tag:theconversation.com,2011:/ca/topics/agl-30906/articlesAGL – The Conversation2023-04-12T20:04:00Ztag:theconversation.com,2011:article/2035482023-04-12T20:04:00Z2023-04-12T20:04:00ZFarewell Liddell: what to expect when Australia’s oldest coal plant closes<p>After more than five decades, the last operating units of the Liddell coal-fired power station will close this month. The station’s owner, AGL, is Australia’s <a href="https://www.greenpeace.org.au/wp/wp-content/uploads/2021/06/Greenpeace_Coal-Faced-Report_Digital_Edit-June-2021.pdf">largest carbon polluter</a>. Liddell’s closure will reduce the company’s emissions <a href="https://www.agl.com.au/content/dam/digital/agl/documents/about-agl/sustainability/ctap.pdf">by 17%</a>.</p>
<p>Liddell, in the New South Wales Hunter Valley, is Australia’s <a href="https://www.abc.net.au/news/2023-03-05/liddell-coal-fired-power-station-about-to-close-what-comes-next/102027488">oldest coal station</a>. It started operations in the early 1970s – about the same time the Datsun 180B was released, and before the Sydney Opera House officially opened! </p>
<p>In the same way a Datsun 180B was a great car in its day, Liddell was the cheapest and most reliable electricity generation technology in the 1970s and 1980s (at least if you ignore the long-term costs of carbon).</p>
<p>But like all coal-fired power stations in Australia, Liddell’s performance <a href="https://wattclarity.com.au/articles/2023/01/farewell-liddell/">declined</a> as it aged. It became unreliable and inefficient. One unit of the station closed last year, leaving three operating.</p>
<p>Governments must act to make sure our electricity grid doesn’t fall short when coal plants close. But the demise of facilities such as Liddell means Australia has a once-in-a-generation opportunity to become a global energy superpower. </p>
<h2>Life after Liddell</h2>
<p>AGL announced the decision to close Liddell in 2015. Virtually no one in the energy industry argued against the move, but it triggered endless <a href="https://www.theguardian.com/australia-news/2017/dec/10/coalition-mps-attack-agl-decision-to-shut-liddell-coal-power-station">political debate</a>.</p>
<p>Some politicians are still railing against Liddell’s retirement. Federal Nationals leader David Littleproud <a href="https://www.dailytelegraph.com.au/news/nsw/new-energy-minister-penny-sharpe-says-nsw-facing-serious-challenges-on-electricity/news-story/c72fd9f1bd6c15ebae5b4d9f15215741">this week said</a> the closure should be delayed to prevent supply problems, and suggested Australia should have an urgent conversation about building nuclear energy.</p>
<p>But closing Liddell is unlikely to cause the lights to go off in NSW. For now, the state has enough remaining capacity to <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/nem_esoo/2023/february-2023-update-to-the-2022-esoo.pdf">ensure reliable supply</a>.</p>
<p>In the eight years since the decision to close Liddell, large-scale renewable capacity in NSW has <a href="https://aemo.com.au/en/energy-systems/electricity/national-electricity-market-nem/nem-forecasting-and-planning/forecasting-and-planning-data/generation-information">ramped up</a>, as has new <a href="https://pv-map.apvi.org.au/postcode">rooftop solar</a>. </p>
<p>Plenty of new “firming” capacity is also being developed – that is, flexible energy capacity to be activated if renewables aren’t producing energy or electricity demand suddenly increases. Projects under construction in NSW include the Kurri Kurri and Tallawarra gas-fired power stations, the Waratah “super battery” and the Snowy 2.0 pumped hydro project.</p>
<p>When electricity consumption in NSW is at its highest, about <a href="https://www.energy.nsw.gov.au/sites/default/files/2022-08/2019_11_NSW_ElectricityStrategyDetailed.pdf">14,000 MW</a> of power is required. Without Liddell, about <a href="https://www.aer.gov.au/wholesale-markets/wholesale-statistics/registered-capacity-by-fuel-source-regions">13,500 MW</a> of coal, gas and hydro generation is available. </p>
<p>Add in existing wind and solar capacity, plus energy that can be imported from Victoria and Queensland via transmission lines, and total generation capacity in NSW looks to be more than enough.</p>
<p>However, the reliability of some of this remaining capacity – namely, remaining coal-fired power stations – is becoming less certain. That’s why the energy industry is looking past Liddell, to the closure of the Eraring coal plant in 2025, and others to follow. </p>
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<h2>All eyes on Eraring</h2>
<p>Modelling by the Australian Energy Market Operator shows the closure of Eraring <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/nem_esoo/2023/february-2023-update-to-the-2022-esoo.pdf">puts pressure</a> on remaining electricity supply. However, it says the market would still meet the grid “reliability standard”, even if no new projects are developed.</p>
<p>Under that standard, expected unserved energy needs (leading to blackouts) should be no more than 0.002% of total energy used in a region. The standard assumes that while the occasional blackout is inconvenient, eliminating them completely is unfeasible because it would require building expensive power stations that are rarely used.</p>
<p>Blackouts could become more common, if extreme weather hits or coal units fail – <a href="https://www.afr.com/companies/energy/still-no-answer-to-catastrophic-failure-at-callide-power-station-20230125-p5cfha">which happened</a> at Queensland’s Callide C power station in 2021. But blackouts are still far more likely to be the result of a <a href="https://www.aemc.gov.au/sites/default/files/2020-03/Reliability%20Standard%20Factsheet.pdf">power line problem in your street</a> than a lack of generation capacity.</p>
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<img alt="sign reading 'Eraring power station'" src="https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/520434/original/file-20230412-28-ufitvu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The grid will remain reliable after Eraring shuts down in 2025.</span>
<span class="attribution"><span class="source">Dean Lewins/AAP</span></span>
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<h2>Over to the Minns government</h2>
<p>No electricity supply shortfalls are projected for Australia in the near-term. But to ensure the clean energy transition happens smoothly, we should develop new renewable energy and firming capacity <em>ahead</em> of coal closures.</p>
<p>The earlier-than-expected closure of coal units remains a possibility – as occurred with Victoria’s Hazelwood coal station due to <a href="https://www.abc.net.au/news/2016-12-01/worksafe-notices-detail-extent-of-repairs-needed-at-hazelwood/8082318">unaffordable repair costs</a>. </p>
<p>We have previously <a href="https://theconversation.com/3-key-measures-in-the-suite-of-new-reforms-to-deal-with-australias-energy-crisis-184554">recommended</a> a “waiting room” for capacity that can be brought quickly into the market when required. Batteries and pumped hydro would be developed ahead of coal closures, and brought into the market as soon as coal exits.</p>
<p>The NSW Minns Labor government can also bring forward investment through an existing policy called the NSW Energy Roadmap. This involves asking the Australian Energy Market Operator to enter into <a href="https://www.energyco.nsw.gov.au/industry/long-term-energy-service-agreements">long-term contracts</a> to underwrite new renewable energy and firming projects, to help reduce the financial risks proponents face. </p>
<p>One tender round is already under way, but this could be accelerated. Given the <a href="https://www.iea.org/topics/global-energy-crisis">global energy crunch</a>, it may be worth commissioning projects now, even if delivery is not required until later. This is a much better way to manage reliability than, for example, the NSW government using taxpayer money to <a href="https://reneweconomy.com.au/nsw-labor-may-buy-australias-biggest-coal-generator-to-keep-it-open/">buy Eraring</a> – an option NSW Labor left on the table ahead of last month’s state election.</p>
<p>In the longer term, construction of renewable generation <a href="https://reneweconomy.com.au/boom-cycle-means-82-pct-renewables-target-is-doable-says-regulator/">must dramatically scale up</a> to ensure energy reliability and meet emissions reduction targets. </p>
<p>This will be challenging. But we can take heart from <a href="https://www.smh.com.au/politics/federal/labor-takes-victory-lap-on-clean-energy-after-doubling-the-approval-of-projects-20230406-p5cyoq.html">news this week</a> that under the federal Albanese government, renewables projects are being approved at twice the rate of previous years.</p>
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<h2>A new era</h2>
<p>There’s more work to be done to make sure the electricity grid can withstand coal plant closures. </p>
<p>Many new transmission lines must be built to carry electricity from renewables generators to the grid. And the ongoing development of <a href="https://www.energyco.nsw.gov.au/renewable-energy-zones">renewable energy zones</a> – clusters of large-scale renewable energy projects – will make establishing new projects quicker and simpler. </p>
<p>Importantly, local communities and First Nations people must be engaged and consulted throughout the transition.</p>
<p>But while adjusting to the exit of coal brings challenges, nuclear power in Australia is unlikely to be the answer.</p>
<p>Australia has world-class wind and solar resources – enough to eventually produce clean, cheap energy for ourselves and for export. Technologies such as batteries, hydrogen and hydro will fill the gaps when needed.</p>
<p>Producing energy from emerging nuclear technologies in the form of “small modular reactors”, as proposed by Littleproud, will be still be <a href="https://publications.csiro.au/publications/publication/PIcsiro:EP2022-5511">more than twice the cost</a> of Australian renewable energy firmed by batteries or other storage technologies, even under the most ambitious scenarios. This gives Australia a global competitive advantage.</p>
<p>Liddell’s closure is an historic moment in the Australian energy landscape. Now, with tweaks to existing policies, the new NSW government can increase reliability, lower electricity prices and get on the path to net-zero.</p>
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Read more:
<a href="https://theconversation.com/batteries-wont-cut-it-we-need-solar-thermal-technology-to-get-us-through-the-night-203545">Batteries won't cut it – we need solar thermal technology to get us through the night</a>
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<img src="https://counter.theconversation.com/content/203548/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joel Gilmore is an Associate Professor at Griffith University and the GM, Policy and Regional Energy at Iberdrola Australia, which develops renewable projects and batteries.</span></em></p><p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, which develops renewable projects and batteries. He is also a Climate Councillor. </span></em></p>Liddell’s closure is an historic moment in the Australian energy landscape. Now, let’s get to net-zero.Joel Gilmore, Associate Professor, Griffith UniversityTim Nelson, Associate Professor of Economics, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946252022-11-15T05:48:40Z2022-11-15T05:48:40ZCannon-Brookes shakes up AGL: what now for Australia’s biggest carbon emitter<p>“What is a grok?” asked a shareholder at AGL’s 2022 <a href="https://www.agl.com.au/about-agl/investors/annual-meetings?rht8y8=1cfr78">annual general meeting</a> at the Melbourne Recital Centre on November 15, as those assembled struggled with the reality being forced on Australia’s biggest carbon emitter by Australia’s <a href="https://www.nineforbrands.com.au/media-release/the-financial-review-rich-list-wealth-soars-past-half-a-trillion-dollars/">third-richest person</a>.</p>
<p>Grok is, in fact, a word invented by science-fiction writer Robert Heinlein for his 1961 novel Stranger in a Strange Land. To “grok” means to understand something intuitively.</p>
<p>Which is not something likely to be said about how AGL’s leadership has appreciated the ambition of software billionaire Mike Cannon-Brookes to have Australia’s biggest energy retailer lead the nation’s transition to renewable energy.</p>
<p>At the meeting, Cannon-Brookes used the 11.3% shareholding he has collected through his investment company <a href="https://grok.ventures/">Grok Ventures</a> – plus proxies and support from other shareholders sympathetic to his cause – to reshape the company’s board.</p>
<p>Before the meeting AGL had five directors, including chairperson Patricia McKenzie. It now has four new independent directors – all nominated by Cannon-Brookes. </p>
<p>McKenzie and her other directors endorsed just one of those nominees – Mark Twidell, a renewable energy expert who works for Tesla Energy. The other three new directors are: Kerry Schott, past chair of the federal <a href="https://esb-post2025-market-design.aemc.gov.au/">Energy Security Board</a>; John Pollaers, Swinburne University’ chancellor; and CSR director Christine Holman.</p>
<p>The existing board also suffered the indignity of a significant minority vote against its executive compensation plan, as well as against AGL’s energy transition plan, which commits to quitting fossil fuels by 2035. For some, the plan was not ambitious enough. For others, the business case was unclear. </p>
<h2>Shareholders divided</h2>
<p>Yet as Cannon-Brookes’ forces swept the field, the same shareholder wondering about the meaning of “grok” also wondered whether the new directors would work for Cannon-Brookes or for AGL. So too did others. Division was palpable.</p>
<p>Shareholders now seem almost caught in a civil war. </p>
<p>On one side are those focused on sustainability, and carbon emissions, who support Cannon-Brookes in his mission to see AGL to divest fossil fuels quicker. Though his takeover bid failed, in May he successfully <a href="https://theconversation.com/australias-biggest-carbon-emitter-buckles-before-mike-cannon-brookes-so-what-now-for-agls-other-shareholders-183534">blocked AGL’s demerger plan</a>, which he argued would delay divestment.</p>
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Read more:
<a href="https://theconversation.com/australias-biggest-carbon-emitter-buckles-before-mike-cannon-brookes-so-what-now-for-agls-other-shareholders-183534">Australia's biggest carbon emitter buckles before Mike Cannon-Brookes – so what now for AGL's other shareholders?</a>
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<p>On the other side are those focused on returns, and concerned about “board capture”.</p>
<p>These interests need not be mutually exclusive. A company can operate sustainably and be profitable at the same time. But its leadership must explain this and make the strategy clear, cohesive and credible. </p>
<h2>Board missed its opportunity</h2>
<p>McKenzie talked strongly about the need to move towards renewable energy. She said AGL’s transition plan must be “sensible”. But there was a lack of focus on financials.</p>
<p>Directors owe a <a href="http://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s181.html">duty</a> to all shareholders to act in the best interests of the corporation. This requires directors to focus on opportunities to maximise shareholder wealth, but doesn’t negate doing so sustainably.</p>
<p>New director John Pollaers came closest to articulating the challenge facing AGL. This was a time for strategic change, he said. AGL had an opportunity to generate returns and find a path to profitable growth. </p>
<p>McKenzie and her fellow directors could have used the opportunity to show how the renewable energy transition is necessary for AGL’s ongoing financial success, or provide new avenues for wealth creation. </p>
<p>But they awkwardly tried to find a middle ground, promoting the clean energy transition without fully outlining the financial underpinnings until pressed: McKenzie ultimately noted the transition must be “reasonable” to be financially viable. </p>
<h2>Finding a shared vision</h2>
<p>In lieu of this vision, questions revolved around the board’s competence and record. </p>
<p>Shareholders went into the meeting with AGL’s stock worth A$7.70. That’s better than the $5.30 it was worth a year ago, but about 70% less than the $25.81 it traded at five years ago. </p>
<p>The vote against the board’s executive compensation plan sets the scene for further boardroom upheaval. </p>
<p>Under Australia’s “<a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Library/pubs/rp/rp2223/Quick_Guides/ExecutiveRenumeration">two-strike</a>” rule on executive pay, at least 75% of shareholders must approve a board’s compensation plan. More than 25% opposition results in a strike. A second strike leads to a “spill resolution” – a vote on whether all directors must stand for re-election. </p>
<p>Whether that occurs will depend on how successfully old and new directors can work together – something incoming director Christine Holman noted in her pitch to shareholders.</p>
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Read more:
<a href="https://theconversation.com/the-end-of-coal-fired-power-is-in-sight-even-with-private-interests-holding-out-191951">The end of coal-fired power is in sight, even with private interests holding out</a>
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<p>First they must find a new chief executive, to replace Brett Redman <a href="https://www.afr.com/companies/energy/agl-ceo-brett-redman-resigns-20210422-p57ld">who resigned in April</a>. A new CEO can give clarity over AGL’s future priorities – but to do so he or she will need to be palatable to both sides.</p>
