Why AGL does not want to sell Liddell

Via Credit Suisse:

AGL’s 90-day commitment no different to prior voluntary commitment, now more politicised: following a meeting with the Federal government, AGL has committed to revert in 90 days with an alternate plan to the Government’s preference of keeping Liddell operating beyond its 2022 end of life. We note that AGL had already committed to providing a plan at an investor day to be held later this year; the process is now slightly accelerated and much more politicised.

AGL’s preferred plan a mix of gas peaking, storage and demand response: the Liddell closure should be seen in the context of the market in 2022, not 2017. Between now and 2022, the Renewable Energy Target is on track to deliver two Liddell’s worth of additional energy to the market; by 2022, Liddell is not required for energy. As AGL acknowledges, the market may need some capacity, however the most efficient way to deliver this is unlikely to be coal fired given the additional wind and solar will dramatically alter the operating profile. AGL is working on a plan to replace the 1,680MW of effective capacity at Liddell with 500-1,500MW of peaking plant representing an investment of A$800mn–$1,500mn.

Sale to third-party to be avoided at all costs: by 2022, the likelihood is that the market will be oversupplied from an energy perspective (not capacity). Thus, keeping Liddell in normal operation would depress prices and reduce the value of AGL’s other ~35TWh of generation. We expect AGL will pursue all options in order to avoid this. We do see a third option whereby Liddell is retained in a ‘strategic reserve’ only to be called upon in extremes; however should industry be relying on 50+ year old plant to start reliably a handful of times each year.

Liddell specific risk that AGL is forced to gold plated replacement, part of a mosaic whereby industry is losing control of the conversation: the risk here is that the Government insists on a like-for-like replacement; i.e. 1MW of dispatchable capacity for 1MW. This would mean capex of closer to A$1.5bn than $800mn. Assuming for illustration that this additional capex earns no return, this is a 3%–4% reduction to our NPV.



  1. “the risk here is that the Government insists on a like-for-like replacement”

    The Government can insist until it is blue in its collective face. It has no powers to make AGL build a new coal fired power plant, or refurbish the old one, or sell the old one.

    • I’m waiting for the headline “AGL sale of Liddell site to developers approved now remediation work complete”.

      Bwahahahaha! The cycle of life will be complete.

  2. AGL only want to shut Liddell to restrict supply and increase prices to the consumer, selling it won’t make this happen.

    Another great example of so called carbon based climate change being used to increase profits.

    • Restricting supply to increase prices only works as a strategy if there is no new entry from competitors to undo the supply restriction.. If there was a coherent climate and energy policy in place, new entrants would feel confident enough to invest and enter the market. As it is right now though, AGL can restrict supply knowing that the dogs breakfast of policy deters new entry.

  3. Here are some more reasons why AGL may want to cease generation from the Liddell coal-fired PS; but retain the site.
    1) Liddell PS was always a “dog” with early turbine failures and boiler outages for maintenance. NSW had power-cuts soon after it opened. There was a farcical later episode when ECNSW decided to clean (ie “wash”) the coal and built the nearby Ravensworth coal preparation plant (CPP). Flawed design and lawsuits bankrupted the CCP builder. The CCP was moth-balled. Raw, run-of-mine coal with 10-12% ‘dilution’ with rock, continues to supply Liddell (and Bayswater).
    2) Replacement of Liddell (and Bayswater) PS by new high-efficiency, low-emission (HELE) coal plants will not be feasible. Apart from cost of these plants, their current coal sources from the adjacent mines are unsuitable. Better quality coal is produced in the Hunter Valley but this is exported at high prices.
    3)The infrastructure of the Liddell site is excellent wrt grid connection, road/rail services, water availability, a settled workforce. The weather in the Singleton-Muswellbrook area is excellent for solar energy.
    4) Maintaining the Liddell site for power generation would allow the amortisation of the rehabilitation costs.
    So its not just an anti-competitive decision as the CS commentary suggests!

    • I believe my points above should be sufficient to refute recent remarks by Treasurer Morrison who criticised AGL for claiming the power plant was becoming too old and unreliable:
      “They would say that,” Morrison told Channel 7. “I’m older than it [is and I am] still doing alright.
      “They are the current owners. They have an interest in their position in the energy market. We have to take that with a grain of salt.”
      “It’s got to be affordable and reliable [energy],” he said. “We’ve had some bad experiences so far with people saying ‘she’ll be right, mate’ when it comes to this stuff.
      “When you’ve got existing assets that are there and can be used, and are providing a lot of jobs and support in regional communities, then we’re not going to allow the rug to be pulled from that, because of either the commercial interests of a large energy company or anything else.”

