The utility that once prided itself on being the cleanest in Australia and insisted that the best way to prepare for a clean energy future was to invest in renewables is proposing to dig itself deeper into coal.
As Crikey reported yesterday
, AGL Energy has won the bidding for Macquarie Generation -- the largest coal generator in New South Wales -- for the knock-down price of $1.5 billion. As with its 2012 purchase of Loy Yang A, the biggest brown coal generator in the country, AGL has found itself in the right place at the right time. It’s no doubt terrific news for shareholders; the bigger question is what it means for the future of renewable energy in this country.
AGL has been one utility that has not had an antagonistic attitude towards wind energy and solar. It has supported the Renewable Energy Target, and it chairs the Clean Energy Council, and has been the biggest individual investor in wind and solar farms. Its presentation for the MacGen purchase even begins with a picture of clean running water.
Now, however, if the purchase of the 2.6GW Bayswater and 2GW Liddell coal-fired generators in the Hunter Valley are approved, its leverage to fossil fuel income over renewables will jump from around 7:1 to 12:1, analysts say. The company that once had an emissions intensity (0.36t/MWh) -- little more than one-third the country’s average -- will now have one of the highest.
The proposed purchase will come under scrutiny from the Australian Competition and Consumer Commission, which has already flagged its concerns about AGL owning more than one-quarter of generation in three key states -- NSW, Victoria and South Australia, and being in a position to control market prices.
But there are broader questions for the renewable energy industry in this country is whether AGL will remain as staunch a supporter of green energy and the rapid transition to a low carbon economy as it has been in the past. It is hard to imagine given it is moving quickly in the opposite direction.
AGL wasn’t commenting over and above its media statement
. At the time of the Loy Yang A purchase (another knock-down price), CEO Michael Fraser insisted
the company had not "changed its stripes" and it was a good thing that it could use "coal cash" to invest in renewables. But now that it proposes to further increase its leverage to fossil fuels and become the largest coal-fired generator in the country, exactly how supportive of renewable energy will it be?
The real attraction of the purchase is that MacGen can source its coal so cheaply it can get its money back from the purchase in just seven years. Thanks to favourable contracts, the coal it uses (more than 10 million tonnes a year) is literally shovelled on to conveyor belts at an average cost of just $34/tonne -- tless than one half of the price that those same mines receive for exported coal.
Even with a predicted 25% increase in those coal contracts in coming years, MacGen will still sit -- as Loy Yang A does in Victoria -- at the bottom of the "merit order" for thermal generators in the two states. That should mean that AGL is better protected from some of the seismic shifts that are sweeping the electricity industry, which have forced more expensive coal-fired generators such as Tarong
, Collinsville, Playford
and, imminently, Wallerawang
, to be closed or mothballed.