<p>If they can’t find agreement, then AGL’s next meeting of shareholders promises to be even more spectacular.</p><img src="https://counter.theconversation.com/content/194625/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Software billionaire Mike Cannon-Brookes failed to take over AGL, but he has succeeded in getting a friendlier board of directors.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1919512022-10-09T19:10:52Z2022-10-09T19:10:52ZThe end of coal-fired power is in sight, even with private interests holding out<figure><img src="https://images.theconversation.com/files/488679/original/file-20221007-26-g739gl.jpg?ixlib=rb-1.1.0&rect=0%2C869%2C5184%2C2576&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">David Crosling/AAP</span></span></figcaption></figure><p>If future historians pick a point in time when Australia comprehensively turned its back on coal-fired generation, they may well point to AGL’s decision to bring forward the closure of Loy Yang A, the cheapest (excluding emission costs) power generator in the energy market spanning eastern Australia.</p>
<p>AGL <a href="https://www.agl.com.au/content/dam/digital/agl/documents/about-agl/media-centre/2022/220929-review-of-strategic-direction-outcomes-and-fy23-guidance.pdf">announced</a> on September 29 that Loy Yang A will close in 2035, ten years earlier than previously planned. </p>
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Read more:
<a href="https://theconversation.com/so-long-loy-yang-shutting-australias-dirtiest-coal-plant-a-decade-early-wont-jeopardise-our-electricity-supply-191577">So long, Loy Yang: shutting Australia’s dirtiest coal plant a decade early won’t jeopardise our electricity supply</a>
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<p>The day before, the Queensland government announced it would decommission or repurpose all its coal generators by 2035. (It owns five of the state’s <a href="https://www.abc.net.au/news/2022-06-12/queensland-coal-fired-power-stations/101143552">eight coal-fired plants</a>, and has a joint-venture holding in another.) </p>
<p>Origin Energy <a href="https://www.originenergy.com.au/about/investors-media/origin-proposes-to-accelerate-exit-from-coal-fired-generation/">announced in February</a> it would bring forward the closure of the biggest coal-fired electricity generator in New South Wales, Eraring, from 3032 to 2025.</p>
<p>So the big coal-generation owners in the National Energy Market (which covers eastern Australia but not Western Australia and the Northern Territory) have made their intentions clear. The era of coal-fired generation is rapidly drawing to a close.</p>
<p>The questions now are: what forms of electricity generation will replace coal, how much will it cost, and who will pay?</p>
<h2>Has coal generation been profitable?</h2>
<p>Summary answers to the first two questions are easy. The future is renewable energy, storage and more transmission. More than A$100 billion of capital expenditure will be needed. </p>
<p>The last question (who will pay) is affected by past policy choices – particularly the privatisation of state-owned generation assets, and subsequent market regulation. </p>
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<p>Loy Yang A, along with Victoria’s other coal and gas generators, was built in the 1980s by a government corporation and sold off in the late 1990s by the Kennett government. AGL bought a one-third share in 2004, and became the sole owner in 2012.</p>
<p>Since 1998 (the start of the National Electricity Market), I estimate Loy Yang A has produced earnings before interest, depreciation and amortisation (EBITDA) - a widely accepted measure of profit used by economists - of $10 billion. </p>
<p>I’ve calculated this using on market revenues and cost information published by the Australian Energy Market Operator. Over the same period, the power station has produced about 486 million tonnes of carbon emissions (about equal to Australia’s annual total).</p>
<p>For all four of the Victoria’s brown-coal generators privatised in the 1990s – Loy Yang A and B, Hazelwood and Yallourn – I estimate a total EBITDA of $23 billion on revenues of $62 billon, since 1998.</p>
<p>This is a 38% profit margin – an extraordinary return for shareholders from assets developed by a government corporation, and which required no great innovation or brilliance to operate. </p>
<h2>Where did all the money go?</h2>
<p>This $23 billion is also more than the proceeds of the privatisation of the four power stations once owned by the State Electricity Commission of Victoria.</p>
<p>Now AGL says the full cost of decarbonising electricity supply to its customers is $20 billion. Investment analyst UBS reckons AGL can <a href="https://www.afr.com/companies/energy/agl-has-2b-of-balance-sheet-capacity-for-renewable-plans-20220930-p5bmb9">only afford $2 billion</a>) without harming shareholder value (profitability). By implication, the other $18 billion will need to be found elsewhere. </p>
<p>Privatisation of Victoria’s electricity assets delivered what was thought of at the time <a href="http://www.austlii.edu.au/au/journals/AUMPLawAYbk/2001/10.pdf">as handsome rewards</a> for taxpayers. </p>
<p>But it turns out it’s the shareholders who come out far ahead. And they pocketed their profits instead of ploughing them back into cleaner alternatives. </p>
<p>They might argue that ploughing their profits back into new renewable generation would have threatened the health of their golden geese. This is evidence of a broken market. The coal generators felt no pressure to reinvest because they were confident that others could not threaten their rivers of cash. </p>
<p>This is not to say government ownership is necessarily better. Private capital in energy production is valuable, not least because there are many other demands on the public purse. When markets work in the interests of customers, they stimulate innovation and efficiency. </p>
<p>But the efficient use of private capital requires effective competition. </p>
<p>What went wrong? There are various views on this. I nominate competition policy that permitted excessive market concentration. There was insufficient competitive tension to check investors’ avarice. Often gullible and ideological regulators made matters worse. </p>
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Read more:
<a href="https://theconversation.com/how-did-victoria-cut-emissions-by-almost-30-while-still-running-mostly-on-coal-191334">How did Victoria cut emissions by almost 30% - while still running mostly on coal?</a>
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<p>As we begin the new era, these policy and regulatory failures must not be repeated. If public confidence in private investment in energy supply is to be restored, new ways of harnessing private capital must be found. </p>
<p>This might mean big changes from the way things have worked for the past two decades. Policy-makers should be mindful to ensure the owners of the coal generators do not get a second bite of the cherry.</p><img src="https://counter.theconversation.com/content/191951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Mountain does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Privatising electricity assets was thought to be good for taxpayers. But it has made the transition to renewables much harder.Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1915772022-09-30T05:25:44Z2022-09-30T05:25:44ZSo long, Loy Yang: shutting Australia’s dirtiest coal plant a decade early won’t jeopardise our electricity supply<figure><img src="https://images.theconversation.com/files/487435/original/file-20220930-1555-xsat0i.jpg?ixlib=rb-1.1.0&rect=0%2C28%2C4756%2C3137&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>AGL Energy – Australia’s <a href="https://www.cleanenergyregulator.gov.au/NGER/Pages/Published%20information/Data%20highlights/2020-21%20factsheets/Australia's-10-highest-greenhouse-gas-emitters-2020-21.aspx">largest emitter</a> of greenhouse gases – <a href="https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2022/september/review-of-strategic-direction-outcomes-and-fy23-guidance">announced this week</a> it will shut the Loy Yang A power station in Victoria’s LaTrobe Valley in 2035, a decade earlier than planned.</p>
<p>This is significant for the Australian electricity industry. <a href="https://www.agl.com.au/about-agl/how-we-source-energy/loy-yang-power-station">Loy Yang A</a> provides around 30% of Victoria’s power and is Australia’s <a href="https://www.climatecouncil.org.au/resources/agl-joins-australias-big-coal-exodus-experts-and-locals-respond/">largest single emitting</a> industrial facility. </p>
<p>But while the announcement has made headlines, it comes as no surprise. The power station burns brown coal which, while cheap, is an inefficient and emissions-heavy source of electricity. Brown coal-fired power stations are also failing to compete with the gathering pace of renewables. </p>
<p>AGL promises to replace the electricity provided by Loy Yang A with large-scale renewables and firming generation (such as batteries). This is, in my view, the most important commitment, because it’ll help ensure Australians have reliable electricity in the decades to come. </p>
<h2>A big week in energy</h2>
<p>AGL emits more than 40 million tonnes of carbon dioxide equivalent each year. Its announcement to bring forward Loy Yang A’s closure is no doubt largely in response to consumer and <a href="https://www.reuters.com/business/energy/agl-energys-top-shareholder-nominates-four-new-board-members-2022-09-28/">shareholder views</a> that the electricity sector must decarbonise.</p>
<p>Consumers are voting with their feet and increasingly demanding electricity sourced from renewable generation. Indeed, Woolworths, BHP and Aldi are just a few high profile brands that have <a href="https://www.energetics.com.au/corporate-renewable-ppa-deal-tracker">committed to buying 100% renewable energy</a>. </p>
<p>The announcement comes amid a big week of energy news. The Queensland government released its <a href="https://statements.qld.gov.au/statements/96232">Energy Plan</a>, which promises to shift the state to 70% renewable energy by 2032 and 80% by 2035. The plan involves an estimated A$62 billion of investment in the energy system up to 2035. </p>
<p>Meanwhile, the <a href="https://www.abc.net.au/news/2022-09-28/victoria-renewable-energy-storage-batteries/101483468">Victorian government announced</a> plans for 2.6 gigawatts of new energy storage capacity by 2030, jumping to 6.3 gigawatts by 2035. </p>
<p>This is all against the backdrop of the federal government’s commitment to have <a href="https://twitter.com/bowenchris/status/1475939110468608002?lang=en">82% renewables</a> in the Australian grid by the end of the decade. </p>
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Read more:
<a href="https://theconversation.com/australias-biggest-carbon-emitter-buckles-before-mike-cannon-brookes-so-what-now-for-agls-other-shareholders-183534">Australia's biggest carbon emitter buckles before Mike Cannon-Brookes – so what now for AGL's other shareholders?</a>
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<h2>Brown coal vs low cost renewables</h2>
<p>Loy Yang A is in the Latrobe Valley, which has enormous reserves of very cheap brown coal. Brown coal is physically <a href="https://theconversation.com/a-brown-coal-export-hub-tell-them-theyre-dreaming-6567">difficult to export</a>, so the cost of brown coal electricity generation remains very low, even at times of high international energy prices. </p>
<p>But these advantages are more than offset by brown coal’s major disadvantage: it is one of the least efficient and most emissions intensive types of electricity generation. </p>
<p>The Victorian government <a href="https://www.energy.vic.gov.au/renewable-energy/a-clean-energy-future/victorian-renewable-energy-and-storage-targets">has a legislated target</a> of 50% renewable energy for the state by 2030. Such significant investments in new renewables have undermined the viability of brown coal fired power stations. </p>
<p>And the wave of investment is set to intensify. The Victorian government has committed to 2 gigawatts of <a href="https://www.energy.vic.gov.au/renewable-energy/a-clean-energy-future/offshore-wind-energy">offshore wind</a> by the end of the decade, and a total of 9 gigawatts by 2040. In terms of energy output, this is the equivalent of two Loy Yang A power stations. </p>
<p>But it is Australia’s love for rooftop solar that has really undermined the economics of brown coal. </p>
<p>Around <a href="https://www.energy.gov.au/households/solar-pv-and-batteries">30% of</a> homes in Australia have rooftop solar panels. In fact, the <a href="https://www.aemo.com.au/-/media/Files/Electricity/NEM/National-Electricity-Market-Fact-Sheet.pdf">total capacity of rooftop solar</a> is now almost equal to the entire remaining capacity of coal fired generation. </p>
<p>When the sun is shining, rooftop solar significantly reduces the amount of electricity demand from the national grid. This forces coal-fired generators to reduce their energy output significantly. In the evening, when electricity demand peaks, coal-fired generators must then ramp up their generation again.</p>
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Read more:
<a href="https://theconversation.com/4-ways-to-stop-australias-surge-in-rooftop-solar-from-destabilising-electricity-prices-173592">4 ways to stop Australia's surge in rooftop solar from destabilising electricity prices</a>
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<p>Coal generators weren’t built to be ramped up and down to meet demand. They were built to be switched on and left operating at their maximum output, all day every day. Operating them like a yo-yo effectively ages them prematurely, bringing forward major maintenance expenditure and the likely end of their operating lives. </p>
<p>The impact on grid-based electricity demand in South Australia is shown in the chart below. It is clear that over the past ten years, grid demand in the middle of the day has fallen substantially due to the impact of solar, making it very hard for inflexible older coal plants to compete. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/487301/original/file-20220929-19-6hgxyb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Changes to South Australian electricity demand over the past decade. This new shape of electricity demand is called the ‘duck curve’ (or in Australia, the ‘emu’ curve!)</span>
<span class="attribution"><span class="source">Tim Nelson</span></span>
</figcaption>
</figure>
<h2>AGL’s even more important commitment</h2>
<p>While the focus has been on the closure of Loy Yang A, the more important commitment relates to AGL building the new generation required to replace it. In its Climate Transition Action Plan, <a href="https://www.agl.com.au/content/dam/digital/agl/documents/about-agl/sustainability/ctap.pdf">AGL stated</a>: </p>
<blockquote>
<p>We will seek to supply our customer demand with [around 12 gigawatts] of additional renewable and firming capacity, requiring a total investment of up to $20 billion, before 2036. </p>
<p>Our initial target is to have up to 5 GW of new renewables and firming capacity in place by 2030, funded from a combination of assets on our balance sheet, offtakes and via partnerships.</p>
</blockquote>
<p>In other words, AGL will replace Loy Yang A with a mix of wind, solar, battery storage and other firming generation that, when combined, do the same job Loy Yang A does now - provide electricity all day every day. </p>
<p>This is exactly what energy consumers need: a commitment to not only close a large coal-fired power station, but a complementary commitment to build the two types of technologies required to replace it on a like-for-like basis. </p>
<p>Some may argue AGL’s announcements are long overdue. But with <a href="https://www.theaustralian.com.au/business/renewable-energy-economy/origin-energy-ceo-frank-calabria-bets-on-green-for-earlier-payback/news-story/9ee6020afc014109fa1943947af9a2bd">Origin Energy</a> and AGL both indicating that the future is firm renewable energy, it’s becoming ever more likely that 100% renewable electricity in Australia’s electricity grid could be achieved by the end of the decade. That’s fantastic news for consumers, and for the climate. </p>
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Read more:
<a href="https://theconversation.com/nsws-biggest-coal-mine-to-close-in-2030-now-what-about-the-workers-185292">NSW's biggest coal mine to close in 2030. Now what about the workers?</a>
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<img src="https://counter.theconversation.com/content/191577/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, that develops renewable projects and batteries. Tim was the Chief Economist at AGL up until 2018.</span></em></p>Loy Yang A power station burns brown coal – an inefficient source of electricity that doesn’t stand a chance competing against renewables.Tim Nelson, Associate Professor of Economics, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1843042022-06-02T07:57:09Z2022-06-02T07:57:09ZWhy did gas prices go from $10 a gigajoule to $800 a gigajoule? An expert on the energy crisis engulfing Australia<p>Australia’s east coast has been plunged into an energy crisis just as winter takes hold, which will see many people struggle to heat their homes due to soaring gas bills. </p>
<p>Meanwhile, Origin Energy this week confirmed it <a href="https://www.smh.com.au/business/companies/coal-crunch-hits-origin-s-eraring-power-plant-as-energy-crisis-deepens-20220601-p5aq81.html">could not source</a> enough black coal to power Australia’s largest coal plant at full capacity, deepening shocks to the energy market.</p>
<p>The electricity price surge is so dire, small energy retailers such as ReAmped Energy are <a href="https://thenewdaily.com.au/finance/2022/05/31/electricity-retailers-price-hikes/">advising customers</a> to switch energy providers or be hit with much higher bills. </p>
<p>So what on Earth is going on? It has a lot to do with Russia’s war on Ukraine, which has disrupted the global energy market. Sanctions on Russian coal and gas exports mean there’s simply not enough supply to meet demand. As a consequence, the global price of gas and coal has soared. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1531588321519931397"}"></div></p>
