Shell ‘can become No 1’ in power

Trevor St Baker predicts Shell will leapfrog Origin as the nation’s largest supplier of power to big business.

Trevor St Baker: ‘There is huge potential for Shell to grow this business.’ Photo: Glenn Hunt

Energy maverick Trevor St Baker predicts Shell will use its $620 million takeover of the electricity retailer he founded, ERM Power, to leapfrog Origin Energy as the nation’s largest supplier of power to big customers as part of a plan to grab market share from the big three operators.

The long-awaited move by the oil and gas major saw it swoop on Brisbane-based ERM yesterday with a $2.465 a share offer pitched at a 43 per cent premium, backed by Mr St Baker as the company’s major shareholder and also the company’s board.

The 79-year old entrepreneur told The Australian he backed Shell because of its vision to become the world’s leading electricity retailer combining generation, supply and trading as part of a shift towards a lower carbon energy mix.

“I agreed to endorse the sale because Shell is the type of customer who could take ERM’s electricity retailing model to another level along with the electrification of the transport sector,” said Mr St Baker, who owns a 27.5 per cent stake in ERM.

“For years people never thought I’d agree to put the family’s interest on the market but I believe there is huge potential for Shell to grow this business.”

ERM shares surged 42.4 per cent to $2.45 yesterday. Mr St Baker said it was time for change to occur in Australia’s electricity sector, with new ways needed to reflect the changing energy mix and technology innovations.

“It really is time for a change. There is a great need for a shake-up in the retailing of electricity and I fully expect ERM will now overtake Origin in the commercial and industrial retailing sector. Beyond that it can go even further and challenge the big three across the board,” he said, referring to AGL Energy, Origin and EnergyAustralia.

Mr St Baker said he planned to plough a potential $170m windfall into a mix of new generation and electric vehicle battery chargers, noting he had already invested $100m in EV charging innovator Tritium and $75m in Evie Networks.

For Mr St Baker it marks another impressive deal in the industry and underlines the attractiveness of ERM’s deep connections with big industrial and commercial customers.

The veteran deal-maker is best known recently for his audacious deal to pay just $1m to the NSW government to buy the Vales Point coal power plant in 2015, conducted through a separate business entity called Sunset Power, and which has since delivered bumper dividends on surging power prices.

But it was ERM which initially set Mr St Baker on the path to energy riches. He founded the company in the early 1990s and initially set it up as a boutique consultancy advising government and business on their power needs.

By 1996 Mr St Baker had spotted the chance to build power stations in Queensland as the market deregulated and ERM went on to build five gas generators in the state by 2007. Earlier this decade it moved into electricity retailing and it is now the fourth largest retailer in the national electricity market due to its focus on providing power to mid-sized and big customers.

Shell, which is understood to have kicked off talks with ERM earlier this month, has already obtained approvals from the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

“This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability,” Shell Australia’s chair Zoe Yujnovich said.

“ERM will become our core power and energy solutions platform and this acquisition is a significant step forward in growing Shell’s integrated power business in Australia. Upon completion, we look forward to welcoming ERM’s staff and customers to Shell.”

Shell has been combing the market for the last few years as part of its global push to become the biggest power company in the world by the 2030s.

Its chief executive Ben van Beurden toured Australia last month, meeting with investors.

While Shell’s earnings are dominated by oil and gas, it wants to shift the weight of its investment dollars to lower-carbon sources to reflect its prediction the energy system will come to rely much more on electricity rather than fossil fuels for its generation.

Australia has been identified as one of six target markets where Shell will look to create an integrated electricity supply business with the potential to scoop up a “mass market” customer base through deal-making.

AGL, Origin and EnergyAustralia hold large retail market shares in many states and control more than 60 per cent of capacity in NSW, Victoria and South Australia against a backdrop of high power prices and at times tight generation in the power grid.

Shell has already started to make inroads in the UK — after buying British household energy and broadband supplier First Utility in late 2017 — where it aims to challenge the “big six” players.

It’s also been pushing into renewables through a deal to acquire German household battery maker Sonnen.