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Wednesday, September 27, 2023

Taylor’s obsession with failing, inflationary coal will help kill off AGL split

By Bernard Keane
Crikey Politics Editor

Scott Morrison and Angus Taylor have spent the past three and a half years trying to chain Australia to an unreliable and uneconomic source of power that now threatens to send family electricity bills skyrocketing — but ironically may also help Mike Cannon-Brookes in his effort to derail AGL’s demerger.

AGL plans to split itself into a retail and renewable asset company and a coal-fired power generation company — now universally known as ShitCo — if shareholders approve the demerger on June 22.

Except this week, the truly rotten state of what ShitCo would be was on display when AGL revealed it had been forced to cut its full-year profit target because of a breakdown of one of the generation units at its giant Loy Yang A coal-fired power plant in Victoria’s Latrobe Valley. Unit 2 was taken out of service in April (prompting Morgan Stanley to declare it at the time “a worst case”) and will be out until August. That will cut $40-70 million off earnings, with earnings before interest, taxes, depreciation, and amortisation (EBITDA) now forecast to be between $1.23-1.30 billion.

It’s the second time that Unit 2 has broken down in the past three years, following a seven-month, $100 million outage in 2019, illustrating how unreliable Australia’s ageing coal-fired power generation capacity has become — despite reliability being its one alleged selling point against renewables. Coal-fired power has not been competitive with renewables on price terms for years.

Worse, coal-fired power prices are set to surge, driven by the global spike in energy prices. Households face significant electricity bill rises in coming quarters, adding further to cost-of-living pressures that have surged under Morrison. Those power price rises, from an increasingly unreliable power source, are partly the result of Scott Morrison and Angus Taylor’s repeated attempts to shackle Australia to coal, rather than accelerate the decarbonisation of the electricity grid, since Malcolm Turnbull’s ouster in 2018.

But the Unit 2 shutdown also strengthens the hand of those opposed to AGL’s demerger plan, which is the subject of an independent report before the shareholder vote. Most prominent is Sydney tech billionaire, Michael Cannon-Brookes, who swooped and grabbed a near 11.3% stake in AGL yesterday. Cannon-Brookes combined with Canadian infrastructure giant Brookfield earlier this year in an unsuccessful takeover bid for AGL, with the intention of dumping the demerger and bringing forward the transition of the company out of coal.

Cannon-Brookes told the AGL board yesterday the split was “globally irresponsible” and he would vote against it at the June 22 meeting. At this point, ShitCo and the demerger — which has never attracted strong investor support — looks dead.

Ironically, it is Taylor himself who has strengthened Cannon-Brookes’ hand as well.

As Crikey reported a month ago, before caretaker commenced, Angus Taylor — whose actions as energy minister have more or less amounted to angrily yelling from the sidelines — made one last effort to further strengthen coal’s death-grip on the Australian energy sector by announcing his intention to pursue new rules to prevent coal-fired generator owners from bringing forward their shutdown.

Those rules, which are unlikely to be approved by the states, actually make ShitCo even less attractive to investors, because they would prevent the new company from actively managing its assets in a way that maximised shareholder returns. Instead, they face being trapped in coal, if Taylor got his way.

Cannon-Brookes’ investment suggests he doesn’t think Taylor will be energy minister after the election. But he might be grateful that Taylor, with his coal obsession, has done him one final favour in helping kill off the demerger and open the way for a very different future for AGL.
Fantastic. Great move. Well done, Angus.

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