  4. 35TWh per year?

    It is probably madness to allow retailers to own power stations.

    If it is a good idea, how come the NBN does not own a retailer?

    • I love how you pop up and just start throwing random lightning bolt questions that usually are completely unrelated or else related in some abstruse manner.

      Always makes me think.


  5. Liddell’s presence helps put the price of AGL’s other generation UP. Way up. Way up to $14,000/MWh when Liddell can’t turn itself on in the middle of a heat wave.

    You need a whole year’s worth of hours of $70/MWh instead of $80/MWh to compensate for just 6 hours of $14,000/MWh.

    • so really the noalitionexceptCOALitiontherenocoalIknowwwww should force liddell to be shut and replaced with renewables, gas and/or storage to force the peak price down?

      • Jumping jack flash

        only if they’re not “peaking plants” which of course is the wisest investment in the current market. It will generate the most profit in the shortest amount of time.

        It is all about the profit. The protection of the consumer be damned.

      • @ Hadroncollision – exactly.

        Renewables (wind & solar) – will only stop those $14,000/MWh peaks if it is sunny or windy when the power shortage would have otherwise happened.

        Storage will only help stop those $14,000/MWh peaks if they actually have anything in storage. During a heat wave they might have “cashed it all in” at $300/MWh over the previous hours/ days, hence there might not be anything left to supply when the $14,000/MWh peak (the power shortage) occurs.

        Gas peaking will only work if we haven’t already exported all of our gas.

        Diesel peaking actually isn’t so dumb. Even though diesel fuel costs 3-4 times as much as gas, it can be stored on site, and diesel generators are relatively cheap. Or it can be run more efficiently through a modern aeroderivative turbine which can also run gas.

        What a heap of renewables WOULD achieve is periods of very low energy prices – when the state is awash with renewable power. What THIS would achieve is a business case for storage – storage doesn’t actually produce any power – it only trades it, so it needs reliable signals of when to buy and when to sell. And when there is a business case for storage, it will proliferate, and would be available to knock those $14,000/MWh spikes down to $500/MWh or so.

  6. Jumping jack flash

    As any electricity generator worth their salt knows, gas is the future.
    “peaking plant” is code for “milking the market when they’re over a barrel.”

    It makes great sense. It is the ultimate market mechanism. A bit like Uber surge pricing.

    Next they’ll work out some way to ensure that the market is always peaking as soon as anyone turns on more than 3 air conditioners. That part is easy enough – close their baseload plants, and trickle enough electricity in to suppress brownouts, call it something catchy like “Just In Time production”. Then on a summer day or winter night, BAM! Peak Demand. And then the cash rolls in.

    The government is powerless. They sold off their control. I don’t know why they still say they care. They didn’t sell off the electricity companies to create more problems, more accountability, and more responsibilities.

    The energy portfolio is a joke, as is the telecommunications one, but at least they have the NBN to justify its existence, I guess.

  7. I think you’re all wrong, AGL is actually just playing the oldest game in the turn-around book.
    Think about these assets Bayswater and Liddell they’re both End-of-Life asset plays which the NSW gov’t palmed off on private industry when it got sick of paying the obscene maintenance bills. AGL only took control of Liddell 3 years ago and has so far acted in a consequent manner to manage (cost minimize) the EoL management of these generation assets.
    When you cost minimize operations you simultaneously Profit maximize the operations of these generation resources If you add to this the Scarcity premium which arises from being the last man standing in the sector, then you have a great top line and bottom line story to tell the financial community…problem is you have no future.
    This is where Renewables play an important role, it’s the vision thingy that you sell hard to anyone that will listen. Never mind where the money actually comes from (coal) just look at our fantastic financial story and marry this in your own mind with the image of a company that leading the Renewables charge…what fund manager wouldn’t want a slice of that action?
    Truth is its a big fairy tail, but that doesn’t mean that your stock multiples (P/E, P/S etc) wont reflect the story. That’s the beauty of transforming a tied old boring utility into something exciting and futuristic, you can easily move your Marketcap from something less than 1 times Revenue to multiples as high as 3 times Revenue. Guess what that does to our CEO’s stock options?
    OK so what’s the problem? MT’s the damn problem because he’s talking about coercing AGL into operating Liddell in a somewhat more sustainable fashion, that means greater maintenance costs reduced margins and probably a reduction the top line scarcity premium (if everyone knows Liddle is there to backfill any generation shortfalls). So MT is basically F’ing with AGL’s bottom line and simultaneously blackening their Renewable Image thingy.
    As for selling an EoL asset like Liddell, that represents the worst of both worlds. If you sell a complete dud chances are the associated restoration liabilities just come right back to bite your ass, and if you sell an Asset with a few years worth of profitable EOL operation left in it than you have shareholders asking why you didn’t hang onto it and reap those benefits for AGL shareholders …basically selling EOL assets is a real no win option.

