Glasgow coal deal a ‘clear sign’ of global energy shift: AGL

AGL, the nation’s heaviest emitter, has described the Glasgow Climate Pact as a sign of the world’s commitment to accelerating the energy transition and averting catastrophic global warming despite the wording being watered down from “phasing out” coal to “phasing down”.

After two weeks of climate negotiations, the final text endorsed by nearly 200 nations included for the first time a pledge to curtail coal-fired power, which British Prime Minister Boris Johnson declared had “sounded the death knell” for the world’s biggest source of greenhouse gas emissions.

Steam billows from the cooling towers at AGL’s Loy Yang A coal-fired power station in Victoria’s Latrobe Valley.Credit:Caria Gottgens

AGL chief operating officer Markus Brokhof said the changing of the wording following a last-minute intervention by India and China appeared to have been a necessary compromise.

However, he said the nature of the commitments left little doubt about the world’s willingness to speed up the shift away from fossil fuels and achieve the Paris Agreement’s ultimate aspiration of limiting global heating within 1.5 degrees.

“In general, it’s a clear sign [that] the energy industry, in particular the carbon-heavy industry, has to go,” Mr Brokhof told a UBS Australasia conference on Monday. “We are fully committed along these lines at AGL Energy.”

AGL is preparing to shut down its Liddell coal plant in NSW in 2023, which Mr Brokhof said would strip out 23 per cent of AGL’s emissions. “It’s a significant step forward, but the right step,” he said.

The company has also committed to reaching net-zero operational emissions by 2050.

However, with other coal plants across the business not scheduled to close until the 2040s, AGL has come under mounting pressure from environmental advocates and powerful investors to commit to vastly stronger decarbonisation goals.

At its annual meeting in September, the company was rocked by an unprecedented investor revolt as more than 50 per cent of shareholders including investment giants BlackRock and Vanguard defied the board and voted to support an activist climate resolution requesting new “short-, medium- and long-term” emissions targets aligned with the Paris Agreement.

Financially, the pace of the clean energy shift has also been hurting AGL and other traditional power suppliers. A significant uplift in wind and solar power across Australia’s east-coast energy grid has been driving daytime wholesale electricity prices to levels where large fossil fuel-based generators are increasingly unable to compete.

The company, which sunk to a $2.06 billion full-year loss in the 12 months to June 30, said the “winds of change” had swept the market much faster than anticipated and is now embarking on plans to split up the business.

Under a proposed demerger, AGL plans to form a new company, Accel Energy, to own its fleet of huge coal- and gas-fired generators. The other, to be called AGL Australia, will hold its electricity, gas and telecommunications retailing business along with some cleaner generation assets.

By creating AGL Australia, which would have a “net-zero” carbon footprint, the board hopes to appeal to equity investors and lenders that are increasingly exiting coal assets as part of efforts to reduce exposure to the risks posed by global warming.

Mr Brokhof said the demerger should enable AGL’s market value to better reflect the company’s significant investments in renewable energy including through its 20 per cent interest in PowAR, the nation’s largest operator of wind and solar farms.

“We have … invested billions of Australian dollars in renewables over time, and this has never been reflected in our share price,” he said. “Our share price has suffered over the last 18 months.”

AGL insists the demerger will also be beneficial for Accel, as it would permit a greater focus on the responsible operation of its assets and their transition to lower-carbon energy “hubs”, which may eventually include big batteries, hydrogen manufacturing and carbon capture and storage projects.

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