AGL ‘unlikely’ to sell Liddell power station to Alinta

Alinta Energy’s prospects of buying the Liddell power station have been shot down by analysts.

The ageing Liddell power station in the NSW Hunter Valley. Picture: Jane Dempster

Alinta Energy’s prospects of buying the Liddell power station have been shot down by analysts, with the station’s owner AGL Energy described as unlikely to part with the ageing facility.

The Australian revealed earlier this week that Alinta was preparing to approach AGL with an offer to take control of Liddell with a view to extending the life of the plant beyond its current planned closure date of 2022.

Alinta, which in January finalised its $1.1 billion purchase of the Loy Yang B brown coal power station in Victoria from Engie and Mitsui, believes Liddell could help with its efforts to grow its footprint in eastern Australia.

But research from analysts at JPMorgan yesterday said it was unlikely the deal would ever eventuate due to a number of market and logistical reasons.

Selling the power station to Alinta would hurt the wholesale prices that AGL can charge for energy from its other assets, the analysts said, while also helping a rival that is determined to eat into AGL’s market share.

Operationally, Liddell and AGL’s nearby Bayswater power station are supplied with coal from a single coal loader and are subject to a number of contracts that would need to be unwound.

“Extending (Liddell) would likely have a negative impact on wholesale prices, and therefore the value of the rest of AGL’s generation assets; it would support the growth of a competitor in electricity retailing; and a separation from Bayswater would be complicated with the two assets intrinsically linked,” JPMorgan said.

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The doubts raised by JPMorgan were also echoed by their counterparts at Macquarie, who noted the sale of Liddell would be operationally complex as well as inconsistent with AGL’s broader strategy to encourage and promote the decarbonisation of power markets.

Instead, the Macquarie analysts noted that the federal government-owned Snowy Hydro could be a more logical acquirer of Liddell, given the plant could help fill the three to four-year gap between the current forecast closure of Liddell in 2022 and the start-up of the expanded Snowy 2.0 scheme in 2026.

“What is curious to us in this process is that the government’s 100 per cent-owned energy provider, Snowy Hydro, has not ­recently appeared to have expressed interest in the plant,” the analysts said.

“Unlike Alinta, Snowy is likely to have a stronger incentive to bring Liddell to closure once Snowy 2.0 opens.”

The federal government had previously been critical of AGL’s plans to close Liddell given rising power prices and concerns about energy security, but Macquarie does not believe the growing pressure will ultimately hurt AGL.

“AGL is under immense political pressure but the Australian government at this stage does not appear to have the power to force a change, with the ACCC appearing to indicate that it is entitled to close the asset and AEMO indicating if (AGL’s post-Liddell) plan is adopted the shortfall will be covered,” Macquarie said.

“Even the introduction of the National Energy Guarantee and its focus on reliability is likely to socialise the cost of additional reliability, if it is actually needed, to other market participants that are short energy.”

AGL has in the past year been working to grow its presence in Alinta’s home state of Western Australia, a move seen, at least partly, as retaliation for Alinta’s efforts to grow on the east coast.