<h2>Why are energy prices are getting so high?</h2>
<p>Australia is a net exporter of gas and coal. This means we export most of our fossil fuels overseas. As the global price of coal increases, the cost of generating domestic electricity from coal is increasing. </p>
<p>What’s more, many of Australia’s coal generators <a href="https://www.afr.com/companies/energy/some-coal-power-capacity-to-return-this-week-aiding-wholesale-prices-20220510-p5ak2d">are ageing</a>, which means they fail more often. At present, nearly 30% of our coal generation is offline. </p>
<p>The price spike comes as coal plant owners look for the exit. Australia’s largest coal plant, Eraring, has been operating for 35 years. In February, <a href="https://theconversation.com/australias-largest-coal-plant-will-close-7-years-early-but-theres-still-no-national-plan-for-coals-inevitable-demise-177317">Origin announced</a> it would shut Eraring seven years ahead of schedule in 2025 because renewable energy was impacting profitability.</p>
<p>Origin’s new challenge is securing enough coal to run Eraring at its full 2.8 gigawatt capacity. The problem is set to persist into 2023. </p>
<p>This is not only <a href="https://www.smh.com.au/business/companies/coal-crunch-hits-origin-s-eraring-power-plant-as-energy-crisis-deepens-20220601-p5aq81.html">due to</a> a difficult global environment, but also domestic delivery difficulties due to supply chain disruptions.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Aerial view of Eraring" src="https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/466727/original/file-20220602-12-m7fhda.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Eraring power station is set to shut seven years ahead of schedule.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<p>In an attempt to meet rising electricity demand, some energy generators have increased gas-powered generation. However, given Australia exports so much of its domestic gas resources, any additional gas for domestic consumption must be acquired from the rising international market. </p>
<p>To make matters worse, this week’s cold snap along the east coast led to a spike in demand for electricity as people heated their homes. </p>
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Read more:
<a href="https://theconversation.com/4-reasons-why-a-gas-led-economic-recovery-is-a-terrible-na-ve-idea-145009">4 reasons why a gas-led economic recovery is a terrible, naïve idea</a>
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<p>So what’s the overall effect? To give you an idea, a few months ago gas was trading at approximately A$10 a gigajoule. This week, wholesale prices in Victoria reached up to $800 a gigajoule – more than 80 times normal levels. </p>
<p>This gargantuan spike caused the Australian Energy Market Operator to <a href="https://www.afr.com/companies/energy/wholesale-gas-prices-capped-in-apocalyptic-energy-market-20220530-p5apqf">step in</a>, temporarily capping prices at $40 a gigajoule until June 10.</p>
<h2>Will these prices continue?</h2>
<p>These extraordinary prices will likely continue once the Australian Energy Market Operator’s cap is removed. </p>
<p>The Australian Energy Regulator <a href="https://www.afr.com/companies/energy/wholesale-gas-prices-capped-in-apocalyptic-energy-market-20220530-p5apqf">has warned</a> wholesale power prices are likely to remain high for at least two years. This will hit energy retailers and consumers hard. </p>
<p>However, those likely to experience the most pain are small energy retailers on the east coast because of the so-called “default market offer”. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1531620329889710085"}"></div></p>
<p>Established in 2019, the default market offer serves as a price safety net for residential and small business customers by setting a price cap on how much energy retailers can charge households and businesses. </p>
<p>When advertising or promoting offer pricing, retailers must show the price of their <a href="https://www.aer.gov.au/retail-markets/guidelines-reviews/default-market-offer-prices-2022%E2%80%9323">offer in comparison</a> to the default market offer price. </p>
<p>The default market offer for 2022 was <a href="https://theconversation.com/expect-more-power-price-hikes-a-1970s-style-energy-shock-is-on-the-cards-183911">released last week</a>.</p>
<p>Alarmingly, it shows that from July 1, default offers will rise by 14% in New South Wales, 11% in Queensland and 7% in South Australia. In Victoria, the Essential Services Commission determines the default offer, and set the cap at 5%.</p>
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<strong>
Read more:
<a href="https://theconversation.com/4-reasons-our-gas-and-electricity-prices-are-suddenly-sky-high-184303">4 reasons our gas and electricity prices are suddenly sky-high</a>
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<p>So, while consumers will pay a bit more under the increased price cap, energy retailers will pay <em>a lot</em> more in a dramatically rising wholesale electricity market. </p>
<p>Large retailers such as AGL may cope, but smaller players will be hit hard and may not be able to survive given these price hikes are on top of <a href="https://wattclarity.com.au/articles/2022/06/02june-forecast-tight-supplydemand-andgas/">rises in 2021</a>.</p>
<p>This is what led ReAmped Energy, a small energy retailer with 70,000 customers, to advise customers to look elsewhere. </p>
<h2>Should we be surprised?</h2>
<p>The state of the energy market reflects a deepening global resource crisis. However, in Australia, the writing has been on the wall for a long time. </p>
<p>Australia exports 85% of its gas. <a href="https://theconversation.com/australia-has-plenty-of-gas-but-our-bills-are-ridiculous-the-market-is-broken-125130">Between 2000 and 2015</a>, Australia’s gas exports tripled. Between 2015 and 2019 they tripled again. </p>
<p>As more Australian gas is exported overseas, the domestic electricity price has risen. Exporting most of our gas means we often do not have enough for domestic consumption and purchasing it on the international spot market is costly. </p>
<p>The price of electricity rose a whopping <a href="https://www.abc.net.au/news/2019-05-17/gas-exports-blamed-for-electricity-price-rises-job-losses/11121120">130% between 2015</a> – when liquefied natural gas exports began at Gladstone in Queensland – and 2019. </p>
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Read more:
<a href="https://theconversation.com/australia-has-plenty-of-gas-but-the-price-is-extreme-the-market-is-broken-125130">Australia has plenty of gas, but the price is extreme. The market is broken</a>
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<p>Despite these increases, robust export controls have not been implemented. Unlike Western Australia where liquefied natural gas producers must reserve 15% for the domestic market, the east coast has no reservation policy. </p>
<p>Adding to this is the failure to support a swift integration of renewables into the national grid through stronger, focused regulatory mechanisms and improved policy has not occurred. </p>
<p>All this has created, as new federal climate and energy minister Chris Bowen <a href="https://www.abc.net.au/news/2022-06-02/bowen-gas-supply-crisis-perfect-storm/101120724">put it</a>, a “perfect storm”.</p>
<p>In his press conference today, Bowen blamed the previous government’s stalling on renewables and changing energy policies, saying: </p>
<blockquote>
<p>Their ad hoc-ery, their changes of policy approaches, have left Australia ill-prepared and our energy markets ill-prepared for the challenges we are facing today in relation to gas and energy supply. </p>
</blockquote>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1531828305699422208"}"></div></p>
<h2>Is the government doing anything about it?</h2>
<p>One response could be for the government <a href="https://www.abc.net.au/news/2022-06-02/what-can-government-do-about-gas-prices-trigger/101118474">to trigger</a> an emergency domestic gas pricing mechanism and declare this to be a shortfall year, a 2017 mechanism which hasn’t yet been used. </p>
<p>If 2022 is deemed to be a shortfall year, export restrictions would be imposed upon liquefied natural gas producers to protect domestic supply. This could help pricing, because gas reservations can change the supply balance and allow domestic prices to adjust. </p>
<p>It may also assist with supply, given the recent cold snap resulting in the Australian Energy Market Operator to issue a separate warning of gas supply shortfalls in Victoria, South Australia and Tasmania. </p>
<p>However, Bowen <a href="https://www.theguardian.com/australia-news/2022/jun/02/gas-market-trigger-wont-fix-bin-fire-left-by-coalition-energy-minister-chris-bowen-says">today ruled out</a> using the emergency mechanism to deal with the energy price hikes. He said it wasn’t designed to limit prices, and wouldn’t have any impact until January next year. </p>
<p>We are only in the early days of June, and more colder-than-normal weather is <a href="https://theconversation.com/why-is-it-so-cold-right-now-and-how-long-will-it-last-a-climate-scientist-explains-184155">forecast for coming winter months</a>. Whether it uses the domestic gas pricing mechanism or not, the federal government must take steps to address rising energy prices and make the coming winter easier for Australians to bear.</p>
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Read more:
<a href="https://theconversation.com/why-is-it-so-cold-right-now-and-how-long-will-it-last-a-climate-scientist-explains-184155">Why is it so cold right now? And how long will it last? A climate scientist explains</a>
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<img src="https://counter.theconversation.com/content/184304/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia exports most of its coal and gas, and prices have skyrocketed. We could be facing a winter of pain for gas users.Samantha Hepburn, Professor, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1776072022-02-27T19:12:20Z2022-02-27T19:12:20ZAGL said no to a $5 billion bid, but it isn’t over – here’s how takeover bids work<p>Australian companies are being taken over like never before. On Saturday February 19 a consortium involving tech billionaire Mike Cannon-Brookes and Canadian asset manager Brookfield offered <a href="https://bep.brookfield.com/sites/bep-brookfield-ir/files/consortium-proposal-for-agl-media-release-210222.pdf">A$5 billion</a> to buy AGL Energy.</p>
<p>AGL is Australia’s <a href="https://theconversation.com/the-battle-for-agl-heralds-a-new-dawn-for-australian-electricity-177530">biggest</a> electricity supplier and owns Australia’s two highest <a href="http://www.cleanenergyregulator.gov.au/NGER/National%20greenhouse%20and%20energy%20reporting%20data/electricity-sector-emissions-and-generation-data/electricity-sector-emissions-and-generation-data-2019-20?SortField=Scope%5fx0020%5f1&SortDir=Desc&View=%7b99112075%2dD30F%2d4B8B%2dB0F6%2d30051836B0A2%7d">emitting</a> power stations. </p>
<p>The bidders plan to <a href="https://bep.brookfield.com/press-releases/bepc/brookfield-renewable-announces-participation-consortium-proposal-agl-energy-limited#associates-id">shut down</a> those coal-fired plants early and invest up to $20 billion in clean energy and storage to replace them.</p>
<p>On Monday February 21, AGL <a href="https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2022/february/board-rejects-unsolicited-non-binding-indicative-proposal">announced</a> that it had rejected the offer because it “materially undervalues the company on a change of control basis and is not in the best interests of AGL Energy shareholders”. </p>
<p>The offer price was 4.7% above the price of AGL shares the day before the offer, something the AGL chief executive called a “<a href="https://www.afr.com/companies/energy/takeover-bid-not-credible-agl-ceo-20220222-p59yju">ridiculously low premium</a>”.</p>
<p>Even though much of Australia was locked down throughout much of 2021, the Financial Times says last year was a <a href="https://www.ft.com/content/6cb27f90-5473-41d6-a070-9ec88b802f0d">record year</a> for Australian takeovers, with $308 billion of deals struck compared to a 10 year average of $100 billion. </p>
<p>Among the deals were $23.6 billion for <a href="https://assets.ctfassets.net/v228i5y5k0x4/2jy9e3hCHZNlT2bu795qog/0e2763c361e301b6ed98d94ffcb507e4/Suspension_from_Quotation.pdf">Sydney Airport</a> and $39 billion for <a href="https://www.afr.com/companies/financial-services/afterpay-shareholders-show-massive-support-for-acquisition-by-square-20211214-p59had">Afterpay</a>. The pace has continued in 2022 with <a href="https://www.theguardian.com/australia-news/2022/jan/13/crown-resorts-board-ready-to-accept-takeover-offer-after-blackstone-sweetens-bid">Crown Resorts</a> accepting $8.9 billion from Blackstone Inc. </p>
<p>There are two main types of takeovers</p>
<ul>
<li><p><a href="https://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=panel_process/summary_of_takeover_provisions_in_australia.htm">takeover bids</a>, subject to Chapter 6 of the Corporations Act</p></li>
<li><p>“<a href="https://content.allens.com.au/the-allens-handbook-on-takeovers-in-australia/schemes-of-arrangement/">schemes of arrangement</a>”, subject to Part 5.1 of the Corporations Act. </p></li>
</ul>
<p>Increasingly, takeovers have been undertaken as schemes of arrangement. Each of the big takeovers mentioned - for AGL, Sydney Airport, Afterpay and Crown Resorts - has been a scheme of arrangement.</p>
<h2>How takeover bids work</h2>
<p>No one is permitted to acquire more than 20% of a company’s voting shares unless they acquire them in a way authorised by the Corporations Act. These authorised ways include a takeover bid, a scheme of arrangement and “creeping” acquisitions, whereby shareholders can increase their stake by 3% each six months.</p>
<p>The prohibition is broader than just acquiring voting shares and includes situations where, for example, a person may not actually own shares but they control the voting rights attached to the shares. The intention is to not allow someone to hide their control of a company.</p>
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Read more:
<a href="https://theconversation.com/what-impacts-do-takeover-defences-have-on-shareholders-100951">What impacts do takeover defences have on shareholders?</a>
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<p>The provisions apply to companies listed on the securities exchange, unlisted companies with more than 50 shareholders, and listed registered managed investment schemes. </p>
<p>In takeover bids, the bidder is required to make an offer to each shareholder. </p>
<p>Each shareholder gets information about the offer and decides whether to accept or reject it. A shareholder who does not accept will usually only be forced to give up their shares if the bidder gets enough acceptances to reach 90% and triggers the compulsory acquisition provisions in the Corporations Act.</p>
<h2>How schemes of arrangement work</h2>
<p>A scheme of arrangement requires a meeting of the company’s shareholders to vote on whether to accept the scheme. This is not the case for a takeover bid.</p>
<p>As in a takeover bid, the shareholders are given information on the offer beforehand.</p>
<p>Even the shareholders who oppose the scheme have to give up their shares should the scheme be approved by the company’s shareholders and the court.</p>
<p>The required majorities in favour are:</p>
<ul>
<li><p>50% of the individual shareholders who vote, and</p></li>
<li><p>75% of votes cast. </p></li>
</ul>
<p>In addition, the scheme of arrangement requires court approval to ensure all shareholders are treated fairly. Court approval is not required for a takeover bid.</p>
<h2>Why schemes are becoming more popular</h2>
<p>Among the reasons why schemes of arrangement have grown in popularity compared with takeover bids are </p>
<ul>
<li><p>if the scheme is approved by the required majorities of shareholders and the court, 100% ownership of the target company is obtained, even if some shareholders vote against the scheme</p></li>
<li><p>the voting majorities required are lower than the 90% of shares required to undertake compulsory acquisition following a takeover bid</p></li>
<li><p>a scheme can have more flexibility in its structure to make the offer more attractive to shareholders.</p></li>
</ul>
<p>A key issue for a bidder when choosing between a scheme and a takeover bid is a scheme requires the approval of the board of directors of the target company to put the proposal before shareholders, whereas a takeover bid does not.</p>
<p>This means that a scheme cannot be used for a hostile takeover (one not supported by the target company’s board). In contrast, a takeover bid can be either friendly or hostile.</p>
<h2>What’s next for AGL?</h2>
<p>The proposed takeover of AGL is structured as a scheme and has been rejected by the AGL board because the price was too low.</p>
<p>Brookfield and Cannon-Brookes might return with a higher bid, which might gain the board’s support and be presented to shareholders. </p>
<p>If that happens, it won’t be the end. The scheme would need to be approved by shareholders and the court. Also, the approval of both the Australian Competition and Consumer Commission and the Foreign Investment Review Board is needed.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-battle-for-agl-heralds-a-new-dawn-for-australian-electricity-177530">The battle for AGL heralds a new dawn for Australian electricity</a>
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<p>If the board continues to oppose the offer and to oppose any higher offer, the bidders could restructure their proposal as a hostile takeover bid, requiring only sufficient shareholder acceptance and approval from the regulators.</p>
