The $8bn dollar takeover bid for AGL Energy is a sign the “world is waking up” to the rapid shifts in electricity generation and demand with the surprise only in its timing, Kerry Schott, the former chair of Australia’s Energy Security Board, has said.
The 185-year-old energy firm on Monday rejected the unsolicited bid by Australian technology billionaire Mike Cannon-Brookes and Canadian asset manager Brookfield as it “materially undervalues the company”.
The bidders say they would shut AGL’s coal-fired power plants by 2035. AGL, which plans to close its Liddell plant by April 2023, said earlier this month it would expedite the demise of its Bayswater plant to no later than 2033 and Loy Yang A by 2045.
Schott, who headed the national coordinating energy group until last October, said the bidders’ plans merely aligned the timetable to the current trajectory seen as most likely by the Australian energy market operator.
“The world’s waking up to the disruption that’s been going on in electricity for a while now,” Schott said. “It gets down to how fast can we get the renewables in and keep the transmission system stable as we go.”
Origin Energy last week said it had no choice but to bring forward the closure of its Eraring coal-fired plant – Australia’s largest power station – by seven years to 2025.
Schott said Eraring had often been running on fewer than all of its four units already, as had AGL’s Bayswater, because of their inability to compete with the near-zero fuel costs of wind and solar. Both are in New South Wales and burn black coal.
“For the orderly transition, we do need to make sure we’ve got a backup of either pumped hydro or gas, frankly, and there will be the need to keep some coal … while those [new generation and storage assets] are getting built,” Schott said. “You can’t just turn everything off tomorrow – it’d be a disaster.”
Commonwealth-owned Snowy Hydro was one way the federal government could support the transition, as well as the funding it was giving to aid new transmission lines to allow more renewables on to the grid, she said. It was also Labor’s “stated policy” to do even more to fund new transmission should it win this year’s elections.
The states, including NSW and Victoria, were also prioritising new grid connections that would allow them to expand renewables and meet their carbon emission reduction goals, which are more ambitious than the Morrison government’s, Schott said.
Analysts and some within AGL see access to the company’s 4.5 million customers across the country as a key motivation for any would-be suitor.
Tim Buckley, director of Climate Energy Finance and a leading decarbonisation advocate, said Mike Cannon-Brookes’ almost $80m shareholding of Brighte Capital – which retails solar panels and battery packages to households – revealed the potential for a huge expansion of the business in Australia.
Cannon-Brookes has “been involved in that for two years and learning by doing what’s involved,” Buckley said. “It’s about doing that now at 10 times the speed using the existing customer base of AGL.”
A spokesperson said Brighte had notched up more than 100,000 households as customers since starting in 2015. It has retail licences in NSW, South Australia, Queensland, Tasmania and the Australian Capital Territory, and has applied for one in Victoria.
“We’re excited about [Cannon-Brookes’] bid to take over AGL,” she said, adding it would bring forward the opportunity “to move Australia towards a clean energy future but there’s no impact on Brighte that we can share”.
Buckley said Origin Energy had lately touted the success of its purchase of Octopus Energy as a rapidly growing artificial intelligence-driven energy retailer in the UK, showing the potential for similar expansion in Australia.
“It’s been growing it at 50 to 100% year on year over the last five years,” he said. “It’s got 2.8 million customers in the UK, and it’s all about using the smart grid to drive lower electricity prices for consumers and to drive decarbonisation.”
AGL declared on Monday that its plan to split by 30 June into a mostly generating company, Accel Energy, and a retail arm, AGL Australia, remained on track.
Still, within AGL, there’s some excitement at the prospect that an entrepreneur with Cannon-Brookes’ success at creating a software firm worth many billions of dollars was making a play for their company.
While AGL had lost as much as 80% of its share value over the past five years prior to the takeover offer, the company had started to bounce back with the stock up by half in the past 12 months. Its shares gained more than 10% during Monday’s trade.
“It feels like the market has turned the corner,” said one staffer who was not authorised to speak publicly. AGL’s purchase of a majority stake in UK energy retailer OVO – a rival to Octopus – was a sign the company was already determined to expand such businesses.
Whether or not the bidders lift their offer or others enter the fray, though, AGL does face some challenges, including what to do with its 3.2 million gas customers.
The company has struggled to secure supplies of that fossil fuel after opposition to its coal seam gas plans in NSW and a gas import terminal in Victoria forced AGL to abandon both projects.
The AGL Australia arm also has a net zero greenhouse gas emissions goal by 2040, which would be difficult to achieve if it were to continue to retail gas.