AGL Energy abandons major offshore wind farm project in a blow to Victoria’s green transition

AGL Energy has abandoned its offshore wind-powered electricity generation project in Victoria’s Gippsland region, dealing a significant blow to the state’s renewable energy transition plans.

Victoria has placed offshore wind at the heart of its plan to replace coal. Picture: AFP

AGL Energy has walked away from its Victorian offshore wind ambitions, toppling a third project in the Gippsland region and throwing into disarray the Allan government’s plan to trade coal for the clean energy source.

The company, whose biggest shareholder is Atlassian billionaire Mike Cannon-Brookes, is the highest-profile exit from Victoria’s offshore generation proponents, and underscores the challenges facing Australia’s most fossil fuel-dependent state.

AGL, along with its partners, has surrendered its feasibility licence, in effect halting plans to explore the potential for running large-scale turbines in the region.

Victoria has placed offshore wind generation at the centre of its strategy to reduce emissions and secure new energy sources as coal-fired power plants like AGL’s Loy Yang A – scheduled to close in 2035 – are decommissioned.

Two offshore wind-powered generation projects have already been shelved, raising concerns about the state’s ability to deliver on its 2032 target of at least 2 gigawatts of offshore generated capacity by that deadline. Nine developments remain standing, although only a few are undergoing substantial work.

The collapse of AGL’s proposal 2.5GW project is also a blow to the federal government, which has attempted to prop up developments by waiving ongoing licence fees reportedly worth close to $1m annually.

The viability of the industry was dented when the Victorian government postponed a scheduled auction which developers said was critical to provide investment clarity. The Victorian government had previously denied a report by The Australian that a delay to the auction was being considered.

State government officials had hoped that Gippsland, with its relatively favourable wind conditions and proximity to the national electricity grid, could become a hub for large-scale renewable energy investment.

A spokesman for AGL said the company and partners had determined that the project, known as Gippsland Skies, would fold.

“Gippsland Skies has made the decision to discontinue feasibility studies for a potential offshore wind project off the coast of Gippsland,” the spokesman said. “AGL will prioritise options in its development pipeline of onshore wind, batteries, pumped hydro and gas firming projects, including an expectation of taking final investment decision on 900MW of grid-scale batteries in the next 12 to 18 months.”

The Victorian government has insisted the sector is on course.

But Victoria’s reliance on coal has made the transition to renewable energy more urgent than in other states. The Yallourn and Loy Yang coal-fired power stations, which supply a significant portion of the state’s electricity, are aged and beset by interruptions. In August, Yallourn, owned by EnergyAustralia, suffered a potentially catastrophic incident when a turbine inside the coal station broke loose reducing it to one-quarter of its capacity.

Without new zero-emission generation coming online, households and businesses could face higher energy costs and the state may struggle to meet its climate targets.

Earlier this week, Victoria’s Auditor-General said the state’s offshore wind-powered electricity generation targets were not on course and that the closure of Yallourn would leave the state grid precariously placed.

Victorian opposition energy spokesman David Davis said capitulating on Gippsland Skies underscores the “shambolic” nature of the state’s grid. “The decision of AGL to abandon offshore wind in Victoria is a body blow to Labor’s offshore wind plans and to critical energy supply,” Mr Davis said.

“Victorians are increasingly at risk of blackouts because of the incompetence of (Premier) Jacinta Allan and her energy minister, Lily D’Ambrosio. Supply is less secure – energy prices have surged hitting businesses and families for a six.”

While AGL’s withdrawal is a blow to groups championing an accelerated transition away from fossil fuels, it is likely to be welcomed by the energy company’s frustrated shareholders.

AGL faces one of the most ambitious and expensive overhauls in corporate Australia as it works to retire its coal-fired assets and replace them with low-emissions ones, including large-scale solar, wind and battery.

The company plans to spend up to $20bn by 2035 to build about 12GW of new generation and storage capacity – a goal which will demand tight cost control at a time when profit margins are already under pressure.

While AGL had dramatically grown its renewable energy pipeline to 11GW and it has committed to near-term expansions of its battery network, the upfront outlay is considerable.

The company has said that higher capital spending would weigh on its near-term earnings, and that underlying profit in the 2026 financial year would be between $500m and $700m against FY25’s $640m result.

Industry experts say the decision underscores the financial and technical challenges facing large-scale offshore-based wind projects in Australia.

Regulatory hurdles, transmission constraints and the sheer scale of upfront investment make the sector a risky proposition for developers, particularly as states and the federal government work to co-ordinate policy incentives.

The other companies to abandon Gippsland are German energy giant RWE’s proposed 2GW Kent Offshore Wind Project, and BlueFloat Energy of Spain, which dumped its Gippsland Dawn project after failing to find a buyer.