AGL Energy chair warns against ditching coal in haste
AGL Energy says a hasty, disorderly transition away from coal-fired electricity will trigger “chaos”.
AGL Energy has warned that “blind Freddy” could see that a disorderly, hasty transition away from conventional coal-fired electricity will trigger “chaos”.
As South Australia was last night gripped by a major blackout, AGL — the largest generator in the national electricity market — also cautioned against piecemeal state-based renewable schemes.
And amid speculation over a possible closure of the Hazelwood power station, the utility suggested such a move would put upward pressure on power prices, benefiting remaining generators.
The comments came as AGL suffered the ignominy of a first strike on executive remuneration at its annual general meeting yesterday as investors pushed back against the remuneration report showing chief executive Andy Vesey’s take-home pay had surged from $4.4 million to $6.9m.
The strike came on an otherwise positive day for AGL, in which the shares ended up 5.8 per cent to close at $18.70 after the company announced plans for higher dividend payouts and a $596m share buyback.
While the meeting faced protesters outside calling on the company to exit fossil fuels more quickly, AGL chairman Jerry Maycock said quitting coal by 2025 was “pretty well unimaginable” given the “very, very big number” of dollars in investment that would be needed.
He declared the challenge was “how do we have an orderly transition away from carbon-based generation” when coal-fired electricity was so dominant.
“Blind Freddie can see that a disorderly and an unduly hasty transition will create chaos,” Mr Maycock told the meeting.
AGL owns the brown coal Loy Yang A power station in Victoria’s Latrobe Valley, as well as the Liddell and Bayswater power stations in the NSW Hunter Valley, and has pledged to close its coal-fired plants by 2050.
Mr Maycock said the utility was looking at “what are the economic drivers that can make it attractive for us to invest in renewables at the right pace” and added that a $2 billion-$3bn renewables fund it had set up with Queensland Investment Corporation and Future Fund backing would accelerate that.
But “a bit of a framework” from the government was needed, he told shareholders.
“We cannot do it unilaterally. The system is integrated, it requires a lot of moving parts to be thought about, it’s got to be done in a managed fashion,” he said.
Mr Maycock also pointed to the situation in wind-reliant South Australia in July, when the state was hit by massive price spikes that threatened shutdowns at BHP Billiton’s Olympic Dam mine, Arrium and Adelaide Brighton Cement.
He said “we have to be realistic” and “we have to take care of the security of supply of energy in this country”.
The strike on executive pay at the AGL meeting will have other company executives on edge as the AGM season kicks into gear.
Mr Maycock said it was disappointing that more than 25 per cent of votes were cast against the remuneration report.
He said that after a year in which the total return to shareholders had exceeded 22 per cent, and management met particular targets, the pay was appropriate. Still, he vowed to review disclosures over executive pay and short-term incentives.
The protest vote comes as AGL yesterday forecast that its underlying profit would rise to between $720m and $800m.
After the meeting, Mr Maycock warned against a mishmash of energy policies in the wake of a Grattan Institute report that warned that state-based renewable targets were likely to drive up power costs for “no net environmental benefit”.
Over the past decade, fragmented energy policy between the states and federal government “has not served the country particularly well”, sometimes creating “perverse incentives for people to do things which are actually not necessarily in the national interest” and driving up costs, Mr Maycock said.
“We have seen a lot of cost introduced into the system which frankly could probably have been avoided if it were done on a more wholistic basis,” he said.
“We’re advocating for a much more holistic approach to this transition away from fossil fuel generation towards renewables.
“And frankly without that co-ordination, that holistic approach, we do run the risk that it’s going to be piecemeal. We’re going to incentivise the wrong behaviour and we’re going to add unnecessary cost to the system.
“I think that would be unfortunate for the country, it would be unfortunate for our customers and should be avoided if at all possible.”
His remarks come amid speculation that Hazelwood’s French owner could close the plant as early as April, although the Victorian government has said that no decision has been made. Royal Bank of Canada analysts have said that such a closure would be positive for AGL, which owns nearby Loy Yang A, because it would support higher prices over the medium term.
Mr Vesey said the Victorian market had sufficient supply at the moment, but the exit of significant generation would put upward pressure on prices.
“It’s very hard to speculate because its all a question of balance between what generation is available and what load is in the market at any given point in time,” Mr Vesey said. “But if everything were the same and you lost generation ... all remaining generators would see a benefit from that.”
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