Reality short-circuits PM’s political games
The policy vacuum is producing some truly bizarre results
When a company organises a media tour to one of its assets the assumption is that its aim is to show how well it is going and to generate some positive coverage. But this is definitely not the thinking behind a trip AGL Energy has organised this coming Tuesday, when it plans take a busload of journalists to the old and suddenly wellknown Liddell coal-fired power plant in the Hunter Valley.
Instead, the focus will be on giving the press a first-hand look at how much work would be needed to extend the life of what is now a 45-year-old plant.
And the message is likely to become clearer that AGL’s heavy-hitting board will almost certainly reject Malcolm Turnbull’s call to extend the life of Liddell beyond its planned 2022 closure.
This month, the concept of extending the ageing plant’s life reached energy-crisis-panacea status in the Turnbull government’s eyes.
This happened after the Australian Energy Market Operator said Liddell’s planned closure would leave a reliable power supply gap of up to 1000MWh.
Ironically, the forecast shortfall that has spurred the government into action is based on commitments from power companies in the absence of energy policy certainty that would give investors confidence to start building more new supply.
In a 90-minute meeting with the Prime Minister during the week, AGL chief executive Andy Vesey gave a begrudging commitment to take to his board a proposition to extend the life of Liddell by five years or sell it to someone who will.
But the chief executive, who immediately after the meeting repeated the line Liddell would retire by 2022, has also committed to coming back to the Turnbull government with a plan to fill the supply gap with a coal-free mix of gas peaking plant, demand management, pumped hydro and batteries.
And this is what the AGL board will focus on as it faces the dilemma of having become the focal point of the government’s response to an east coast power crisis driven in no small way by a lack of policy certainty.
As you would expect of a top 50 company, AGL’s board has plenty of experience and will not be pursuing a non-coal solution if an extension to Liddell is in the best interests of shareholders.
Likewise, it will not be easily pushed into a Liddell extension by government pressure.
The heavyweight AGL board includes retiring chairman Jerry Maycock, a former CSR chief, his replacement after this month’s board meeting, Graeme Hunt, a former Broadspectrum and Lihir Gold CEO, long-time Oil Search managing director Peter Botten, who has spent the past two decades driving Papua New Guinea’s oil and gas development, former Broadspectrum chairwoman Diane Smith-Gander and former QBE chairwoman and Macquarie banker Belinda Hutchinson.
AGL has been developing a plan to fill the Liddell gap and the board is now working on delivering something to the government within 90 days, as committed to by Mr Vesey.
The company wants to invest in what it sees as sustainable power generation that will be around for decades and help the company grow, rather than incrementally extend the life of a 50-year-old plant.
The main hurdle is finessing a plan AGL has been working on for some time amid a lack of policy certainty, which makes it hard to test the economic viability of new renewable or gas plants. The board will be hoping — possibly in vain — that some policy direction will emerge in the next three months.
In what is no doubt a source of frustration for AGL and its board, the looming Liddell shortfall gap exists mainly because dysfunctional national energy policy means generators cannot comfortably commit to the plans they are hatching that might take the place of Liddell.
And therefore AEMO’s forecasts, based on committed projects, show a shortfall.
In fact, if there was a Clean Energy Target, generators would be keen to fill the supply gap to secure market share.
AGL has its yet-to-be revealed plans, and EnergyAustralia in July said it had 1100 MW of gas-fired plants that it could quickly press the button on if a Clean Energy Target was put in place.
Mr Vesey has told The Australian that the costs of extending the life of Liddell would be significant.
Analysts estimate anywhere from $300m to $600m would be required for a life extension, while AGL has previously said the cost of securing new coal to keep Liddell running will be close to $60/MWh.
Given futures curves show NSW wholesale power prices falling from around $100/MWh now to about $70 by the end of 2020-21, back-of-the-envelope numbers for a Liddell extension do not look good. The company has run the numbers and while it will not give figures, its view is they do not stack up.
AGL chief Andy Vesey is under political pressure