Economics versus “complete psycho” in AGL bid

I’ve had my issues with Mike Cannon-Brooks over the years but his latest energy gambit is an absolute cracker:

“In the absence of a proposal that provides appropriate value to AGL Energy shareholders on a control basis, the board continues to believe the demerger maximises value for shareholders and is in the best interests of shareholders,” AGL said in a statement to the stock exchange.

However, Mr Cannon-Brookes said the partnership’s bid was a “far better option than the alternate path, which is the demerger that’s on the table — from the point of view of risk and the point of view of shareholder value”.

“It’s obviously disappointing,” Mr Cannon-Brookes told ABC Radio National after the bid was rejected. “We have been trying to work with the board through the weekend and will continue to move forward.”Atlassian’s co-founders Scott Farquhar and Mike Cannon-Brookes.A Twitter bet Atlassian made with Tesla boss Elon Musk in 2017 helped spark the world’s biggest battery in South Australia.(AP: Matt Rourke)

…”Decarbonisation is a great economic opportunity facing Australia, but it requires vision and action,” Mr Cannon-Brookes said after losing the AGL bid.

“We strongly believe [the bid] will result in lower bills for consumers.”

AGL operates massive coal-fired generators in New South Wales and Victoria that, together, account for about 10 per cent of Australia’s total greenhouse gas emissions.

“That’s more than every single car on the road,” Mr Cannon-Brookes said.

“It’s more than all domestic and international aviation, and if it’s a country, it’s bigger than Sweden or Ireland or New Zealand, and that would make it one of the biggest decarbonisation projects on Earth.”

“We can [decarbonise] in an economic way that creates jobs and drives prices down. It’s a very sensible plan.”

AGL plans to close the doors of its Bayswater coal plant in NSW’s Hunter Valley by 2033, two years earlier than forecast, while Victoria’s Loy Yang A facility is set to close by 2045.

Mr Cannon-Brookes said the consortium’s plan was to decommission the Bayswater and Loy Yang plants earlier than already planned and that they would spend on renewables to make up for any lost capacity.

He said he had $20 billion to spend on “creating new renewable assets” that would help accelerate the plan so that Australia’s main grid reaches net zero emissions by 2035.

“And, obviously, as a private company, we can do it a lot faster than as a public company,” Mr Cannon-Brookes said.

“We believe we can hit net zero, including all forms of thermal generation, by 2035.”

“This is a massive decarbonisation effort. What we require is just the gumption to go for it and actually make it happen, which is what we’re trying to do.”

…”renewable assets generate power at far cheaper prices than the coal assets currently do” and that he believed this would bring the prices in the grid down over the long term.

“Obviously, we know we have a market price of power that goes up and down based on supply and demand,” Mr Cannon-Brookes said.

“We are bringing significant supply here. So that should bring prices down in the long term.”

“Australia should have the lowest-priced energy in the world. We have all of the assets to make that happen.

“There’s no logical reason, no economic reason [that] we should not have the cheapest power in the world, and that is [where] we’re intending to go.”

Bloody oath. The simple fact is, Australia is blessed with the best renewable assets on the planet. Here’s the raw economics of it:

Coal is currently $250 per tonne and gas is roughly $12. Neither can compete with renewables + storage, which will continue to get cheaper. They can’t even compete with perennially overpriced nuclear. Even if prices for coal halve it still can’t compete. Gas is perpetually expensive owing to Morrison’s cartel.

That’s why Cannon-Brooks is ready to invest $20bn in renewable assets. The numbers simply add up. Does the Coalition believe in markets and private capital or not?

No! Psycho Morrison wants pollution, hotter temperatures and taxpayer-funded white elephants:

The Morrison government is reserving the right to invoke energy supply concerns under a national interest test to potentially block a proposed $8 billion takeover of AGL Energy by joint bidders who have pledged to shut down coal-fired power about a decade early.

Treasurer Josh Frydenberg has foreign investment and competition veto powers to stop Canada’s Brookfield Asset Management and billionaire Mike Cannon-Brookes buying Australia’s largest electricity generator, which will be designated “critical infrastructure” by the Foreign Investment Review Board.

…Prime Minister Scott Morrison said on Monday that Brookfield was funding about 80 per cent of the proposed AGL takeover and “we need to ensure that our coal-fired generation of electricity runs to its life because if it doesn’t, electricity prices go up”.

