AGL’s restructure does next to nothing for its climate problems
At AGL Energy’s big ‘Investor Day’ event, the company announced a long-expected plan to deal with rising scrutiny of their extremely high emissions -splitting the company out into two halves and not changing emissions at all. The first, a retailer named ‘New AGL’, and the second, a generation company burdened with the country’s worst, most polluting coal-fired power stations.
It was a confirmation of what many had feared — AGL Energy is dropping the ball and opting out of climate action. Clever corporate structuring won’t change the significant emissions impact of the company.
“New AGL” is touted as leading the “transition to a low carbon future”. But the company’s high-fossil assets remain on a pathway not compatible with a safe climate.
AGL are completely unique as a company, in Australia, when it comes to what direction their future visions take. The company is responsible for 8% of Australia’s total emissions, because it owns a slab of the country’s most polluting coal-fired power stations, and has so far been pointedly uninterested in closing any of them earlier than their scheduled retirement dates.
From FY16 to FY20, the total renewable energy generation output in AGL’s portfolio has risen from a paltry 9% to an also paltry 10%. Though the company engaged in a significant push for new wind power sources in the early 2010s, that essentially ended mid-decade. It is a company freeze-framed during what has been easily the five most intense years of change in Australia's National Electricity Market ever.
A new report released yesterday by global analytics firm Ember highlights something very important: though Australia is taking admirable strides with its renewable energy growth, coal isn’t falling as much as it should be.
“The rapid expansion of wind and solar generation has led to reduced coal generation (-11%) over the period 2015- 2020, from 151 TWh in 2015, to 135 TWh in 2020. Despite this, coal has continued to be the single largest source of electricity in Australia, responsible for over half of the electricity generated in 2020”
Ember
Coal needs to be phased out globally by 2030 for the world to have any hope of aligning with the ambitions of the Paris climate agreement. The same is true of Australia, and AGL could be playing a major role in realising that change. They are not.
Why are AGL not planning to close coal early?
Late last year, AGL engaged in an exercise that many carbon intensive companies have been dipping their toes into. That is scenario planning.
Shell are the global masters of this: they create visions of the future that present a variety of pathways, each carefully and subtly crafted to avoid any real dangers to their core business.
AGL’s ‘pathways to 2050’ report does something common among fossil fuel company visions: it focuses heavily on the outcomes for 2050, without dwelling too deep on the difference between the various ways we can get there.
As I explained recently at LobbyWatch, the emissions outcome depends not so much on the end point, but the pathway. Reducing emissions slowly to 2050 results in far more climate harm than reducing emissions fast.
Of the four scenarios AGL explores in their ‘2050 pathways’ report, ‘D’ is the only one aligned with global climate goals (at least, according to their own analysis — independent firm Climate Analytics puts the total domestic phase out of Australian coal in 2030, to hit climate goals).
It is the closure of coal-fired power stations that decides which pathway AGL takes in the near future. This is no secret, in their modelling:
“In 2015, AGL committed via our Greenhouse Gas Policy not to extend the life of our coal-fired power plants. The closure of these plants at their end of life will result in significant decreases in AGL’s operated scope 1 emissions. The first of these closures will be the closure of the Liddell Power Station in 2023.
The closure of Liddell is the equivalent of AGL ceasing to emit approximately 8 MtCO2e annually. Similarly, the closure of all AGL’s coal fired power stations is the equivalent of ceasing to emit over 40 MtCO2e annually”
The only problem: the company isn’t planning to close any of those coal-fired power stations early. In fact, they explicitly rule out the only scenario aligned with a 1.5C climate target, because “a commitment of this scale would require early closure or decreased generation output of part or all of AGL’s baseload generation fleet and could not be achieved unilaterally given the current regulatory framework in Australia”
This is a strange piece of logic. There is already a mandated notice period of three years for closing coal-fired power stations, in Australia, and AGL promises to provide five. It did so for the soon-to-close NSW Liddell plant, but it came under red-hot fire from the government anyway, and has ended up extending that closure from 2022 to 2023.
Even if we accept that ‘unilateral’ coal closures are impossible, why not then argue for a change to the regulatory framework that allows for AGL to massively reduce its emissions?
