AGL’s new-era power disruption

Any lingering doubts that the nation’s electricity sector is in turmoil have been dispelled with the withdrawal by AGL Energy of its restructuring plans and the departure of its most senior company officers. A blocking raid by tech billionaire Mike Cannon-Brookes has been the catalyst for Australia’s largest energy generator to shelve plans to divide itself into renewable and fossil fuel businesses. After securing an 11 per cent stake in the company through a complex derivatives play, Mr Cannon-Brookes lobbied institutional shareholders and made conditions for the restructure of the company impossible. Announcing the change of plans on Monday, AGL said the board continued to believe the demerger proposal offered the best way forward for AGL Energy and its shareholders, and this was also the view of the independent expert.

However, the board said it believed this path was no longer available. Minority shareholders who dominate the AGL share register have been left out in the cold with a company now in crisis and no clear plan for how it will navigate the transition that inevitably involves the closure of its coal-fired power units, which provide a large part of Australia’s electricity supply.

Implosion of the AGL deal coincides with a spike in wholesale electricity prices and a change in the political winds towards more ambitious climate change targets under an Albanese Labor government. The climate action plan taken to the election by Labor involves boosting renewable energy to 82 per cent of supply by 2030 and introducing a cap-and-trade emissions system on the nation’s biggest companies. Missing has been any firm detail of how that transition will happen other than spending billions of dollars boosting transmission infrastructure to better connect states and remote areas of the grid. The risk is that businesses and taxpayers will be left badly exposed by the lack of planning on what can be done to ensure that supplies are available when wind and solar are unable to deliver.

Difficulties in the electricity sector are not confined to Australia. Europe and the US have experienced periods of supply disruption because of the inability of intermittent sources of electricity to deliver on demand. Britain also is facing rising prices and supply disruptions because of a combination of the war in Ukraine and the shift to weather-dependent forms of generation. A spike in the price of gas has forced many small electricity retailers out of business. The latest British response has been to impose a super-profits tax on oil and gas companies and to give consumers a special cost-of-living payment. The impact will be to discourage the oil and gas sector at a time it is most needed to produce more to take the pressure off prices and to transfer the pain of the transition from power consumers to taxpayers. The worst outcome, here and overseas, will be to socialise the losses in power generation while allowing companies rushing to profit from new forms of generation to proceed unchecked. A firm approach is needed to guide the low-emissions transition. The experience at AGL does not bode well for what may lie ahead.