How? If it is replaced with cheaper generation assets, how does the price rise? As the globe moves to punish carbon with higher prices, how do legacy carbon assets keep prices down? There will be plenty of new capacity as well because capitalism abhors excess profitability so long as there is competition.

Over a decade of Coalition rule and especially during the Morrison Government term, the Australian energy grid has been butchered:

  • It takes huge bribes donations from the gas sector.
  • It refuses to install domestic reservation for gas, sending all of Australia’s cheapest east coast gas to China, even as it pretends to be tough on national security.
  • It lied to Center Alliance about installing gas reservation in return for $158bn in tax cuts.
  • Gas still sets the marginal cost of electricity in the national grid so Morrison’s artificial shortage drove up power prices until a cheaper renewables boom displaced enough of it to bring prices down again.
  • Having engineered an artificial shortage of gas, Morrison demanded more expensive gas production from environmentally destructive sources in NW NSW. The so-called “gas-led recovery”.

The Coalition and Psycho Morrison are paid-up fossil fuel energy vandals that have taken Australia’s cheap energy advantage and handed it to a gas cartel gouge the likes of which no developed economy has ever seen.

If there is a scintilla of rationality left in the Australian electorate, it will annihilate the Morrison Government for this alone.

Houses and Holes
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Comments

  1. Did anyone hear the AER person this morning with PK?

    https://www.abc.net.au/radionational/programs/breakfast/what-the-end-of-coal-fired-power-means-for-energy-prices/13764558

    She almost, almost, sounded like she was running an LNP line and PK completely ignored the fact MCB yesterday specifically said they weren’t just taking coal generation out. There were spending 10-20B to replace generation and storage/firming.

    Journalism – even ones you think are ok like PK – are just intellectually lacking in this country.

    I think PK has been weak on this the last 2 days. She spent airtime asking MCB yesterday the same questions a few times, and tried to get a guarantee prices won’t go up. She hasn’t asked the same thing of the LNP or the AER this morning, were coal/gas to continue. She did touch upon domestic gas reservation which was a surprise.

    • Before listening to this, you must first charge your glasses, and be ready to take a swig every time you hear the phrase “baseload power” or “keep the lights on”.

    • I think you’re expecting too much from someone who is JUST a journalist, what is lacking is the ABC’s research capability. On programs such as PM etc, they’re only as good as the research provided to them.

  2. What am I missing here?

    A – AGL is an old company running a lot of old dirty coal generators.
    B – Brooksie is a well-meaning rich dude with $20 billion to spend on clean energy.
    C – Brooksie wants to buy AGL

    A + B = C ?

    Why doesn’t Brooksie just spend his $20 billion on clean energy and put AGL out of business by selling the clean energy at a lower price than AGL sells the dirty energy. I strongly believe that would result in lower bills for consumers.

      • Are you suggesting that Brooksie would be unable to produce clean power cheap enough to put AGL out of business within a reasonable time?

        • Are you suggesting that Brooksie would be unable to produce clean power cheap enough to put AGL out of business within a reasonable time?

          Unless he’s got a time machine somewhere to start a couple of decades ago, yes.

        • Arthur Schopenhauer

          Customers, network access and leverage. Far quicker to buy it, than build it.

          Also effectively removes a key lobbyist, that is very effective at regulatory capture.

          • If he shuts AGL’s baseload assets (Bayswater and Loy Yang A) earlier then he can build renewables into the gap and know they will print money.

            If he builds the renewables to kill AGL’s asset, then he needs to suppress prices for 3+ years before AGL will give up, which will also financially ruin his renewable investments.

            The key in the statement is ”renewable assets generate power at far cheaper prices than the coal assets currently do” and that he believed this would bring the prices in the grid down over the long term. <– good ol long term can hide some 'bumps in the short term

            Loy Yang A and Bayswater meet approximately 15% of the entire NEM demand on a baseload basis. When Hazelwood retired in 2017 it was approx 5% of entire NEM demand … prices more than doubled for 2-3 years. Price rises in the NEM are non-linear. If LYA and Bayswater go near eachother, on top of Liddell (AGL's other main plant, set to retire in 2024) and Eraring (largest plant in the NEM, Origin this week announced retirement in 2025) NEM prices will go stratospheric.