    • “MT’s the damn problem because he’s talking about coercing AGL into operating Liddell in a somewhat more sustainable fashion”

      I’d like to see how MT’s going to coerce AGL into anything. They are perfectly entitled to come back to him and say “we’ve thought about your proposal and our response is don’t get in the near queue, get in the other one”.

  8. One mostly unrecognized virtue of shutting down the old coal plants is the end of the CFMEU’s reign of terror in the power industry. Excessive overtime, featherbedding and exceptional salaries for low skill roles should come to an end as plants that start with the push of a button (be they gas turbines or wind farms) replace big centralized union controlled plants. Ultimately the benefit flows to the consumer.

  9. The depressing thing is this is diverging into a Labor v Liberal point scoring game. It is crazy that both parties don’t join forces and agree all Governments, State and Federal, have got it wrong on the renewables rush and this is jeopardising energy supply and affordability for everyone, households and industry. For no gain. No gain at all. That’s the bit I just don’t get and I’m guessing lots of others will be thinking the same way.

    Australia’s emissions are miniscule so why are we doing this. Why do we sell coal to the world for their benefit but eschew it for our own. If it’s purely an emissions thing, I wouldn’t be surprised to learn that the coal and gas we export ends up emitting a fair bit, but elsewhere!

    The whole scenario is beyond stupidity. Rename the RET or CET to Reliable Energy Target or Affordable Energy Target and redirect the subsidies etc go something productive like growing food for the world as The Netherlands does. We can still have renewables of course as a supplement and the two main ones as baseload and dispatchable.

    I’m not confident the politicians can fix this is they’re just going to point score, action is required.

    • Yep – the RET is truly insane. A technology agnostic carbon tax or trading scheme would have been far more efficient and driven least cost abatement. But that’s just one of its problems:

      * It took away the market for gas so they all decided to sell it offshore, lifting the gas price absurdly, wiping out industry and driving gas intermediate power plants into mothballs.
      * It’s led to sub optimal dispatch of thermal plant by creating large fluctuations in capacity on the system
      * Its reduced the inertia of the system making it more susceptible to system black occurrences (e.g. South Australia)
      * AEMO values its firm capacity at almost zero for the purposes of determining system ‘security meaning that once excesses have been wrung out of the system each new MW of wind or solar will require approx the same amount of back up capacity
      * Its devoured tens of billions of dollars of investment that has needlessly been wasted imported foreign capital items when it could have been spent on schools, hospitals, tax cuts etc. The opportunity costs has been vast.
      * It needlessly wasted money early when the optimal thing to do was to wait for the rest of the world to drive the costs down and then use the cheaper capital equipment of the future to replace existing power stations as they reach the end of their life.
      * Its reduced the capacity factor of existing plant making their economics unattractive (particularly decisions related to stay-in-business capex) thereby driving thermal plant off the system and creating less system security.
      * Its created massive uncertainty for capital investments and stay in business decision making

      A true cluster.

      • That is insane. Every paper in the country should run with this front and centre tomorrow. Macrobusiness should take up the baton. We have been ripped off by our politicians, Liberal, Labor and the rest: the old adage “it’s easy to spend other people’s money” with no responsibility. They have collectively threatened our future energy supply, already they’ve raised energy bills beyond the reach of some families and probably only to get worse.

        I’m forwarding your comment to everyone I know. Thanks for the clarity.