<p>And there might be another bidder for AGL. Mike Cannon-Brookes said on Thursday he was playing “<a href="https://reneweconomy.com.au/mike-cannon-brookes-and-closing-coal/">chess not chequers</a>”, suggesting we are only in Act One.</p><img src="https://counter.theconversation.com/content/177607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Ramsay was a member of the Australian Takeovers Panel from 2000 to 2012. The Panel is established under the Australian Securities and Investments Commission Act 2001 and is the primary forum for resolving disputes about a takeover bid.</span></em></p>Billionaire Mike Cannon-Brookes has compared his consortium’s takeover bid for AGL to playing chess. So what moves should we expect next?Ian Ramsay, Emeritus Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1777202022-02-24T04:13:19Z2022-02-24T04:13:19ZWhy the Australian government should welcome Mike Cannon-Brookes’ plan to takeover AGL<p>Prime Minister Scott Morrison has flatly opposed the bid led by tech billionaire Mike Cannon-Brookes to buy Australia’s biggest energy company AGL and spend A$20 billion switching it to renewables. This includes closing its coal power stations by 2030. As Morrison <a href="https://www.pm.gov.au/media/press-conference-relbia-tas">stated</a> this week: </p>
<blockquote>
<p>We need to ensure that our coal-fired generation of electricity runs to its life, because if it doesn’t, electricity prices go up, they don’t go down. </p>
</blockquote>
<p>Likewise, AGL <a href="https://www.theguardian.com/business/2022/feb/23/agl-open-to-higher-takeover-bid-but-says-cannon-brookes-plan-to-close-coal-by-2030-is-unrealistic">has dismissed</a> the plan as “unrealistic”. But are they right? Would closing AGL’s three coal power stations by 2030 push up prices and bring chaos to the National Electricity Market (NEM)?</p>
<p>No. In fact, there’s already chaos in the NEM due to increasingly early and disorderly coal retirements. The government should welcome the plan to takeover AGL, because it addresses failures in the market and entails a more orderly tranformation process. </p>
<h2>There’s already chaos</h2>
<p>The bid, made alongside Brookfield Partners, came just days after Origin Energy brought forward the closure date of Eraring, Australia’s largest coal station, by seven years. It was the latest in a string of early <a href="https://theconversation.com/australias-largest-coal-plant-will-close-7-years-early-but-theres-still-no-national-plan-for-coals-inevitable-demise-177317">coal closure announcements</a>, and yet there remains no national plan to manage early retirements like this. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-largest-coal-plant-will-close-7-years-early-but-theres-still-no-national-plan-for-coals-inevitable-demise-177317">Australia's largest coal plant will close 7 years early – but there's still no national plan for coal's inevitable demise</a>
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<p>Instead, it’s up to each commercial entity to decide when to close. This means coal generators have no obligation to guarantee reliability beyond providing notice of retirement plans over the short term – five years in <a href="https://www.sbs.com.au/news/article/vic-coal-plants-five-year-closure-warning/vc4rodvns">Victoria</a>, or three and a half years <a href="https://www.aemc.gov.au/rule-changes/generator-three-year-notice-closure">elsewhere</a> in the NEM.</p>
<p>As the Australian Energy Market Operator (AEMO) has <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/operability/2020/2020-system-strength-and-inertia-report.pdf?la=en">pointed out</a>, owners can technically comply with the notice period while withdrawing generation capacity from the market. Even more chaotically, generators can run down maintenance spending when they’re getting ready to close down, which further reduces reliability.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447701/original/file-20220222-19-1dqilv8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Eraring coal plant’s closure has been brought forward by seven years.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>The NEM was designed to be an “energy only market” – the market signal that retirements are due is supposed to encourage investors to build new generators. Unfortunately, this market design has failed.</p>
<p>Part of the failure stems from the NEM’s design, and partly from the federal government’s failure to implement either a strong climate policy or a coal retirement plan. This adds up to an environment of bad investment. </p>
<p>For example, in its latest update of the <a href="https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/generation_information/2022/nem-generation-information-feb-2022.xlsx?la=en">NEM database</a>, AEMO lists 130 gigawatts of prospective solar, wind and solar projects, but only 6.6 gigawatts of these are committed for development in the next 10 years.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-australias-geology-gave-us-an-abundance-of-coal-and-a-wealth-of-greentech-minerals-to-switch-to-173988">How Australia's geology gave us an abundance of coal – and a wealth of greentech minerals to switch to</a>
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</em>
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<p>The Brookfield/Cannon-Brookes plan addresses some of these market failures.</p>
<p>First, it provides a notice period of closure of about eight years, longer than is required by law. That gives a signal to the market and improves energy planning by governments and AEMO. </p>
<p>Second, the new AGL would carry all the risk because it must continue to supply electricity to millions of customers. The new owners of AGL would have to provide enough electricity to cover this load, in real time, or they’ll have to buy that supply from their competitors.</p>
<p>This incentive will mean the owners will build new generation. More renewable energy, which has zero marginal cost, will help reduce the wholesale electricity price, not just for those customers but for all consumers. </p>
<h2>Can renewables fill the gap so quickly?</h2>
<p>The short answer is yes. Coal generators provide around three quarters of the electricity in NSW alone, so replacing it entails a transformation of the grid. There are plans to do exactly that, at the intergovernmental and NSW levels. </p>
<p>So it’s strange the prime minister seems not to have confidence in these plans, given his government has agreed to and funded them both.</p>
<p>First, there’s a nationally agreed <a href="https://aemo.com.au/consultations/current-and-closed-consultations/2022-draft-isp-consultation">Integrated System Plan</a>, which is designed by AEMO with extensive consultation across government and industry. The latest draft plan <a href="https://theconversation.com/the-end-of-coal-is-coming-3-times-faster-than-expected-governments-must-accept-it-and-urgently-support-a-just-transition-173591">predicts Australia is on track</a> to see 14 gigawatts of coal retire by 2030 and all coal gone by 2040. </p>
<p>AEMO doesn’t predict any shortfall of supply over that time, as long as new transmission is built to carry the electricity from the new fleets of solar, wind, hydro and batteries.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-end-of-coal-is-coming-3-times-faster-than-expected-governments-must-accept-it-and-urgently-support-a-just-transition-173591">The end of coal is coming 3 times faster than expected. Governments must accept it and urgently support a 'just transition'</a>
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<p>Second, NSW has its own plan: the <a href="https://www.energy.nsw.gov.au/government-and-regulation/electricity-infrastructure-roadmap">Electricity Infrastructure Roadmap</a>. This will accelerate construction of Australia’s first Renewable Energy Zone, and is <a href="https://www.energy.nsw.gov.au/government-and-regulation/electricity-strategy/memorandum-understanding">co-funded</a> by the federal government. </p>
<p>One of the key challenges is to replace the “security” gap as coal retires. Coal power stations maintain the frequency and voltage of the grid. These security services can be thought of as the “quality” of the electricity purchased. You need sufficient quantity and quality of supply to run our devices, from laptops to smelters. Still, <a href="https://australiainstitute.org.au/post/batteries-and-renewables-to-provide-secure-energy-future-new-report/">Australia Institute research</a> last year confirmed that batteries and renewable energy can provide such security services, and do it cost effectively.</p>
<p>Solar, wind and battery projects can be built much faster than conventional generators. Elon Musk famously built the <a href="https://www.smh.com.au/business/companies/huge-tesla-battery-in-south-australia-primed-for-big-upgrade-20191119-p53byo.html">biggest battery</a> in the world in South Australia, within 100 days in 2017.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/448225/original/file-20220224-32682-ovawi2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Australia’s rooftop solar is the world’s cheapest.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<h2>What might be in store for a new AGL? Self-reliance</h2>
<p>We don’t yet know what new resources the new AGL would invest under a Brookfield/Cannon-Brookes ownership. I believe the most exciting and innovative part of the bid might well be that much of the new investment is in consumer assets.</p>
<p>Australian households could lead the world in decarbonisation by doing it themselves, according to <a href="https://www.rewiringaustralia.org/castles-and-cars">research</a> supported by <a href="https://www.afr.com/policy/energy-and-climate/mike-and-annie-cannon-brookes-pledge-1-5b-to-limit-global-warming-20211019-p591d7">Cannon-Brookes</a>, published last year by Dr Saul Griffith and Rewiring Australia.</p>
<p>Houses can generate a quarter of what they need with rooftop solar. In Australia, rooftop solar in Australia is the <a href="https://www.theguardian.com/australia-news/2021/apr/25/insanely-cheap-energy-how-solar-power-continues-to-shock-the-world">cheapest</a> in the world, at a couple of cents per kilowatt-hour. Batteries allow them to soak up excess solar during the day and use it at night. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/4-ways-to-stop-australias-surge-in-rooftop-solar-from-destabilising-electricity-prices-173592">4 ways to stop Australia's surge in rooftop solar from destabilising electricity prices</a>
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<p>If households also replace their car with an electric vehicle and replace gas appliances with electric ones, it’s possible to reach zero emissions and do it this decade. </p>
<p>The research found it becomes cost effective for households to electrify by around 2025. Mike Cannon-Brookes has already made investments in companies working in this electrification space.</p>
<p>What this might mean for a modern AGL is that much of the A$20 billion it would invest to replace coal might be finance packages to pay for households to ditch fossil energy entirely, and become partially self-reliant from their own solar. </p>
<p>If the new AGL could align the interests of its consumers and the climate, it would achieve more than just shutting old coal clunkers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-battle-for-agl-heralds-a-new-dawn-for-australian-electricity-177530">The battle for AGL heralds a new dawn for Australian electricity</a>
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<img src="https://counter.theconversation.com/content/177720/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel J Cass is Senior Advisor to the Clean Energy Investor Group.</span></em></p>The plan would address failures in the National Electricity Market, and would see a more orderly transformation process from coal to clean energy.Daniel J Cass, Research Affiliate, The University of Sydney Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1585322021-04-29T02:32:59Z2021-04-29T02:32:59ZRisky business: 54% of Australian companies plan to slow ‘green’ initiatives due to COVID<figure><img src="https://images.theconversation.com/files/397478/original/file-20210428-14-1qebyuk.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4827%2C3300&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>More than half of Australian companies plan to scale back environmental initiatives to weather the financial harm caused by the COVID pandemic, a <a href="https://www.theaustralian.com.au/nation/coronavirus-pandemic-forces-business-to-slow-green-reforms/news-story/1edbc653a1127f0cb81d804c5dbcde85">report released</a> this month suggests. But such a move would be bad for business, and the planet. </p>
<p>Over the past few decades, regulatory and societal pressures have prompted businesses to adopt <a href="https://www.researchgate.net/publication/257408737_Corporate_environmental_responsiveness_in_India_Lessons_from_a_developing_country">environmental initiatives</a> at a growing rate. The measures may involve divesting from fossil fuels, preventing pollution, developing eco-friendly products or even <a href="https://journals.sagepub.com/doi/abs/10.1177/0001839218778018">collaborating with competitors</a> to help other organisations in their supply chains, such as distributors and retailers, become sustainable. </p>
<p>My research focuses on social and environmental sustainability issues confronting organisations. Environmental initiatives require a long-term focus, and in my view, businesses would be unwise to scale back these measures in response to the pandemic. <a href="https://www.researchgate.net/publication/328821854_How_nation-level_background_governance_conditions_shape_the_economic_payoffs_of_corporate_environmental_performance">Research</a> by myself and colleagues suggests most firms with good environmental performance also do well financially. And firms that ignore environmental issues face enormous risk.</p>
<p>Renowned US economist Milton Friedman <a href="https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html">famously argued</a>, “the only social responsibility of business is to make profits”. But even Friedman suggests firms are better off dealing with environmental issues when they become a risk. </p>
<figure class="align-center ">
<img alt="Albert Perez/AAP" src="https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397727/original/file-20210429-17-10sl4pt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Climate change and extreme weather, such as heavy rainfall, is a business risk.</span>
<span class="attribution"><span class="source">Flooded supermarket carpark</span></span>
</figcaption>
</figure>
<h2>Business can be a force for good</h2>
<p>Sustainability measures by business are crucial in helping <a href="https://hbr.org/2014/04/resilience-in-a-hotter-world">mitigate and adapt</a> to climate change. Production processes creating fewer greenhouse gas emissions help slow global warming. And when firms make products that require fewer natural resources (such as by using recycled materials), this lowers stress on global ecosystems.</p>
<p>In fact, <a href="https://unisa.edu.au/Enterprise-Magazine-Home/issue-1-2020/a-coup-against-capitalism--how-fire-and-pestilence-have-changed-our-world-view/">our research</a> shows businesses can be one of society’s most powerful actors in bringing about fast and furious change on environmental and social sustainability.</p>
<p>However a recent <a href="https://www2.deloitte.com/au/en/pages/about-deloitte/articles/2021-climate-check-business-views-on-environmental-sustainability.html">international survey</a> by Deloitte found 54% of 75 surveyed Australian companies were downgrading sustainability initiatives during the pandemic. </p>
<p>This is a troubling figure, but below the global average of 65%. And, it should be noted, no surveyed organisation planned to stop their efforts completely and not resume, indicating the changes will not be permanent. </p>
<p>The results are not necessarily representative of the entire Australian business sector. But as a general rule, slowing the momentum on environmental initiatives increases business exposure to climate risk – and may affect future profitability. A firm’s environmental capabilities can take decades to hone. They can involve complex strategies and <a href="https://journals.sagepub.com/doi/abs/10.1177/0001839218778018">years of consultations</a> inside and outside the company. Stopping or slowing these actions can undo hard-earned gains. </p>
<figure class="align-center ">
<img alt="Composite image of man in business suit and tree branches" src="https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397479/original/file-20210428-19-15wpizh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Slowing the momentum on environmental initiatives increases business exposure to climate risk.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>In recent years, the business community has increasingly recognised how climate change and other environmental damage poses a risk to their returns. These <a href="https://www.business.qld.gov.au/running-business/protecting-business/risk-management/environment-climate">risks include</a>:</p>
<ul>
<li>extreme weather which disrupts operations, damages infrastructure and increases insurance costs </li>
<li>increased business costs due to scarcer resources</li>
<li>lower consumer demand for unsustainable products</li>
<li>stranded assets (those that can’t make a financial return due to changes in technology, regulation or the market)</li>
<li>reputation damage and shareholder backlash.</li>
</ul>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cyclone-seroja-just-demolished-parts-of-wa-and-our-warming-world-will-bring-more-of-the-same-158769">Cyclone Seroja just demolished parts of WA – and our warming world will bring more of the same</a>
</strong>
</em>
</p>
<hr>
<p>Rio Tinto experienced the latter last year after its disastrous decision to blow up two ancient rock shelters at Juukan Gorge. The move prompted public outrage and <a href="https://www.theguardian.com/australia-news/2021/jan/28/rio-tinto-juukan-gorge-native-title-mining-company-executive-reshuffle-mainly-pr">enraged shareholders</a> forced the resignation of Rio’s chief executive, Jean-Sébastien Jacques.</p>