            His strategy is to build $20bn of assets into a 3 year plus price spike of his causing. And by buying the assets to close them to accelerate Oz decarbonisation (which is legit) he has the perfect cover for this and won't face accusasions of market manipulation (which AGL certainly would if it shut them early into massive green build).

      • If the ‘clean’ energy is selling cheaper, every consumer will change at the end of their next contract period.

        If AGL can’t sell it’s ‘dirty’ energy, they’re not going to continue to produce energy on a whim, and will cease production immediately.

        It is impossible to get quicker than that.

        • If AGL can’t sell it’s ‘dirty’ energy, they’re not going to continue to produce energy on a whim, and will cease production immediately.

          Of course they won’t. They’ll continue to get held up with zillions in subsidies because “hey, fvck those progressive greenies” is one of the core political strategies of the current Government.

          • Sure, agl will get government money, but they won’t be running power stations that don’t sell any power to the grid.
            See purely auction based dispatch model linked above. Literally the cheapest power gets bought up to demand and nothing above that. If your power is always more expensive than everyone elses it never gets bought.

    • What you are missing would seem to be that the renewables aren’t actually competitive but require the existing assets to be shut down first, or just building the renewables would make far more sense.

      • Ah yeah, like whatever!
        Look at the recent moves towards so called Solar Curtailment
        https://www.abc.net.au/news/science/2022-02-16/solar-how-is-it-affected-by-renewable-energy-curtailment/100830738
        the problem is that Coal might have a generation cost of say 10c/Kwh but in order to provide this “reliable” peak hour power it needs to survive a market in which midday electricity sells for negative amounts on the national grid. Solar can just throttle their generation (or shift the panel position towards maximizing late afternoon power generation) whereas big coal needs to pay 10c/kwh to create electricity that sells for minus 10c/kwh. It’s hard to make that business model work without the government intervening and creating special “curtailment” rules.

        • Isn’t it wonderful when you can have government intervention, but only when you need it (curtailment legislation, gas fired plants).

          But of course you can’t have government intervene for gas reservation, carbon prices, or in this sale process (to argue for the sale), to provide interest free loans for resi PV batteries.

          Didn’t realise MCB invested in Brighte which is directly funding resi improvement projects.

      • Others smarter than I have made plain that utility solar, wind + storage is way cheaper than coal etc. This of course disregards the externalised/socialised cost of coal which doesn’t appear in economic models AFAIAA.

        • Maybe you should tell it to someone with enough money to build it? Instant riches for all.
          Or just maybe the guy who thinks he needs to buy AGL first to make this plan works knows something you don’t? Especially given he has the money to do it and you don’t.
          The one positive of our stupidly deregulated “free market” energy system is whoever sells electricity the cheapest gets to put it on the grid.

          • I think it would be useful to refer to the levelised cost comparison table in the OP.

            No doubt MCB knows what he is doing, which kind of implies your commentary might be a little off.

          • MY commentary is based on the fact that he is buying AGL before he will invest in green power, ergo he thinks green power isn’t competitive without removing competitors beforehand.
            If he thought renewables were ACTUALLY competitive why burn billions of dollars buying something you intend to close down?
            And the fact that no one else is doing any large scale renewables investment either. IT clearly isn’t the winner the table and article are making it out to be.

          • Obviously, he’s better off phasing out coal than putting it out of business by competing with it. But that does not mean higher prices than today. Only higher prices versus the counter-factual.

          • How is it possibly better to buy your competitor to shut them down than out compete them. That is nonsense.
            That’s like saying apple and samsung should have bought nokia and stopped their mobile phone production before releasing the smart phone.
            It only makes sense if you are nokia to buy and shutdown apple and samsung…
            Either renewables are cheaper and the coal will dissappear without being purcased or they aren’t and the coal assets must be shut down first.
            This is economics101.

    • I think the answer lies in understanding the back channel communications (fear mongering) that has Scomo and co investing over $600M in the Kurri Kurri gas peaking plant instead of using that money to beef up the Transmission line infrastructure to far western NSW.
      Look at how many solar projects are on hold or delayed indefinitely in Australia simply because we’re not investing in Battery / Storage and transmission line infrastructure at anything like the required rate.
      From this perspective eliminating AGL’s whispers has to be worth something

      • “how many solar projects are on hold or delayed indefinitely in Australia simply because we’re not investing in Battery / Storage and transmission line infrastructure at anything like the required rate.”