Their recent Investor Day presentation confirms this strange philosophy. CEO Brett Redman said “PrimeCo’s assets are required for network stability and capacity for many years to come, while supporting reliability, affordability and the livelihoods of our people and the communities in which they work”. Their retail arm, ‘New AGL’, immediately becomes “net zero” (thanks what seem to be a bundle of carbon offsets instead of emissions reductions), and their generation arm PrimeCo pleads adherence to net zero by 2050.
The lines used by AGL are familiar — “Low-cost”, “reliable”, “safe”, as if carbon emissions and air pollution don’t factor into the equation at all.
Though AGL are holding the key to accelerating Australia’s climate action by deciding to take on the task of closing coal early, including all of the technological, social and justice-focused challenges that it would entail, all signs point to them deciding to simply sell their coal assets, where they will continue to emit damaging substances, just owned by another company. That is not what is needed — that is just coal powered musical chairs.
The harm caused by putting off coal closure
AGL includes the various percentage emissions reductions in each of their scenarios, compared to the company’s FY20 emissions. It is surprisingly transparent, and it should be noted that very few companies provide this type of benchmark for their own performance.
Scenario D is very clearly sitting on its own, far removed from the other potential scenarios (which vary according to policy, global trends and costs, but mostly end up in pretty much the same place in terms of emissions).
It is the fate of one specific coal-fired power station — Loy Yang A — that drives the difference between scenarios. This Victorian coal behemoth is scheduled to closure in 2048, but closes 13 years earlier, in 2035, in ‘Scenario D’, and even prior to 2035 closure produces significantly less electricity (an average capacity factor of around 60% instead of around 80–90%, for the nerds).
“Under scenarios A, B and C, AGL’s emissions from 2040 would arise predominantly from Loy Yang A Power Station until its retirement in 2048. The variance in emissions between these scenarios from 2040 arises from varying load factors driven by the carbon prices in each scenario”
We can do a simple, crude analysis of what the fate of this particular machine means for climate. AGL’s scope 1 and 2 emissions in FY20 were 42.7 megatonnes of CO2-e (down from FY19’s 43.2 due primarily to a major, prolonged outage at Loy Yang A). This means their emissions profile will look something like this, in the future:
That’s a decent gap between the first three scenarios, all of which let Loy Yang A run to its closure date, and Scenario D, which closes it more than a decade early. The difference in total emissions over the decades is noticeable:
The math is simple here. If AGL does not announce the closure of Loy Yang A earlier than its due retirement, it will continue to be one of Australia’s worst emitters well into the coming decades. And the total climate harm created the operation of the machines it owns will be far higher.
One possibility recently suggested is that AGL will announce a “separation” of Loy Yang A from its business. “For AGL, a separation of Loy Yang A could be the strategic shift required, Macquarie asserts which, along with the closure of Liddell, could reduce the company’s emission intensity to the market average”, writes FN Arena. Of course, the plant will continue to emit for decades just the same — this would be nothing more than passing the buck.
What needs to happen
Australia’s coal fleet needs to be immediately funnelled into an organised, rapid and justice-focused phase-out scheme. Many communities in Australia rely heavily on the employment and cash flows of coal plants, and they are now badly exposed to global energy and climate trends, and the risk of a badly unplanned and chaotic closure of coal plants.
Corporate restructures do absolutely nothing to change this.
This is because the wholesale price of electricity in Australia is dropping fast. That is screwing up the economics of big coal plants, which means they may close early, even if their owners don’t want them to, and they may operate at far lower levels before they close (further worsening the economics).
In a joint report from Institute for Energy Economics and Financial Analysis (IEEFA) think thank and advisory Green Energy Markets, the likely pathways for this trend are outlined.
Loy Yang A sees a 73%-97% reduction in its profitability by 2025, in that analysis, as most coal plants exposed to lower wholesale prices struggle.
A planned coal exit, which must be championed by companies like AGL and federal and state governments, would protect Australians from the price, community and planning shocks of chaotic closures, in addition to putting Australia on the lower emissions pathway. It is the only sensible way forward — here’s hoping AGL adds some of their considerable heft to making this real instead of either ignoring the problem or passing the buck.