<p>And shareholders in Australian energy giant AGL have <a href="https://www.smh.com.au/business/companies/blackrock-turns-up-the-heat-on-agl-s-coal-exit-plans-20201007-p562vz.html">urged its board</a> to hasten the closure of its coal-fired power stations. </p>
<p>Sustainable business activities need not damage a business’ financial returns. This month it was <a href="https://www.newyorker.com/news/daily-comment/the-powerful-new-financial-argument-for-fossil-fuel-divestment">reported</a> that BlackRock, the world’s largest asset manager, had examined divestment by hundreds of funds and concluded the portfolios experienced “modest improvement in fund return”.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373808/original/file-20201209-15-1vzb3gb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Protesters rally outside the Rio Tinto office in Perth earlier this year.</span>
<span class="attribution"><span class="source">RICHARD WAINWRIGHT/AAP</span></span>
</figcaption>
</figure>
<h2>Flattening the climate curve</h2>
<p>Rather than abandoning environmental initiatives, governments, businesses and societies should use the pandemic to reset our collective response to climate change. </p>
<p>For businesses, the pandemic presents a unique opportunity to rethink how they engage with their workforce. Do businesses really need all their <a href="https://www.gbca.org.au/uploads/97/36449/Mid-Tier%20Commercial%20Office%20Buildings%20Pathway%20report.pdf?_ga=2.53787744.957501805.1572935090-604356587.1538523608">energy-guzzling</a> office buildings? Do their employees need to commute to work every day? Is international travel necessary? Can they pool scarce resources and <a href="https://www.nbs.net/articles/guide-collaborating-with-competitors-to-advance-sustainability">work with competitors</a> to gain traction on environmental issues?</p>
<p>For governments, this is a good time to seriously consider <a href="https://theconversation.com/carbon-pricing-works-the-largest-ever-study-puts-it-beyond-doubt-142034">pricing carbon</a>, which financially penalises high-emitting companies. Renewable energy is becoming <a href="https://www.ucsusa.org/resources/renewable-energy-reliable">more reliable</a> each year – strengthening the case to move to a low-carbon economy. </p>
<p>Governments should also consider earmarking a decent fraction of further stimulus payments to encourage business action on climate change. After the global financial crisis in 2007-09, many national governments issued financial stimulus to kickstart economies. Pioneering electric carmaker Tesla <a href="https://www.latimes.com/business/story/2020-07-24/tesla-elon-musk-stimulus">emerged</a> from one such stimulus loan in the United States. </p>
<p>And more broadly, as a capitalist society, must we continue on the path of incessant economic growth that is making our planet sick? Or can we use the pause caused by this pandemic to take a more sustainable route?</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/ive-seriously-tried-to-believe-capitalism-and-the-planet-can-coexist-but-ive-lost-faith-131288">I've seriously tried to believe capitalism and the planet can coexist, but I've lost faith</a>
</strong>
</em>
</p>
<hr>
<figure class="align-center ">
<img alt="Crowds in shopping precinct" src="https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397480/original/file-20210428-13-c7xuxy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The pandemic is a time to question the mantra of endless economic growth.</span>
<span class="attribution"><span class="source">Dean Lewins/AAP</span></span>
</figcaption>
</figure>
<h2>A dry run</h2>
<p>The COVID-19 pandemic can be viewed as a dry run for the impending climate crisis. But the size and scale of climate change demands much more sustained commitment and action than the pandemic. Successfully flattening the emissions curve will take decades, not months. </p>
<p>And the pain from climate change, while slower to arrive, will last much longer, and perhaps forever change civilisation as we know it.</p>
<p>Businesses have long been a big part of the climate problem. They, along with governments and society, cannot continue their uncoordinated, piecemeal response to climate change. This includes not dumping environmental initiatives when it all feels too hard. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/spot-the-difference-as-world-leaders-rose-to-the-occasion-at-the-biden-climate-summit-morrison-faltered-159295">Spot the difference: as world leaders rose to the occasion at the Biden climate summit, Morrison faltered</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/158532/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sukhbir Sandhu has received funding from the Australian Research Council and the European Union. She is a member of the Academy of Management.</span></em></p>Businesses have long been a big part of the climate problem. They shouldn’t scale back environmental initiatives when it all feels too hard.Sukhbir Sandhu, Associate Professor in Sustainability and Ethics, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1483492020-11-04T04:47:49Z2020-11-04T04:47:49ZSaving for retirement gives you power, and ethical responsibilities<figure><img src="https://images.theconversation.com/files/367396/original/file-20201104-13-1aj8hqn.jpg?ixlib=rb-1.1.0&rect=21%2C60%2C2547%2C1501&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mark Agnor/Shutterstock</span></span></figcaption></figure><p>If you’re in a super fund, then, like it or not, you’ve got ethical decisions to make.</p>
<p>More than <a href="https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/super-statistics/super-accounts-data/multiple-super-accounts-data/">10 million</a> Australians have a superannuation account. Which means, effectively, more than 10 million of us are mini-shareholders with the capacity to influence future business decisions.</p>
<p>With that power, however small, comes responsibility. And nowhere more apparent than in relation to climate change.</p>
<p>Last month, the world’s biggest asset manager, <a href="https://insidestory.org.au/putting-the-heat-on-polluting-businesses/">BlackRock</a>, surprised Australia’s biggest electricity producer and carbon dioxide emitter, AGL, by backing a <a href="https://www.blackrock.com/corporate/literature/press-release/blk-vote-bulletin-agl-oct-2020.pdf">motion</a> that would have forced it to close its coal-fired plants <a href="https://www.accr.org.au/news/investor-briefing-on-shareholder-resolutions-to-agl-energy-ltd-on-coal-closure-dates/">earlier than planned</a>.</p>
<p>The resolution at AGL’s annual general meeting failed, but when a global firm managing more than US$7 trillion in investors’ savings says it’s time to accelerate the exit from coal, it’s wise sit up and take notice.</p>
<p>Interestingly though, some of Australia’s biggest industry super funds, among them Cbus, Hesta and Aware, refused to support the motion, which was put forward by the <a href="https://www.accr.org.au/">Australasian Centre for Corporate Responsibility</a>.</p>
<h2>Work ‘behind the scenes’</h2>
<p>It’s been a pattern with industry super funds. </p>
<p>Rather than using their overt voting power to try to change corporate behaviour, or divest from companies altogether, they say they prefer to exert influence behind the scenes, through conversations in board rooms and executive suites.</p>
<p>Take, UniSuper, to which I contribute. It says it <a href="https://www.unisuper.com.au/about-us/news/2020/09/14/a-sustainable-path-to-2050">engages with companies</a> “to encourage rapid decarbonisation of their operations and supply chains”.</p>
<p>UniSuper is one of only three industry funds to commit to achieving net zero carbon emissions across its portfolio by 2050 — the others are Cbus and HESTA. </p>
<h2>Yet doubling down on gas</h2>
<p>UniSuper has joined eight other funds in <a href="https://www.marketforces.org.au/super-funds-october-2020-update/">divesting</a> from companies that predominantly make their money from producing coal for electricity generation.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/367375/original/file-20201104-19-11ntbab.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Big gas plans for the Burrup Peninsula.</span>
<span class="attribution"><span class="source">Woodside</span></span>
</figcaption>
</figure>
<p>Yet if your retirement savings are in UniSuper’ default <a href="https://www.unisuper.com.au/investments/investment-options-and-performance/super-performance-and-option-holdings/balanced">balanced option</a>, then they are partly <a href="https://www.smh.com.au/business/banking-and-finance/unisuper-new-climate-policy-signals-move-away-from-coal-20200915-p55vxn.html">invested in Woodside</a>, a company seeking to build a huge new gas hub on the Burrup Peninsula in Western Australia.</p>
<p>Woodside says the hub, which will operate for “<a href="https://www.woodside.com.au/our-business/burrup-hub">decades into the future</a>”, could process more gas than the entire volume extracted so far from another of its resource projects, the <a href="https://www.woodside.com.au/our-business/north-west-shelf">North West Shelf</a> which began operations 36 years ago.</p>
<p>If you’ve chosen UniSuper’s <a href="https://www.unisuper.com.au/investments/investment-options-and-performance/super-performance-and-option-holdings/conservative">conservative</a> option, then you are not only invested in Woodside, but also in Santos, which is behind the contested <a href="https://www.abc.net.au/news/2020-09-30/santos-narrabri-coal-seam-gas-project-approved/12716350">Narrabri</a> coal seam gas project in NSW. </p>
<p>UniSuper’s annual <a href="https://www.unisuper.com.au/%7E/media/files/forms%20and%20downloads/investment%20documents/climate-risk-and-our-investments.pdf?la=en">report</a> on climate risk also reveals smaller investments in gas producers Origin and Oil Search.</p>
<p>Experts say worldwide gas use needs to <a href="https://theconversation.com/a-single-mega-project-exposes-the-morrison-governments-gas-plan-as-staggering-folly-133435">peak before 2030</a> in order to keep global warming below agreed levels.</p>
<p>It means UniSuper, and other big funds, are investing our collective retirement savings in firms whose corporate strategies threaten our collective future.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unisuper-take-note-theres-no-retirement-on-a-dead-planet-132194">UniSuper take note: there's no retirement on a dead planet</a>
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</p>
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<p>UniSuper cites <a href="https://www.unisuper.com.au/%7E/media/files/forms%20and%20downloads/investment%20documents/climate-risk-management-unisuper.pdf">AGL</a> as an example why it stays with polluting companies. While it runs power stations fuelled by coal and gas, it also invests in renewable technology.</p>
<p>It says, if it were to divest, its AGL shares might be acquired by investors with less concern for the environment.</p>
<blockquote>
<p>it can be in the best interests of the environment and society for the assets to be held by a responsible and reputable entity.</p>
</blockquote>
<p>It’s a justification that could equally be used to defend running a gambling venue — if I didn’t install poker machines, someone else would, and at least I care for my customers. </p>
<p>(As it happens, UniSuper’s “balanced” option <a href="https://www.unisuper.com.au/investments/our-investment-options/balanced">includes</a> shares in Aristocrat Leisure, a leading maker of gaming machines.)</p>
<h2>Super funds have more power than they use</h2>
<p>The justification sidesteps the question of whether the investment itself is defensible. </p>
<p>And it ignores the opposing argument — that divestment by a leading super fund can send a powerful signal to the market that a company is not properly addressing climate risk or developing an appropriate strategies for a carbon-constrained world.</p>
<p>Any company not doing these things is putting our savings at risk.</p>
<p>According to expert legal opinion, its directors might be <a href="https://cpd.org.au/wp-content/uploads/2016/10/Legal-Opinion-on-Climate-Change-and-Directors-Duties.pdf">breaching their obligations</a> under the Corporations Act.</p>
<h2>We’ve got power ourselves</h2>
<p>There are legitimate arguments to be had about the best way for super funds to push businesses to act more urgently on climate change, but as fund members, and the ultimate owners of our money, we need to make up our own minds and act accordingly. </p>
<p>To sit back and let others do it on our behalf is an abrogation of responsibility.</p>
<p>Superannuation may be compulsory, but we still have choices.</p>
<p>We can find out which companies our retirement savings are invested in, and swap to a more sustainable option in the same fund.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/super-funds-are-feeling-the-financial-heat-from-climate-change-146191">Super funds are feeling the financial heat from climate change</a>
</strong>
</em>
</p>
<hr>
<p>This can take some digging around, but as with <a href="https://www.unisuper.com.au/investments/how-we-invest/responsible-and-sustainable-investing/responsible-investment-policies-statements-and-reports">UniSuper</a>, some the information is available on the fund’s website or can be obtained by asking questions.</p>
<p>Or we can consider switching to a different fund altogether. There are websites that <a href="https://www.marketforces.org.au/super-funds-october-2020-update/">track and compare</a> superannuation investments in fossil fuels.</p>
<p>For a range of reasons, it’s <a href="https://theconversation.com/unisuper-take-note-theres-no-retirement-on-a-dead-planet-132194">more difficult</a> to switch to a new fund for UniSuper members.</p>
<p>But even where it isn’t possible, we can write to our funds, urging them to engage more actively on climate change. It’s easy to find the addresses. They are forever sending us emails. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/super-power-why-the-future-of-australian-capitalism-is-now-in-greg-combets-hands-113648">Super power: why the future of Australian capitalism is now in Greg Combet's hands</a>
</strong>
</em>
</p>
<hr>
<p>It’s what they say they do with fossil fuel companies — engage them in conversations. We can tell them where we want our savings invested and how we want them to use their clout to influence company decisions and vote at shareholder meetings.</p>
<p>We can do this as individuals, and we can <a href="https://unisuperdivest.org/">band together</a> with like-minded fund members to speak with one voice.</p>
<p>With a combined <a href="https://www.superannuation.asn.au/resources/superannuation-statistics">A$2.9 trillion</a> in assets, one fifth of which are invested in Australian companies listed on the stock exchange, super funds own a fair chunk of Australia’s most important companies.</p>
<p>It would be wrong for them not to take that responsibly seriously, just as it would be wrong of us not to take seriously what our savings are being used for.</p><img src="https://counter.theconversation.com/content/148349/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Mares sits on the research committee of the Centre for Policy Development</span></em></p>To let others decide how our money will be used is an abrogation of responsibility.Peter Mares, Lead Moderator, Cranlana Centre for Ethical Leadership, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160782019-06-16T20:05:05Z2019-06-16T20:05:05ZInducing choice paralysis: how retailers bury customers in an avalanche of options<figure><img src="https://images.theconversation.com/files/279485/original/file-20190614-158921-1kbfer5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Three decades of behavioural experiments show consumers given too many choices are more likely to make a bad or no choice.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Do you think you are paying more than you should for energy, banking, insurance, internet and phone services? You are not alone, and you are probably right. </p>
<p>Companies offer a growing number of deals that supposedly enable you to choose what is best for you. Every basic economics textbook tells us greater choice should deliver cheaper prices. But in reality this isn’t necessarily the case. </p>
<p>So what’s going on? </p>
<p>A big part of the answer is that businesses are taking advantage of the behavioural phenomenon of “consumer paralysis” to maximise profits. </p>
<p>They provide us with many plans and deals to make us feel like we are in control, but too many choices actually leads most of us to make a bad (or no) choice.</p>
<h2>Energy pricing</h2>
<p>Let’s consider how this works in the context of Australia’s electricity market. </p>
<p>In most areas of the country, residential customers have at least half a dozen retailers to choose from. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279452/original/file-20190614-32317-10r0kug.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Market share by generation capacity by region, January 2018.</span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/Retail%20Electricity%20Pricing%20Inquiry%E2%80%94Final%20Report%20June%202018_0.pdf">ACCC, Retail Electricity Pricing Inquiry Final Report</a></span>
</figcaption>
</figure>
<hr>
<p>Nonetheless, according to the <a href="https://www.accc.gov.au/system/files/Retail%20Electricity%20Pricing%20Inquiry%E2%80%94Final%20Report%20June%202018_0.pdf">Australian Consumer and Competition Commission</a>, electricity prices and profit margins are among <a href="https://theconversation.com/factcheck-are-australians-paying-twice-as-much-for-electricity-as-americans-69980">the highest in the world</a>, and rising. The consumer watchdog calculates that in the decade to 2018 the average residential electricity bill increased by 55% (or 35% in real terms) – and only a very small part of that had to do with alleged culprits <a href="https://theconversation.com/factcheck-qanda-are-south-australias-high-electricity-prices-the-consequence-of-renewable-energy-policy-93594">such as renewable energy</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/energy-prices-are-high-because-consumers-are-paying-for-useless-profit-boosting-infrastructure-86045">Energy prices are high because consumers are paying for useless, profit-boosting infrastructure</a>