        Wouldn’t they be a required part of the solar project? Why aren’t the solar people building them? Are they the hidden expense left out of all the propaganda claiming coal costs more?

        • Traditionally the development of our Transmission line infrastructure was a governmental problem and governments gifted themselves the appropriate laws / legal structure (Eminent Domain) to enable this task to be completed. Today we have decided that this is a private interest requirement and therefore something that can be blocked by just a few concerned land owners.
          Unfortunately our power systems development has devolved into a giant clusterF, no rights no wrongs just a clusterF. MCB can see this and is looking for a solution.

          • The answer lies back in time…
            Privatising the network management functions to Mr Market was always going to end up as a clusterfuck.
            If you want privatised generation the sensible option is to contract it out on a station by station basis.

          • The answer lies back in time…
            Privatising the network management functions to Mr Market was always going to end up as a cluster.
            If you want privatised generation the sensible option is to contract it out on a station by station basis.

            I notice you also sidestepped the cost of storage as an inherent part of the solar cost base that the generators don’t want to pay for.

          • Storage is not the intractable monster that it used to be, but given the relative costs of Renewables Generation and Electricity Transmission, Storage is not as necessary as it might appear.
            If storage costs say 10c/kwh but renewables generation costs closer to 2c/kwh then you can afford to over build your generation capacity (and focus generation assets on late afternoon / evening) leaving only a small fraction of the total daily energy requirement to be stored.
            Additionally we need to change the way that the networks available demand side control systems work. Atm most hotwater systems in NSW use so called Off-Peak water heating. From a modern renewables power systems perspective this is just plain stupid. these off-peak water heaters need to be switched off at night and enabled during the day to address the excess renewables power generation problem …ah but will the old school Coal generators give up this demand without a fight?
            It is so silly that even people with their own on roof solar are typically heating their water overnight (with coal burning electricity) rather than use their own daytime excess electricity. same goes for Pool pumps and a variety of other available on demand situations.
            My point is that this all needs to be rethought and rejigged to make sense in a renewables world, keeping guys around that have a vested interest in delaying change is a just silly way to address the change.

          • But the fundamental problem is the government gave away the power to drive this change when it privatised the energy market into a “Free market”. You don’t get a centrally planned free market. You get EITHER centrally planned, OR a free market.

          • True but the Government is interfering with the free market by building Kurri Kurri, however what they’re doings is stupid. I’d much rather a government that used their might to provide what the market needs (but can’t construct namely transmission line Infrastructure especially to western NSW/SA ) rather than supplying the system with an asset that it simply doesn’t need (Colongra power station closes and Kurri Kurri opens with more or less the same offering F’ing insane)

    • Assets and customers and staff and payment systems .

      Coal plants could make a good location for replacement infrastructure.

      • Assets and customers and staff and payment systems .

        Are all retail reseller requirements that have nothing to do with power generation at all. 2 completely separate businesses.

        • Are you saying transmission assets and the repurposing of coal stations for other use (renewable storage) have nothing to do with generation?

          I’m poleaxed by this revelation.

          You are an astroturfer, evidently.

          • AGL doesn’t do transmission. Wholesale generation and retail sales of electricity are completely decoupled. You really don;t understand whats going on here.

            Also repurposeing a coal power station is far more expensive than greenfield development of renewables…

    • Personal Risk ToleranceMEMBER

      Because MCB can’t just connect 20+GW of new generation to the grid without regulatory approval. They would also be competing against a government throwing subsidies at coal.

      Whereas AGL already has the connection points and sites that can be repurposed for battery, solar, and wind.

    • Brooksie is a well-meaning

      Balderdash. He loves mass immigration.

      457 visa changes are hurting Australia’s tech industry.

      we import we can hire many, many more

      Do you support a “Big Australia”?

      I do.

      • He himself was an immigrant … born in US to English parents who moved here. Hence he likely sees immigrants as people like him or smart folks who work for him, not 99% unskilled Uber drivers like the reality of the program.

        But on clean power he is spot on.

