AGL rejects call to extend coal-fired power station
AGL Energy chief executive Andy Vesey says building coal-fired power stations is no longer ‘economically rational’.
AGL Energy chief executive Andy Vesey says building coal-fired power stations is no longer “economically rational”, committing to deliver a coal-free plan to avoid a market shortfall when AGL closes the Liddell coal-fired power station in NSW in 2022.
In doing so, Mr Vesey has implicitly rejected the federal government’s calls for the company to extend the life of the ageing Liddell or sell it to someone who will, after being hauled to Canberra yesterday to meet with Malcolm Turnbull. “Following today’s meeting with the Prime Minister, we have committed to deliver a plan in 90 days of the actions AGL will take to avoid a market shortfall once the Liddell coal-fired power station retires in 2022,” the AGL boss said last night.
“I was asked to take to the AGL board the government’s request to continue the operation of Liddell post 2022 for five years and/or sell Liddell, which I agreed to do,” he said.
The board has no doubt considered whether to sell or extend the life of Liddell many times.
AGL repeated statements made last month that the gap left by Liddell would be filled with a mix of lower demand, demand management, gas peaking plants, pumped hydro and batteries.
“Short term, new development will continue to favour renewables supported by gas peaking (and) longer term, we see this trend continuing with large-scale battery deployment enhancing the value of renewable technology,” Mr Vesey said.
“In this environment, we just don’t see new development of coal as economically rational, even before factoring in a carbon cost.”
Mr Turnbull called the AGL boss to Canberra after the Australian Energy Market Operator warned the 2022 closure of what would then be the 50-year-old Liddell would need to be replaced by up to 1000MW of “dispatchable power”, which currently means coal, gas or hydro power.
“AEMO proposes immediate development of an approach to retaining and incentivising investment in dispatchable capability in the National Electricity Market,” AEMO chief Audrey Zibelman said in a letter to Energy Minister Josh Frydenberg last week.
Mr Vesey, who on Friday offloaded $1.24 million of AGL shares, made no comment yesterday on the economics of extending the life of Liddell.
But he addressed the issue last month when the company delivered its full-year profit report.
“We haven’t really done the analysis because we don’t plan to keep it open,” the AGL boss told The Australian at the time.
“But it (the cost) would be significant and large enough that it would make you consider putting it (the capital) somewhere else. It’s not a small number and the capital would have to start being spent soon.”
He said there would also be an increase in costs of sourcing new coal.
“If somebody is going to spend a significant amount of capital, go spend it on something that is new, clean, modern, reliable and will be around for a long time,” Mr Vesey said.
“When we made a decision to close Liddell at the end of its life, a big part of that was our view of carbon, and it still is, but the pure economics probably reconfirm that view that Liddell should close in 2022.”
Mr Frydenberg said yesterday that extending the life of Liddell remained the only option so far on the table to avoid a shortfall in 2022.
“The company clearly wants to find additional new supply as their option, but from the government’s perspective, obviously our preference, from what the options we know today, is to keep the power station open,” he said, adding he looked forward to seeing what AGL came up with.
At its full-year results in August, where it guided to record pre-tax operating profit of $940 million to $1.04bn largely because of higher power prices, AGL stressed it was considering investing $2bn in new renewable power, gas-fired power and gas storage and imports.
“AGL is currently investing more than any other company to build new energy supply to help drive down power prices, and taking more action than any other energy retailer to help customers access better deals,” Mr Vesey said yesterday. “The best way to address pricing challenges in the market is to increase supply. We’re investing more than anyone else in building new supply to drive down prices and stand ready to invest more when there is certainty on carbon policy.”
In a notice to the stock exchange yesterday, AGL said Mr Vesey had sold 50,000 ordinary shares on-market on Friday.