</strong>
</em>
</p>
<hr>
<p>Australia’s biggest electricity company, AGL, made a net profit of A$1.6 billion in 2018 – 194% more than the year before.</p>
<hr>
<p><iframe id="I3vT6" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/I3vT6/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Depending on where you live, AGL offers up to 11 energy plans to residential customers. There’s the “Savers” plan, “Savers Online”, “Everyday”, “Freedom”, “Standing Offer”, “Essentials”, “Essentials Plus”, and so on.</p>
<p>Each plan, in turn, has four to eight tariff type options: “Flexible Price”, “Time of Use Interval”, “5 Day Time of Use”, “Single Rate”, “Two rate: single rate with controlled load”, “Single Rate Demand Opt-in”, and so on.</p>
<p>That adds up to literally dozens of price plans from just one retailer. Other companies are hardly better. For a customer in inner Sydney, there are more than 350 retail plans to choose from. </p>
<p>All this “choice” gives the appearance of a competitive market, but its effect is the opposite. It give retailers wriggle room to charge more, not less. </p>
<h2>Experiments in choice behaviour</h2>
<p>Many experiments over the past three decades have demonstrated the ubiquity of too much choice leading to consumer paralysis. </p>
<p>One classic experiment was run by psychologists <a href="https://faculty.washington.edu/jdb/345/345%20Articles/Iyengar%20%26%20Lepper%20(2000).pdf">Sheena Iyengar and Mark Lepper</a> in a San Francisco supermarket in 1999. Customers visiting the store were given a chance to sample jams. Half the time they were allowed to taste up to six jams; the other half they could taste up to 24 jams. </p>
<p>Traditional economics says a consumer is much more likely to find a jam they really like with a sample of 24 rather than six. So offering 24 jams should lead to more jam purchases. </p>
<p>Yet exactly the opposite was found. Of the consumers who chose to taste jams, only 3% of those who could sample 24 jams ended up buying jam, whereas 30% (or 10 times more) of those who could sample just six jams ended up buying. </p>
<p>More choices provided, more paralysis.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/BnfQxsu3Dq4?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Sheena Iyengar explains the jam problem.</span></figcaption>
</figure>
<p>More recently, in 2012, Iyengar’s Columbia University colleague Eric Johnson and others r<a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0081521">eported on an experiment</a> with much greater consequences. </p>
<p>They asked people to choose health insurance coverage from a set of four or eight options. The options varied on monthly premiums and deductibles. When given four options, 42% of subjects chose the best value option. On average their choices cost about $200 more than the best option on offer.</p>
<p>When given eight options, only 21% chose the best option – no better than simply making a random choice. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/confusopoly-why-companies-are-motivated-to-deliberately-confuse-39563">Confusopoly: Why companies are motivated to deliberately confuse</a>
</strong>
</em>
</p>
<hr>
<h2>Reinforcing psychological biases</h2>
<p>Given the massive number of products and plans available in the energy, banking, insurance, internet and mobile phone sectors, the time and effort needed to choose the best deal leaves us feeling overwhelmed and overloaded. In response, we rely on shortcuts (rules of thumb) to save both time (and our sanity). </p>
<p>But these shortcuts can also cause biases that result in further paralysis, including:</p>
<ul>
<li><p><a href="https://www.youtube.com/watch?v=JzKix2xWmJI">Present bias</a> – we put much greater weight on the present than the future. Since the cost of making decisions happens in the present (like the time and effort to compare options and switch services) while the benefits happen later (like saving money), we minimise the time we spend making decisions</p></li>
<li><p><a href="https://www.youtube.com/watch?v=rDTEKHQUR2s">Status quo bias</a> – we tend to stick with a chosen option or default, even when a much better option may be available</p></li>
<li><p><a href="https://www.youtube.com/watch?v=HVNGJpoSuk8">Loss aversion</a> – we place much greater weight on losses and often overestimate the chance of a bad outcome.</p></li>
</ul>
<p>There is considerable evidence pointing to how these biases lead to consumer paralysis in the retail banking and energy sectors. </p>
<p>In 2017, Britain’s energy regulator, Ofgem, ran <a href="https://www.ofgem.gov.uk/publications-and-updates/results-cheaper-market-offers-letter-trial">a randomised control trial</a> involving more than 130,000 electricity customers. Participants received personalised letters either from Ofgem or their current provider offering substantially better electricity deals. </p>
<p>The result: compared with the control group in which only 1% switched tariffs within the next month, 3.4% of those who received an offer from their electricity provider switched to a better deal. Even when presented with notable savings, more than 96% stuck with the status quo. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=443&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=443&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=443&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=557&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=557&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279479/original/file-20190614-158917-s6who0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=557&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Results of Ofgem’s Cheaper Market Offers Letter (CMOL) trial.</span>
<span class="attribution"><a class="source" href="https://www.ofgem.gov.uk/system/files/docs/2017/11/cmol_report_0.pdf">Ofgem</a></span>
</figcaption>
</figure>
<hr>
<p>Other <a href="https://www.ofgem.gov.uk/system/files/docs/2017/10/consumer_engagement_survey_2017_report.pdf">Ofgem research</a> shows that among those who have not switched energy plans, 51% consider it a hassle they don’t have time for, and 48% worry that things would go wrong.</p>
<p>Yvette Hartfree and her colleagues at the University of Bristol’s Personal Finance Research Centre have noted similar fears among <a href="https://www.bristol.ac.uk/media-library/sites/geography/pfrc/pfrc1604-personal-current-account-switching-report.pdf">bank customers</a>: “The biggest concern for those considering switching is that something will go wrong at some point in the process of switching.” </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/simpler-account-switching-would-help-keep-our-banks-honest-66264">Simpler account switching would help keep our banks honest</a>
</strong>
</em>
</p>
<hr>
<h2>Taking action</h2>
<p>We should not be surprised that energy companies and others use an avalanche of choice to confuse us. It is a brilliant business strategy: it seems more competitive from a traditional assessment, yet actually reduces competition. </p>
<p>So what can you do? </p>
<p>On your own, you will need to make a conscious effort to overcome paralysis. You need to devote the time to carefully compare offers. </p>
<p>Fortunately, you can find tools that can help, such as the Australian government’s <a href="https://www.energymadeeasy.gov.au/">energy comparison website</a>. However, be wary of commercial “switching services” and websites that provide comparisons. These operations are often being paid by retailers. Their motives are not necessarily to direct you to the best deal.</p>
<p>What can we do collectively? </p>
<p>One option is government action to ensure switching services are trustworthy. At a minimum, there should be guidelines that switching services not take payments from retailers, and only charge you when you actually save money. </p>
<p>Another option is to form “consumer unions”, which can bargain collectively to get members better deals. The potential of community groups to leverage bulk-buying arrangements has demonstrated in other contexts. In Victoria’s Gippsland region, for example local organisations have banded together <a href="http://www.gippybulkbuy.com.au/">to offer discounts</a> on renewable energy technology. </p>
<p>There’s no reason something similar could not be done to overcome the choice problems induced by big energy retailers and the like.</p><img src="https://counter.theconversation.com/content/116078/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Slonim receives funding from the Australian Research Council for Discovery and Linkage Grants. </span></em></p>Energy companies and other retailers bamboozle us with options to increase their profits. Here’s how the behavioural phenomenon of choice overload works.Robert Slonim, Professor of Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/949112018-04-13T04:17:30Z2018-04-13T04:17:30ZExplainer: how do we make hydrogen from coal, and is it really a clean fuel?<p>Energy giant AGL this week <a href="https://www.theguardian.com/environment/2017/jan/12/victorias-plans-for-hydrogen-exports-to-japan-are-way-of-making-brown-coal-look-green">unveiled plans</a> to produce hydrogen power at its Loy Yang A coal station. But how do we transform coal, which is often thought of as simply made of carbon, into hydrogen – a completely different element?</p>
<p>In fact, coal is not just made of carbon. It also contains other elements, one of which is hydrogen. But to get a lot of hydrogen, the coal needs to be “gasified” rather than burned, creating compounds that can then be reacted with water to make hydrogen. This is where the majority of hydrogen comes from in this case – not from the coal itself.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-is-hydrogen-fuel-making-a-comeback-22299">Why is hydrogen fuel making a comeback?</a>
</strong>
</em>
</p>
<hr>
<h2>What is coal made of?</h2>
<p>In simple terms, coal is a mixture of two components: carbon-based matter (the decayed remains of prehistoric vegetation) and mineral matter (which comes from the ground from which the coal is dug). The carbon-based matter is composed of five main elements: carbon, hydrogen, oxygen, nitrogen and sulfur. </p>
<p>You can think of coal’s formation process as a progression from biomass (newly dead plant matter) to charcoal (almost pure carbon). Over time, the oxygen and some hydrogen are gradually removed, leaving more and more carbon behind.</p>
<p>Brown coal thus contains slightly more hydrogen than black coal, although the biggest difference between the two is in their carbon and oxygen contents.</p>
<iframe src="https://datawrapper.dwcdn.net/HUgdy/2/" scrolling="no" frameborder="0" allowtransparency="true" width="100%" height="170"></iframe>
<h2>What is gasification?</h2>
<p>We can understand gasification by first understanding combustion. Combustion, or burning, is the complete oxidation of a fuel such as coal, a process that produces heat and carbon dioxide. Carbon dioxide itself cannot be further oxidised, and thus is the non-combustible end product of the burning process.</p>
<p>In gasification, however, the coal is not completely oxidised. Instead, the coal is reacted with a compound called a gasification agent. Gasification is endothermic, which means it doesn’t produce heat. Quite the opposite, in fact – it needs heat input to progress. Because the resulting gas is not fully oxidised, that means it can itself be burned as a fuel.</p>
<h2>So how do we make hydrogen?</h2>
<p>Now we know the key concepts, let’s start again at the start. To produce hydrogen from coal, the process begins with partial oxidation, which means some air is added to the coal, which generates carbon dioxide gas through traditional combustion. Not enough is added, though, to completely burn the coal – only enough to make some heat for the gasification reaction. The partial oxidation also makes its own gasification agent, carbon dioxide.</p>
<p>Carbon dioxide reacts with the rest of the carbon in the coal to form carbon monoxide (this is the endothermic gasification reaction, which needs heat input). No hydrogen yet.</p>
<p>Carbon monoxide in the gas stream is now further reacted with steam, generating hydrogen and carbon dioxide. <em>Now</em> we are making some hydrogen. The hydrogen can then be run through an on-site fuel cell to generate high-efficiency electricity, although the plan at Loy Yang A is to pressurise the hydrogen and ship it off to Japan for their Olympic showcase.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=346&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=346&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=346&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=435&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=435&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214644/original/file-20180413-587-j6tl5a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=435&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Making hydrogen from coal.</span>
<span class="attribution"><span class="source">J. Allen</span></span>
</figcaption>
</figure>
<p>Brown coals are generally preferred for gasification over black coals for several reasons, which makes the brown coal of Victoria’s Latrobe Valley a good prospect for this process.</p>
<p>The main reason is that, because of the high oxygen content of this type of coal, it is less chemically stable and therefore easier to break apart during the gasification reaction. Plus there is a small boost from the hydrogen that is already present in the coal.</p>
<p>Hydrogen produced in this way is not a zero-emission fuel. Carbon dioxide is emitted through the combustion and thermal decomposition reactions, and is also a product of the reaction between carbon monoxide and water to make hydrogen and carbon dioxide.</p>
<h2>So why bother making hydrogen?</h2>
<p>When hydrogen is used as a fuel, it releases only water as a byproduct. This makes it a zero-emission clean fuel, at least at the point of use. </p>
<p>Producing hydrogen from coal in a large, central facility means pollution control can be put in place. Particulates, and potentially carbon dioxide, can be removed from the gas stream very efficiently. </p>
<p>This is not possible on a small scale, such as hanging off the back of your car. Road transport currently emits <a href="http://www.who.int/sustainable-development/transport/health-risks/air-pollution/en/">dangerous levels of pollutants in our cities</a> every day.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-protons-can-power-our-future-energy-needs-93124">How protons can power our future energy needs</a>
</strong>
</em>
</p>
<hr>
<p>Gasification processes that use hydrogen fuel cells on site can <a href="https://www.sciencedirect.com/science/article/pii/S0166516205001230">substantially increase their efficiency</a> compared with traditional coal-fired power. However, depending on the end-use of the hydrogen, and subsequent transport processes, you might be better off in terms of energy output, or efficiency (and therefore carbon emissions), just straight-up burning the coal to make electricity.</p>
<p>But by using gasification of coal to make hydrogen, we can start building much-needed infrastructure and developing consumer markets (that is, hydrogen fuel cell vehicles) for a truly clean future fuel.</p>
<p>I predict that hydrogen power will be zero-emission one day. It can be made in a variety of ways through pure water splitting (including electrolysis, or through solar thermochemical and photoelectrochemical technologies, to name a few). It’s not there yet in terms of price or practicality, but it is certainly on its way. Boosting development of the hydrogen economy through production from coal in the meantime is, in my book, not a terrible idea overall.</p><img src="https://counter.theconversation.com/content/94911/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Jessica Allen is funded by NSW Coal Innovation on an unrelated project and has previously been funded to research hydrogen production from water splitting technology. </span></em></p>AGL has announced plans to use coal to make hydrogen fuel at its Loy Yang A station in Victoria’s Latrobe Valley. Wait, isn’t coal made of carbon, not hydrogen? Yes, but here’s how the process works.Jessica Allen, Researcher and Lecturer in Low and Zero Emission Energy, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946882018-04-09T12:31:11Z2018-04-09T12:31:11ZView from the hill: An ugly set of numbers triggers havoc in the Turnbull government<p>Barnaby Joyce, a National, hasn’t a vote for the Liberal leadership. But he’s a man of opinions and now he’s on the backbench there are no restraints on his expressing them.</p>
<p>On Monday night, amid the feeding frenzy over <a href="https://theconversation.com/after-30-newspoll-losses-turnbull-is-down-but-certainly-not-out-94637">Newspoll</a>, Joyce declared that if, as Christmas approached, polling indicated Turnbull was heading to electoral defeat, he should call it quits. There was an obligation “not to drive your party or the government off a cliff,” he <a href="https://twitter.com/SkyNewsAust/status/983274546999390208">told Sky</a>.</p>
<p>A new unhelpful spot fire erupted into flame.</p>
<p>With the fateful 30th Newspoll finally out there, the government on Monday descended into an orgy of destructive self-indulgence. It was a collective performance made up of individual bitterness, tactical misjudgement, and plain ill-discipline. Just the sort of thing to further disgust a public already turned off by the shambles of Canberra.</p>
<p>For Abbott, Monday was the occasion for the primal scream. It might be two-and-a-half years since Turnbull seized his job, but the former prime minister’s pain hasn’t abated a jot, nor his sense of what he sees as the injustice delivered to him.</p>