  3. Our Power generation industry needs new thinking and that’s exactly what MCB provides.
    My only reservation is that AGL needs MCB far more than MCB needs AGL. I get the feeling this takeover bid is really about eliminating the back channels of misinformation through which AGL maintains economic advantage (as long as possible). Eliminating AGL’s mixed bag of dirty tricks will allow MCB (and associates) to concentrate on what really needs to happen, from a technology and power delivery / economics perspective.

      • It’s amazing how many people here think the Government has the nation’s best interests in mind when it comes to energy policy, that the fossil fuel industry has little to no political influence and, indeed, that there’s no politics at all involved in energy policy and investment.

    • Our Power generation industry needs new thinking and that’s exactly what MCB provides.

      He apparently has $20 billion to spend, he can do this solo, and supplant the incumbents at the end.

      That’s what a disruptor is.

      • MCB could easily go it alone, but to what end.
        there’s so much work to be done that he can’t afford to see any Red tape delays. From AGL’s perspective each and every delay (red tape requirement) they can politically engineer is one more days profit from a business that everyone agrees is (from a positive cash flow perspective) dead within 10 years anyway.
        AGL’s existing assets could be used to support Renewables but the point is that they’re not necessarily required for the transformention to occur. (oh and btw if these asset are not somehow absorbed into the new power economy than they’ll be required to start the enormous task to decommissioning and land restoration. Being forced to realize this liability (even just from an accounting perspective) will completely kill AGL as a business.
        Bottom line is AGL needs to play political hardball while at the same time MCB needs to eliminate this interference in the development of his emerging business.

        • Being forced to realize this liability (even just from an accounting perspective) will completely kill AGL as a business.

          Don’t worry, they worked out long ago how to avoid this particular cost, you just sell the power station along with it’s cleanup responsibilities to an independent third party for bugger all, who then goes broke leaving it to the government to clean up the mess. How do I know? Because that is exactly what happened with an end of life Power station near me.

          • No argument from me, we can see that AGL is also thinking along these lines with their value creating demerger of coal generation assets. Seriously how cynical can one get….

  4. You need to add Solar + Pumped Hydro to the Levelised Cost table so people can fully appreciate the political stupidity of the whole debate.

    • I think that table is a work of fiction, given the resounding lack of investors willing to put actual money into projects like this. I imagine the MB fund has enough to get a project like this off the ground?

        • lol. So why haven’t they built a unit to connect into our astronomically expensive power grid?

          What that project shows is a government entity is willing to choose a more expensive option for idealogical reasons and fund it.

          • The Hornsdale Power Reserve is the world’s first big battery. It provides essential grid-support services.
            The first 100MW/129MWh was completed in November 2017. In its first two years of operation the Hornsdale Power Reserve confirmed the benefits associated with grid-scale batteries in the National Electricity Market and saved South Australian consumers over $150 million.

            Following this success, a 50MW/64.5MWh expansion was completed in September 2020. As part of the expansion the full 150MW is being upgraded to include Tesla’s Virtual Machine Mode, enabling the battery to provide inertia support services to the electricity grid.

            Go away.

          • “In November 2019, Neoen announced that it would increase the battery capacity by 50%. [19] The expansion cost €53 million ($A82 million,[20] whereas A$71 million had been expected), funded by A$15 million from the state government, A$8 million from ARENA and up to A$50 million in cheap loans through the Clean Energy Finance Corporation.”
            Sure sounds like its government subsidised rather than cheaper than fossil fuels to me…
            From https://en.wikipedia.org/wiki/Hornsdale_Power_Reserve

          • And for those unaware
            “The Clean Energy Finance Corporation (CEFC) is an Australian Government-owned Green Bank that was established to facilitate increased flows of finance into the clean energy sector.”
            So this project is also virtually all government funded.

        • So why is no one building any of this stuff out in the real world? That cost table has been posted here for years and years yet no large scale projects from anything other than government money? Why is no one investing in it? Why arent YOU investing in it if it’s such a sure fire thing?

  5. AGL deployed a share buyback scheme worth $650M back in 2019. Instead of investing in renewables.

    That tells you how messed up their board is.

    • Seems like they massively increased the value of their share options to me…

      Show me the incentives and i’ll tell you the outcomes.

  6. I’m happy to buy some baseload elec swaps for say 2025-2030 from MCB at today’s prices. Hopefully he starts selling soon. Since prices will be lower then, it’s just more profit for him right?