AGL to net $500m solar boost
LUCRATIVE RENEWABLE SUBSIDIES FLOW TO ENERGY GIANT AS IT PREPARES TO SHUT LIDDELL COAL STATION
Australians are on track to pay more than $500 million to AGL to fund its flagship solar generators, as the energy giant prepares to shut down its Liddell coal power station, a move that has prompted warnings of a power shortfall that could lead to blackouts and price hikes.
The company has already secured $230m in direct grants and is forecast to gain far more under the renewable energy target, deepening the political divide on energy policy as the federal government considers cutting future aid to make coal more competitive.
The scale of the subsidy is now a key question in the government’s debate on whether to embrace a clean energy target, as opponents of the idea challenge AGL and others to prove that wind and solar schemes can work without taxpayer handouts.
Malcolm Turnbull and his cabinet ministers are yet to decide on whether to adopt a clean energy target but are unwilling to continue the heavy subsidy, putting a priority on more reliable power supplies, including coal and gas.
The two AGL solar farms in western NSW generate a combined 359,000 megawatt hours of electricity, just 4 per cent of the capacity of Liddell, but have secured more long-term investment than the coal power station under laws that continue the renewable subsidy until 2030.
Investors are warning the government against a halt to the taxpayer assistance for renewables, arguing this would lead to an investment freeze that would intensify the energy shortages in the decade ahead.
Former resources minister Matt Canavan said the subsidy going to AGL from taxpayers and electricity consumers contrasted with claims that renewables would be more efficient than coal regardless of government assistance.
“AGL keeps telling everybody that renewables no longer need a subsidy — well, if that’s the case, why do we need a clean energy target?” Senator Canavan said.
The Australian understands the government is aiming to encourage more investment in reliable power with a “capacity pricing” structure that could favour coal and gas and meet Mr Turnbull’s stated aim of improving the ability to “dispatch” power at short notice.
Even so, AGL is seeking to shut Liddell in 2022, rejecting a government push to keep it open a further five years, and is planning to replace it with renewable power and “peaking” gas that can fire up when electricity supply is low.
AGL chief financial officer Brett Redman told The Australian the subsidies for the solar farms would shrink in the decade ahead as the value of renewable energy certificates declined.
Mr Redman also sent a clear warning that the government’s looming decision on a clean energy target would not change the company’s assessment that a new coal-fired power station was not viable.
“The economics are now somewhat overwhelming — the world of electricity generation is heading down the renewables path,” Mr Redman said.
“Even without the impact of carbon-emissions policies, we would absolutely be heading down the path of building more renewables. Coal-fired power will not be built in that world.”
The AGL solar projects at Nyngan and Broken Hill received
$166.7m in direct grants from the Australian Renewable Energy Agency and another $64.9m from the NSW government, as well as qualifying for credits under the renewable energy target.
The Australian estimates the Nyngan project receives more than $18m a year for its 233,000 megawatt hours given an $80 price for renewable energy certificates, while the Broken Hill project receives about $10m a year for its 126,000 megawatt hours.
While taxpayers funded the initial grants, households pay for the renewable certificates because the cost is passed on to them in their electricity bills.
TFS Green analyst Marco Stella wrote in RenewEconomy on September 4 that the spot price for these certificates rose above $85 in late August.
AGL stands to receive $589m from the original grants and consumer subsidies for the two solar projects over the period to 2030 if the price holds at $80 until 2020 and then falls to $60 for the subsequent decade, an outlook described as conservative by two sources familiar with the market. This falls to about $480m if the renewable certificates fall to $30 in the next decade. It drops to $375m in the unlikely event the certificates fall to zero from 2021.
AGL sold the two projects to its Powering Australian Renewables Fund last November, making no cash profit in the sale. It owns 20 per cent of the fund while 80 per cent is held by Queensland Investment Corporation for clients including the Future Fund.
Mr Redman said the two projects were built in response to government calls for early investors to demonstrate large-scale solar and when the cost of the technology was much higher than it is today.
He said “we’d build a wind farm in every backyard” if the spot price of certificates stayed at today’s levels, but added this was unrealistic and the values were likely to fall in the early 2020s as they had in the past.
The government is weighing up whether to embrace a “reliability energy target” or a “strategic reserve” to offer financial rewards to AGL and others to build gas power, given the industry belief that major new coal power stations will not be viable.
This will get a higher priority than new schemes to subsidise renewables.
However, the rewards to AGL and others for their existing solar or wind projects cannot be altered because the Senate is highly unlikely to allow a change to the renewable energy target rules that apply until 2020 and continue payments until 2030.
The government has decided it has nothing to gain from starting a fight over the RET that it cannot win, leading it to keep the rules as they were agreed by Tony Abbott as prime minister in 2015.
AGL’s Liddell coal-fired power station, which it plans to close in 2022, and the Broken Hill solar farm, for which it will receive hundreds of millions of dollars in subsidies