<p>As he pedalled through the Latrobe Valley, Abbott <a href="https://www.2gb.com/abbott-challenges-turnbull-after-30th-straight-newspoll-loss/">told 2GB</a> it was for Turnbull to explain why the 30 lost Newspolls measure that he invoked in his 2015 challenge “applied to me but shouldn’t apply now.”</p>
<p>And then there were the other points Turnbull had raised back then - about the need to restore cabinet government, and the lack of an economic narrative.</p>
<p>“Well, I ran a perfectly orthodox cabinet government”, Abbott insisted; as
for having no clear economic narrative, “I completely reject that. There was a very, very clear economic narrative under my government.” For good measure, he threw in a defence of the 2014 budget - which in fact began his political demise.</p>
<p>On the policy front, he topped his call for the government to build a coal-fired power station by suggesting it should nationalise the Liddell power plant, owned by AGL, which is resisting selling to another company despite sustained bullying from the government.</p>
<p>Given everyone knew Abbott would be grabbing the spotlight after Monday’s Newspoll, the government had to make a tactical judgement about how best to counter.</p>
<p>It could keep a low profile, with minimal prime ministerial and ministerial appearances. While that would give maximum room to Abbott, it would also avoid further fanning the poll story. Or Turnbull and his ministers could confront the bad poll day full on. That was the course chosen – and it was hard to see the sense of it.</p>
<p>Ministers were out everywhere, backing Turnbull. That just gave the impression that his leadership was in need of protection, despite there being no challenge.</p>
<p>In a round of media appearances, Turnbull said (for the umpteenth time) that he regretted citing Newspoll, declared he had the backing of his colleagues, and submitted himself to some humiliation.</p>
<p><a href="https://www.2gb.com/prime-minister-malcolm-turnbull-im-going-to-go-to-the-next-election-and-win-it/">On 2GB</a>, Ben Fordham announced he had invited listeners to say what he should ask Turnbull. “I hate to tell you PM: the overriding response was, ‘when will you resign?’” Fordham told his guest, with the cameras looking on.</p>
<p>“Oh really,” Turnbull said. “Well, well the answer is I’m not, I am not. I am going to go to the next election and win it”.</p>
<p>Then there was Wayne on the talkback line. “I’m a rusted on Liberal and you’ve taken the party - you nearly lost the unlosable election. I find you politically inept, and basically you’ve taken the party in my view too far to the left and I think you should do the honourable thing and resign, put it to a party vote because quite frankly if we go to an election with you we are doomed as a party”.</p>
<p>“Well thanks Wayne for the advice,” said the PM. “I don’t propose to take it, however.” Turnbull then went on to invite Wayne to tell him how he had taken the party to the left, and argue the toss with him.</p>
<p>Now one can say it’s admirable that a leader gets out and deals with criticisms. But Monday didn’t seem the day for maximum exposure.</p>
<p>Or for canvassing long-term leadership ambitions, as did Peter Dutton. “I think people are best to be honest about their ambitions”, the Home Affairs minister <a href="https://www.3aw.com.au/peter-dutton-very-clear-about-his-prime-minister-ambitions/">told 3AW</a>. His comments were in the context of reaffirming his loyalty to Turnbull and were not new, but such candour just set off another spot fire of questioning, that soon reached Josh Frydenberg and Scott Morrison, both of whom acknowledged the batons in their knapsacks.</p>
<p>The 30th Newspoll was destined to be difficult. Abbott was determined to make it so. Joyce is a loose cannon. But the strategy adopted by Turnbull - for he and his ministers to try to control the story by swarming all over it - simply made him a bigger target. It displayed a lack of political nous but also suggested he is feeling more than a little rattled by the situation in which he finds himself.</p><img src="https://counter.theconversation.com/content/94688/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With the fateful 30th Newspoll finally out there, the government on Monday descended into an orgy of destructive self-indulgence.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946512018-04-09T06:55:44Z2018-04-09T06:55:44ZAGL’s plan to replace Liddell is cheaper and cleaner than keeping it open<p>The Commonwealth government <a href="https://www.theguardian.com/australia-news/2018/apr/08/josh-frydenberg-lobbies-agl-board-to-force-liddell-power-plant-sale">called</a> last week for AGL Energy to consider selling its Liddell power station to rival Alinta. </p>
<p>Federal Energy Minister Josh Frydenberg has raised concerns that the scheduled 2022 shutdown of Liddell will affect New South Wales’ energy reliability. It’s suggested the sale would provide a way to keep the ageing power station open past the end of its normal 50-year operating life.</p>
<p>However, AGL responded to <a href="https://www.aemo.com.au/-/media/Files/Electricity/NEM/Planning_and_Forecasting/NEM_ESOO/2016/v2/2016-Electricity-Statement-of-Opportunities-Report_V2.pdf">government concerns</a> in December 2017 by releasing a replacement plan. Liddell’s theoretical maximum output is 1,800 megawatts (MW), but the firm capacity – the power that can be relied upon at peak time – is 1,000 MW. AGL is confident this can be replaced by a mix of improved efficiency, renewables and demand response. </p>
<h2>AGL’s proposal unpacked</h2>
<p>Late last year, in response to the Commonwealth government’s pressure, AGL updated its <a href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">Liddell replacement plan</a>. The updated plan includes generator efficiency upgrades, new natural gas and renewable energy generation capacity, and demand response.</p>
<p>This plan builds on the planned 2022 closure of the Liddell station. Phased investments in new, low-emissions generation and upgrades to existing generation will replace the 1,000 MW of coal-fired power by: </p>
<ul>
<li>increasing the capacity of AGL’s nearby Bayswater coal-fired power station by 100MW<br></li>
<li>installing 750MW of high-efficiency gas power (at potential sites in Newcastle and/or elsewhere in NSW)</li>
<li>adding 1,600MW of new renewable generation capacity (wind and solar farms)</li>
<li>providing 100MW of firm capacity from demand response and 250MW from battery storage.</li>
</ul>
<p>The replacement portfolio is split into three stages. The first aims for 550MW of new generation: 300MW from two solar power plants, to be built by third-party developers, and 250MW from a new gas peaking power station located at Newcastle (or other suitable sites in NSW). </p>
<p>Further, AGL has already approved 650MW of wind projects. The Bayswater efficiency upgrade will add 100MW to the capacity without burning any additional coal. </p>
<p>This, along with the 20MW of demand response, will provide the “firm capacity” required to meet existing customer needs, in line with the federal <a href="https://theconversation.com/infographic-the-national-energy-guarantee-at-a-glance-85832">National Energy Guarantee</a>. The “firm capacity factor” is the proportion of the installed capacity (the theoretical maximum) that can be relied upon to be available at peak time. </p>
<p>The next two stages will progressively add new capacity from renewables, battery storage and demand response to meet the energy needs of AGL’s potential uncontracted customers. Stage 2 and Stage 3 feasibility is expected to start by 2020 and 2021 respectively, for a 2022 delivery.</p>
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<h2>AGL is relying on the market</h2>
<p>AGL’s Liddell replacement plan is designed to provide an equivalent amount of energy and dispatchable power at a similar level of reliability. </p>
<p>The plan’s total investment of A$1.36 billion is more than the A$920 million estimate of the <a href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">2027 Liddell extension plan</a>, but once operating and fuel costs are included the average cost of replacement generation is more affordable at A$83 per megawatt hour (MWh), compared with extending the life of Liddell at A$106 per MWh. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=495&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=495&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=495&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=623&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=623&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213798/original/file-20180409-114109-oinjlb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=623&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Levelised cost of energy based on information sourced by AGL including: the capital cost of the Liddell life extension works as advised by Worley Parsons (Advisian). AGL’s discount rate in line with their commercial target returns. Westpac Banking Corporation’s forecast of the Newcastle coal price discounted based on the lower calorific value required for power station coal. A carbon emissions cost has been included as per AEMO’s ‘moderate’ 2015 scenario.</span>
<span class="attribution"><a class="source" href="https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/171209NSWGenerationPlanDecember2017.pdf?la=en&hash=529E1A89370A33DA8F378D761CEEF1D919C9C91D">AGL's NSW Generation Plan</a></span>
</figcaption>
</figure>
<p>Though the replacement plan has an installed capacity of 2,900MW, it accounts for a firm capacity of 1,000MW. </p>
<p>The <a href="https://www.aemo.com.au/-/media/Files/Media_Centre/2018/Liddell-Advice_Final_.pdf">Australian Energy Market Operator</a> has endorsed AGL’s Liddell replacement plan. It said the plan provides more than enough energy and capacity to meet the potential shortfall created by the closure if AGL completes all three stages by the 2022 deadline. </p>
<p>Some of this plan is already under way, as the AGL board has approved the upgrades at Bayswater and Liddell and the new solar and wind power plants. However, the next two stages are dependent on market signals and investments other companies make in new resources. </p>
<p>If stages 2 and 3 of AGL’s plan are not undertaken in time and other market players do not invest, there could be a reliability gap that results in supply interruptions. While this is unlikely to occur, this is exactly the type of problem that the government’s National Energy Guarantee is supposed to fix. The guarantee envisions that retailers carry the responsibility of meeting the required amount for dispatchable energy. Failure to do so would invite financial penalties, with the energy market operator stepping in as the procurer of last resort. </p>
<p>However, AGL has proposed an adequate plan to meet the gap that the Liddell closure would create. It’s ultimately improbable that regulator intervention will be needed. </p>
<p>That said, AGL’s plan is not necessarily the best plan. There are other lower-emission options that are more cost-effective. </p>
<p>A <a href="https://www.uts.edu.au/sites/default/files/article/downloads/Beyond%20Coal-%20Alternatives%20to%20Extending%20Liddell%20Power%20Station%20%28FINAL%29%20Nov%202017.pdf">study</a> by the Institute for Sustainable Futures (which I have contributed to) proposes a third “clean energy package”, including renewable energy, energy efficiency, energy storage, demand response and flexible pricing. Rather than selling Liddell, if the Commonwealth is looking for low-cost and reliable solutions, this is the approach it should be pursuing.</p><img src="https://counter.theconversation.com/content/94651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Institute for Sustainable Futures undertakes paid sustainability research for a wide range of government, corporate and NGO clients. </span></em></p>Government pressure on AGL to keep its Liddell power plant open past 2022 ignores the sensible, cost-effective plan to replace it.Kriti Nagrath, Senior Research Consultant, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/844272017-09-21T03:53:42Z2017-09-21T03:53:42ZPolitics podcast: AGL chief economist Tim Nelson on what to do with Liddell<p>In the eye of the storm over energy policy is Liddell, an ageing coal-fired power station owned by energy giant AGL.</p>
<p>Prime Minister Malcolm Turnbull has twisted the arm of AGL chief executive Andy Vesey to take to the company’s board the proposition that it should extend the plant’s life beyond its scheduled 2022 closure, or alternatively sell it to an operator that would carry it on. </p>
<p>AGL chief economist Tim Nelson says the company is running the rule over both options but he argues preserving the power station may not be the best solution. “The decision is not just economic, it is also also a commitment on carbon risk.” </p>
<p>Nelson says the emissions profile of extending the life of coal-fired power stations is inconsistent with current commitments in AGL’s greenhouse gas policy and the government’s undertakings under the Paris climate accord. Add to that the hefty rehabilitation costs for 50-year-old Liddell and it seems “the numbers don’t add up”.</p>
<p>While AGL is reviewing government options, it is so far sticking to its alternatives for the site – repurposing it, or repowering it with zero-emissions technology. </p>
<p>But without a coherent policy framework it is hard to see an orderly transition in the energy market. Nelson says a clean energy target could fix the uncertainty, encouraging the replacement of old technology with a combination of renewables and “complementary capacity from flexible sources”.</p><img src="https://counter.theconversation.com/content/84427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>AGL chief economist Tim Nelson says preserving the Liddell power station may not be the best solution.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/841282017-09-15T06:27:54Z2017-09-15T06:27:54ZVIDEO: Michelle Grattan on the energy wars<figure><img src="https://images.theconversation.com/files/186162/original/file-20170915-16273-1m7hh9t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><figure>
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</figure>
<p>Michelle Grattan speaks to University of Canberra vice-chancellor Deep Saini about the week in Australian politics, including the government’s bid to land a long-term energy policy, the divide in the Coalition over a clean energy target, media reform, and anti-vilification legislation for the marriage postal ballot.</p><img src="https://counter.theconversation.com/content/84128/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does commentary for the ABC.</span></em></p>Michelle Grattan speaks to Deep Saini about the week in Australian politics.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/839072017-09-12T11:30:32Z2017-09-12T11:30:32ZTreating AGL with public contempt seems hardly the way to get the best outcome<figure><img src="https://images.theconversation.com/files/185659/original/file-20170912-19534-vz4e8d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Energy Minister Josh Frydenberg accused AGL of wanting to have its cake and eat it too.</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><p>If anyone thinks the government isn’t behaving in a extraordinary manner in its onslaught against AGL over the future of the Liddell power station, just consider what the Coalition would say if a Labor government acted like this.</p>
<p>It would go berserk.</p>
<p>After hauling in AGL chief executive Andy Vesey on Monday, the government took its roughing up of the company to new levels on Tuesday.</p>
<p>Malcolm Turnbull accused AGL of not knowing what alternative it has to closing Liddell, despite the company previously flagging a plan.</p>
<p>Barnaby Joyce suggested its reluctance to sell Liddell was a case of “shorting the market”.</p>
<p>Following the report from the Australian Energy Market Operator of an expected electricity shortfall over coming years, the government is pressing AGL to keep the coal-fired Liddell station going for at least five years beyond its scheduled 2022 closure, or to sell it.</p>
<p>At Monday’s meeting with Turnbull and ministers, Vesey said the company would come back within 90 days with an alternative plan.</p>
<p>Vesey did agree, obviously reluctantly, to take the government’s options to its board. But that night he told the <a href="http://www.abc.net.au/lateline/content/2016/s4732747.htm">ABC’s Lateline</a>: “I think that we are committed to finding the best solution for the market. We believe that we can deliver that without having to consider the extension or sell the plant. And that is what we are going to work on.” </p>
<p>Turnbull on Tuesday said the company had not articulated an alternative so the government did not know what it was. “And frankly, I don’t think they do either, by the way. If they had a plan, they’d be able to put it on the table now.”</p>
<p>Yet Vesey’s post-meeting statement had noted AGL had “previously advised the market that replacement of capacity will likely be provided by a mix of load shaping and firming from gas peaking plant, demand response, pumped hydro and batteries”. The company had canvassed the plan in its August report to the ASX.</p>
<p>Joyce didn’t mince words when he addressed Tuesday’s Coalition partyroom meeting. “AGL’s refusal to sell Liddell shows they are shorting the market. They will probably make more money out of having one operating coal-fired power station than two,” he said. AGL also has the Bayswater power station in New South Wales, which is near Liddell (as well as Loy Yang in Victoria).</p>
<p>Asked later <a href="http://www.skynews.com.au/news/top-stories/2017/09/12/agl-considers-coal-power-plant-deal.html">on Sky</a> about his comment, Joyce was reluctant to be so explicit. “I could never affirm to that otherwise I’d be off to court,” he said. “What I can say is this question has not been reasonably answered: why? Why pull a power plant to pieces if there are people out there who want to buy it?” He said he knew of two entities interested in buying Liddell.</p>
