AGL Energy pressured to reveal new strategy after demerger derailed
Power giant AGL Energy faces impatient investors looking for a cohesive plan to guide it through massive electricity market volatility.
The country’s largest power company has been busy rewriting its centrepiece strategy, ever since it was forced to ditch demerger plans after a campaign led by Atlassian billionaire Mike Cannon-Brookes.
Ahead of an update later this month – where it will lay down the initial outcomes of the review – AGL faces investor impatience. They want to know how management will guide the company through unprecedented electricity market volatility.
AGL directors Vanessa Sullivan and Graham Cockroft face a formidable to-do list: anchoring a fourfold revamp that involves adapting the demerger rationale for a single but renewed business, reworking climate plans, executing the correct energy mix to move through the transition and determining the capital structure to fund its existing business and bulging renewables pipeline.
Adding to complexities is the search for a new chief executive and chairman, with both Graeme Hunt and Peter Botten soon out the door.
Expectations were firming that a new chair would be named at the looming update, sources said, handing more credibility and weight to the new strategy. A replacement for Mr Hunt could be introduced later in the year.
With 2023 financial year guidance to be delivered at the update, the future of AGL’s giant coal power stations will be among the most closely scrutinised aspects of the company’s revamp, according to top 10 shareholder Van Eck.
AGL sparred with Mr Cannon-Brookes’ Grok Ventures over closure dates for the Bayswater and Loy Yang A plants, with the billionaire demanding it switch off coal earlier – by 2035 – to meet Paris environmental goals.
But with the fossil fuel still dominating its earnings, AGL faces a challenge in balancing the speed of a shift into renewables, where it boasts a huge pipeline of clean energy and storage projects.
“They need to work out what their long-term plan is, in terms of what they’re going to be doing with their coal power plants, if they’re going to keep them, how long for and then how they’ll be increasing their renewables production,” Van Eck portfolio manager Jamie Hannah said.
To meet its climate goals, AGL plans to close the doors of the Bayswater coal plant in NSW up to five years early, by 2030. Victoria’s Loy Yang A facility faces the axe from 2040, years before a retirement scheduled for 2048.
Getting banks on board may also pose a challenge. AGL has boasted prior to its planned demerger of strong financial support for its debt and provisional investment-grade credit ratings for the two businesses. Now, with the two proposed businesses folded back into one, Australia’s biggest coal generator will need to mount its case for attracting capital from a climate-aware banking industry.
“I think financing is part of the issue here,” Mr Hannah said. “Coal power plants are generating returns and they probably want to keep them for as long as possible but a lot of investors want to see a move to renewables.”
Grok met with AGL after its results in August and the influence of its largest shareholder in moulding the new AGL will be watched, with the group expected to be handed a board role. Understanding the pace of AGL’s switch to clean energy is critical, according to Morgans analyst Max Vickerson. The strategy should detail “how AGL’s third-party renewables investment partnership will be shaped in balance sheet investment and the structure of energy offtake, along with the pace and scale of planned investment in storage”, he said.
Management upheaval including the departure of chief customer officer Christine Corbett and future business and technology head John Chambers may also have a bearing on the direction of the AGL’s business. Mr Chambers was involved in managing the AGL Next innovation arm, which comprised two dozen staff testing technological ideas that could be folded into the existing business or spun out as new products. A restructure late last year saw AGL Next move from the future business and technology unit to the customer markets division, now led by chief customer officer Jo Egan. Former Telstra executive Bruce Hardy is now in charge of AGL Next as part of his emerging business unit while the tech function is housed within finance under CFO Damien Nicks.
AGL may stick with a plan to accelerate investment in mobiles, data, broadband and electric vehicles, with any targets keenly examined by its rivals. “They’re under pressure to keep that going and there’s a lot of competition in that space now,” Mr Hannah said.
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