to talk about it. I felt that we were standing up in the pulpit preaching,” Redman says. “We needed to get down in the mosh pit and get amongst it.”

These are strong words from an acknowledged introvert — “I’ve had more than enough management assessments to know exactly where I am on the scale,” he says.

At his board interview for the CEO job, Redman added “social licence” to the company’s existing strategic goals of growth and transformation, to be given equal weighting. “I had everybody from board down to the front line going ‘what on earth is social licence and what do you mean by it?’ It was not that people didn’t get it at a very conceptual level, but ‘in a practical sense, what are you talking about?’ ” He stresses action not words, pulling back on splashy promises, being values driven.

Since that job interview, the social licence to operate in corporate Australia has become a pivotal question for investors. In the shift to renewables, investors are increasingly weighted to ESG.

Asked about governments, Redman says that, state or federal, his approach is the same. “I say to them privately, if you ask me any question, I will give you an honest answer and tell you to the best of our ability, what we think is going on and what we think. Publicly, we will pick our words and we will pick what we want to do, but privately we’ll give you our best advice.

“We don’t expect you to take it all the time and we recognise the times that you might think that we are a bit biased. And naturally we can’t help at times, with this sort of corporate relationship. But actions eventually prove it out to say that behind closed doors we will be a good partner for you to help you understand what’s happening. You will then take the decisions that you will take.”