<p>Energy Minister Josh Frydenberg accused the company of wanting to have its cake and eat it too – promote its exit from coal while staying in coal for decades to come. He and Joel Fitzgibbon, in whose Hunter electorate Liddell is situated, had a very public face-off in the press gallery corridor.</p>
<p>In Question Time, Turnbull accused Fitzgibbon and another Labor MP of being collaborators with and apologists for Vesey and AGL.</p>
<p>The bashing of AGL – accompanied of course by a blame game against past Labor policies for high energy prices – sounded desperate.</p>
<p>If the government were serious about trying to persuade AGL to sell Liddell, wouldn’t some lower-key negotiation be the better way to go?</p>
<p>And if AGL, which has given years of notice of the close of Liddell, believes the shortfall can effectively be dealt with by other means, surely it is premature to be so dismissive of what it is saying?</p>
<p>Treating the company and its chief executive with public contempt seems hardly the way to get the best outcome.</p>
<p>But the government is heavily driven by a combination of policy paralysis, electoral fear, and perception of a political opportunity.</p>
<p>An <a href="https://www.theguardian.com/australia-news/ng-interactive/2017/sep/12/the-guardian-essential-report-12-september-results">Essential poll</a> published on Tuesday shows it has an uphill battle in front of it to persuade voters it is on top of the energy challenge. When people were asked which party they thought would be more likely to deliver lower energy prices, 28% said a Labor government, compared with 19% who said a Coalition government, while 35% believed there would be no difference.</p>
<p>The government is riven by division over the path ahead for its long-term policy, with those who give coal a high priority recently gaining increasing sway, and hauling Turnbull in their direction.</p>
<p>Meanwhile the government is trying to escape the odium of soaring power prices. Apart from hanging them on Labor, one way is to exploit the fact that, like the banks, power companies are villains in the public mind. So the government is painting the one in its immediate sights as grasping and gouging for profits.</p>
<p>But there is no guarantee the approach will succeed and it could backfire. What if, as appears most likely at the moment, AGL decides to resist the thuggery and persist with its plan? The government can’t force the company to bend to its wishes. In those circumstances, it would have to hope the AGL plan was sound or find other sources of supply.</p>
<p>In the meantime the messages the government is sending are likely to raise concerns in business generally. Its conduct is going beyond its demonstrated willingness, on a range of fronts, to intervene in a very active way on energy.</p>
<p>It is unedifying bullying, in which some might even see echoes of Malcolm Turnbull’s former corporate days.</p>
<iframe src="https://www.podbean.com/media/player/fr3g9-72ed6d?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe><img src="https://counter.theconversation.com/content/83907/count.gif" alt="The Conversation" width="1" height="1" />
If anyone thinks the government isn’t behaving in a extraordinary manner in its onslaught against AGL over the future of the Liddell power station, just consider what the Coalition would say if a Labor…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/838792017-09-12T05:10:11Z2017-09-12T05:10:11ZPolitics podcast: Mark Butler on energy uncertainty<figure><img src="https://images.theconversation.com/files/185610/original/file-20170912-11525-1dztq8v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">David Mariuz/AAP</span></span></figcaption></figure><p>Pressure is mounting on the government to put an end to energy uncertainty as an Australian Energy Market Operator (AEMO) report warns of looming power shortages over the next few years.</p>
<p>Opposition climate change and energy spokesman Mark Butler has written about the toxic divisions on energy policy in his recent book, Climate Wars. He recognises there are challenges in the Coalition party room over the Finkel report, but says Labor will negotiate with the government on an energy framework. It wants to avoid an ALP government inheriting the policy chaos.</p>
<p>Responding to the government’s push to extend the life of the Liddell power station, he says Malcolm Turnbull has unfairly concluded there is only one option.</p>
<p>“With a proper investment framework in place, new investment that will last decades, not just a few more years … could take place. At the moment we have an investment strike and if we can’t end the investment strike then yes in five years time in NSW we will be in a position of supply shortage.”</p>
<p>On the future of coal, Butler says it’s still “a massive part of our system”, and while usage will go down over time, it will be a part of the system for “as far as we politically can see”.</p>
<p>“The problem is not old coal power plants closing, it’s that nothing is being put in to replace them.”</p>
<p>On alternative sources like battery power he is optimistic about their potential, while sceptical of expanding hydro power until the results of a feasibility study are produced.</p><img src="https://counter.theconversation.com/content/83879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Opposition climate change and energy spokesman Mark Butler has written about the toxic divisions on energy policy in a recent book.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/635972016-09-06T20:11:03Z2016-09-06T20:11:03ZCompany results wrap: energy companies are facing disruption<p><em>Companies have finished reporting results for the financial year so it’s time to take stock of how the different business sectors of Australia are fairing. In our <a href="https://theconversation.com/au/topics/company-results-2016-30905">company results wrap series</a> we take a step back from the short-term focus of quarterly profit and loss statements and examine what big picture factors are at play.</em></p>
<hr>
<p>The energy sector is dealing with a complex mix of relationships between consumer trends, global commodity markets, and state, federal and industry regulation. Because large established companies in electricity generation and distribution and coal and natural gas export have a lot of influence in this process, Australian energy regulations reflect more traditional energy provision rather than global trends where renewable energy is becoming more prevalent. </p>
<p>State governments are currently coming to terms with the regulatory changes needed to accommodate public support for disruptive technology. One example is the ongoing adoption of ride-sharing company Uber. However this same pragmatism needs to be reflected in preparations for the provision and consumption of energy in Australia. The energy companies that are prepared for this disruption will survive and flourish, while those that cling to traditional structures will struggle.</p>
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<h2>Evidence of disruption</h2>
<p>Globally energy companies are already showing signs of being affected by the looming disruption. Coal miners have been subjected to multiple forces over the last decade, but the changing landscape associated with new forms of energy, is a strong influencer of their performance. Coal companies in the US are facing dwindling share prices or bankruptcy <a href="http://www.peabodyenergy.com/content/2625/chapter-11-protection">like Peabody Energy</a> and <a href="http://www.wsj.com/articles/arch-coal-in-new-deal-for-bankruptcy-exit-plan-1467732739">Arch Coal</a>.</p>
<p>Tesla’s share price, which increased from US$28.52 in August 2012 to US$220 in August 2016, is more than double that of more traditional vehicle company Toyota. Toyota has experienced moderate growth from US$79.62 in August 2012. With electric vehicles forcing themselves into the motor vehicle market, technological disruptors like Tesla are seen as more likely to succeed than traditional motor vehicle companies like Ford.</p>
<p>West Texas Intermediate, a benchmark international oil price, declined from US$133 a barrel in July 2008 to US$45 a barrel in July 2016. This followed a slowdown in global growth after the global financial crisis and <a href="https://www.eia.gov/finance/markets/supply-opec.cfm">increased production of oil in Saudi Arabia</a>, which some claim is to <a href="http://www.forbes.com/sites/panosmourdoukoutas/2016/04/16/the-real-reasons-saudi-arabia-wont-support-oil-prices-above-40/#25999cf513d0">gain market share</a>. Coal prices for export from Australia have fallen from A$180 a tonne in July 2008 to A$63 a tonne in July 2016 as <a href="http://www.lowyinterpreter.org/post/2016/07/22/Chinas-coal-cuts-continue-amid-boom-in-redundant-coal-fired-power-stations.aspx">China’s voracious appetite for coal has declined</a>. </p>
<p>International natural gas prices have also declined because in Europe the natural gas price has been referenced to the oil price. Separate to this, the US price of natural gas declined as a result of new drilling technologies which released huge quantities of natural gas onto the US market, dragging down the price. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135228/original/image-20160823-30246-1mv5am2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Global energy prices.</span>
<span class="attribution"><span class="source">World Bank Commodity Price Data</span></span>
</figcaption>
</figure>
<p>Many of these global trends are apparent in Australia too. Coal export prices have caused concerns for existing companies to the extent that <a href="https://www.australianmining.com.au/news/bhp-dumps-plans-for-another-3-coal-mines/">new mine development has been shelved</a> since 2008. Coal mine <a href="http://www.abc.net.au/news/2016-02-08/mining-queensland-resources-council-royalties-local-council-tax/7147570">profits have dwindled</a> and <a href="http://www.theherald.com.au/story/3633769/2016-has-everything-and-nothing-before-us/">job losses abound</a>.</p>
<p>Ambitious plans for <a href="http://www.smh.com.au/business/shell-shelves-plans-for-arrow-lng-project-in-queensland-20150130-132ahz.html">coal seam</a> and natural gas extraction for export to Asian markets <a href="http://www.abc.net.au/news/2016-03-23/woodside-abandons-browse-lng-project-kimberley-coast/7269556">have been curtailed</a> with some experts <a href="http://www.afr.com/business/energy/gas/energy-expert-fereidun-fesharaki-lng-pain-still-to-come-as-market-adjusts-to-glut-20160615-gpk4hg">predicting still further price declines</a> in response to oversupply. </p>
<p>While there have been recent small upticks in prices, the trend for Australian primary energy company share prices since early 2014 has been downwards.</p>
<h2>Challenges facing the Australian electricity generation sector</h2>
<p>The electricity sector in Australia is facing multiple challenges. Electricity consumption has <a href="https://www.aer.gov.au/wholesale-markets/wholesale-statistics/national-electricity-market-electricity-consumption">declined since 2009</a> and is <a href="http://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Planning-and-forecasting/-/media/080A47DA86C04BE0AF93812A548F722E.ashx">forecast to increase only slightly by 2035/6</a>. The closing of large energy users like the Kurri Kurri aluminium smelter and the Clyde Oil refinery, and a shift by residential consumers to the consumption of electricity from solar panels have contributed to this trend. </p>
<p>This is coupled with increasing supply of energy from low marginal cost wind power which, if the <a href="https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM">Australian National Energy Market</a> is working as designed, <a href="https://theconversation.com/electricity-prices-fall-renewable-energy-deserves-merit-13300">reduces the spot price for electricity</a>. </p>
<p>Many electricity generators have launched or acquired retail businesses to market directly to customers. AGL and Origin are the two largest of these “gentailers”, with a combined 56% of the small customer market in the eastern states. However, there is potential for disruption to this existing industry model. <a href="http://pv-map.apvi.org.au/analyses">1.57 million households</a> now have solar panels on their roofs, and <a href="https://www.climatecouncil.org.au/uploads/ebdfcdf89a6ce85c4c19a5f6a78989d7.pdf">residential batteries</a> are expected to increase consumer control of residential electricity.</p>
<p>Startups like <a href="http://www.sunverge.com/">Sunverge</a>, <a href="http://www.repositpower.com/">Reposit</a> and <a href="http://powerledger.io/">Powerledger</a> are looking to connect households with spare energy to households buying spare energy. <a href="http://www.mojopower.com.au/">Mojo Power</a> is offering customers fixed price packages that are more reminiscent of mobile phone offers than electricity. At this stage it is unclear whether the National Electricity Market will play a part in, or hinder, these new business models. </p>
<p>A few retail companies, like <a href="https://www.redenergy.com.au/">Red</a>, <a href="https://lumoenergy.com.au/">Lumo</a>, <a href="http://www.powershop.com.au/p/da-o2/">Powershop</a> and <a href="https://www.infiniteenergy.com.au/">Infinite</a> spruik their renewable energy credentials. Renewable energy is viewed very favourably by the public. </p>
<p>Recent polling suggests that <a href="http://www.tai.org.au/sites/defualt/files/P234%20renewables%20and%20battery%20storage%20FINAL.pdf">71% of respondents</a> would favour a government that facilitated greater support for solar panels and batteries. Energy giant AGL has a larger renewable energy portfolio than Origin making it slightly more attractive to consumers with environmental concerns, but it is exposed to the risk of owning a large coal generation fleet. </p>
<p>Infigen is the only renewable, publicly listed company. Infigen faced torrid times during the multiple back-to-back reviews of the <a href="http://www.cleanenergyregulator.gov.au/RET">Renewable Energy Target</a>, but since the target has been set at 33GWh, Infigen’s share price has been recovering.</p>
<p>Of note, is the share prices of domestic energy companies AGL and Origin who are both in the business of generating and retailing electricity and previously were both engaged in the development of coal seam gas. Origin has continued its coal seam gas investment while <a href="https://www.agl.com.au/about-agl/media-centre/article-list/2016/february/review-of-gas-assets-and-exit-of-gas-exploration-and-production">AGL exited the market.</a> AGL has instead focused more on diversifying its electricity generation portfolio. Part of this strategy has involved formulating innovative plans for virtual power stations of <a href="https://www.agl.com.au/about-agl/media-centre/article-list/2016/august/agl-launches-world-largest-solar-virtual-power-plant">consolidated rooftop solar panels and residential batteries</a>. </p>
<p>Origin’s foray into the export of Liquid Natural Gas (LNG) has not been good for its share price. Concern over debt related to the investment in LNG and exposure to declining LNG prices has worried investors.</p>
<h2>Electricity distribution also faces multiple challenges</h2>
<p>Electricity distribution companies in Australia are regulated monopolies. Distribution companies in NSW and QLD have been government owned and as a result of hefty investment plans, large electricity price rises were passed through to customers after 2009. This was at the same time as environmental charges were being included in electricity tariffs. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/136379/original/image-20160902-1030-1dbmc9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Residential electricity price 2007-2015.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>Customers were angered by the rise in electricity prices, but the NSW and QLD governments have enjoyed the profits that have flowed back into state coffers. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/136380/original/image-20160902-1018-1vehll1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Electricity network profits: QLD and NSW.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>The NSW government is now seeking to sell a large share of its distribution businesses, although the most promising buyers have been <a href="https://theconversation.com/protectionist-rejection-of-chinas-state-grid-misses-real-energy-security-issue-63768">knocked back by the federal government due to security concerns</a>. With the popularity of solar panels and the expectation about the benefits of battery storage to meet demand after sundown, investors buying into the electricity distribution sector will be facing disruption. </p>
<p>Origin and AGL have gambled on different strategies to face a future with carbon constraints and technological disruption. Origin has bet on natural gas being a transition fuel to a cleaner energy future, while AGL is betting on electricity from renewable sources with batteries as the preferred path.</p>
<p>Energy distribution companies need to wrestle with the technological disruption that is looming from decentralised, distributed generation from solar panels, batteries and peer-to-peer energy transactions. Coal miners should seriously consider diversification to face a carbon-constrained future. The energy sector is in a state of transition; profits and share prices may be volatile for a few years to come. It would be advantageous if regulation did not get in the way of the shifts already evident.</p><img src="https://counter.theconversation.com/content/63597/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lynette Molyneaux does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Energy companies shouldn’t rely on government regulation to protect them from the growing disruption from renewables and increased consumer control.Lynette Molyneaux, Researcher, Energy Economics and Management Group, Global Change Institute, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.