Brookfield, EIG offers sweeteners to win $18.7bn Origin approval

Brookfield and EIG have promised to increase spending on new renewable energy generation assets by up to an additional $10bn if they secure ACCC approval to take over Origin.

Brookfield and EIG have promised to increase spending on new renewable energy generation ­assets by up to an additional $10bn and ring-fence its infrastructure business AusNet from Origin Energy if it secures regulatory permission to proceed with its $18.7bn deal for Australia’s largest electricity and gas retailers.

The sweeteners from the bidding consortium mark its attempt to win favour with the Australian Consumer & Competition Commission, widely seen as the biggest hurdle for the deal to proceed.

Analysts had flagged Brookfield’s ownership of AusNet as problematic, but the Canadian private equity giant told the ACCC that it would offer a formal undertaking to ring-fence the business away from Origin.

“The proposed transaction to acquire Origin Energy will not be detrimental to competition in any market given the intensely regulated nature of the electricity generation sector, reinforced by the fact that AusNet and Origin will remain separate stand-alone companies with separate investor groups,” Brookfield Asia-Pacific chief executive Stewart Upson said.

The decision of the ACCC is a watershed moment for Australia’s energy transition plans. Should the competition regulator approve the deal, Australia is likely to accelerate its transition away from fossil fuels. Keen to satisfy the public interest test of the regulator, Brookfield and EIG said investment in new clean energy would now total between $20bn and $30bn.

Brookfield had recently said it intended to spend $20bn on developing new zero emission energy sources, but the partners have advanced work on their generation pipeline in recent months and have since increased their budget.

“The transaction will provide substantial public benefits because we intend to invest between $20bn and $30bn in rapidly expanding and accelerating the renewables build-out at Origin Energy Markets,” Mr Upson said.

“This will deliver both environmental benefits by helping Australia meet its net-zero targets, and consumer benefits by putting downward pressure on electricity prices and reducing the risk of market dislocation events over time. It will also provide a range of public benefits, including assisting Australia to meet its international commitments to address climate change.”

Any increase in renewable energy generation investment would be welcomed by Australia’s energy industry and the government, which is under pressure to deliver on ambitious targets.

The federal government has legislated a target of having renewable energy account for more than 80 per cent of Australia’s electricity mix by the end of the decade, but new developments are well behind schedule and coal power stations are being retired at pace.

Australia’s energy security could be jeopardised, while household bills would rise if the nation does not build renewable energy generation quickly enough – which is causing increasing alarm among industry executives.

A veto of the deal would slow the pace of Australia’s energy transition. Origin, a publicly listed company, is pushing quickly away from fossil fuels, but it does not have the balance sheet cap­acity to move as quickly as Brookfield and EIG.

But the consortium’s deal is complicated and this could weigh on the decision of the ACCC.

Under the deal, Brookfield and EIG will split up Origin, with Brookfield taking its energy markets business – including power generation, trading and retailing – and EIG buying its 27.5 per cent stake in Australia Pacific LNG.

The ACCC could rule on the proposal by September, but a decision could drag into next year should it reject the consortium’s proposal. Brookfield and EIG could then appeal, an avenue successfully used by other companies seeking green lights for deals.

Should it clear the ACCC, the consortium will also need clearance from the Foreign Investment Review Board.

Analysts and investors believe the offer is likely to win favour here, but have warned energy security is a sensitive issue.