AGL to net $500m so­lar boost



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

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