Billionaire entrepreneur Mike Cannon-Brookes believes that backing renewable energy over old coal power plants would keep electricity prices down, create jobs and slash emissions, but is he right?
What exactly is being proposed?
It is, by any measure, an extraordinary intervention in Australia’s rapidly evolving electricity market. A consortium worth hundreds of billions of dollars on Saturday lodged a formal offer to buy AGL Energy — the country’s biggest greenhouse gas emitter — for just short of 5 percent above the closing share price on Friday.
Illustration: Mountain People
The headline name behind the bid is Mike Cannon-Brookes, 42-year-old cofounder of software company Atlassian, green solutions investor, climate action advocate and one of Australia’s richest people.
Yet in reality, Cannon-Brookes’ company Grok Ventures is the smaller player in the consortium, which is led by Brookfield, a Canadian investment giant with US$688 billion of assets under management last year. Including AGL’s debt, the bid was just short of A$8 billion (US$5.8 billion).
Why are they doing it?
The main players have said that a significant part of the motivation is to close and replace the company’s coal-fired power plants and prevent a controversial demerger that would hive off those coal plants from AGL into a new entity called Accel Energy.
The consortium said it has up to US$20 billion to spend on building and contracting at least 8 gigawatts (GW) of renewable energy and energy storage to replace about 7GW of existing power plants.
AGL’s Bayswater and Loy Yang A coal plants, scheduled to shut by 2033 and 2045, would be gone by 2030. The company would reach net-zero emissions by 2035 and suddenly be playing its part in limiting global heating to 1.5°C, in line with scientific advice.
The proposal is much bigger than just the coal power plants. It would involve Brookfield and Grok Ventures acquiring all of AGL’s generation assets and its retail business.
It is not a philanthropic investment, Cannon-Brookes said.
He said he is confident that backing renewable energy over ailing old coal power plants can keep electricity prices down, create more than 10,000 jobs and wipe out about 40 million tonnes of carbon dioxide a year — more than 8 percent of Australia’s annual emissions footprint — while turning a profit.
Analysts and some within AGL see access to the company’s 4.5 million customers across the country as a key motivation for any would-be suitor.
For Brookfield’s part, it is a shareholder in fossil fuel assets, but it is noteworthy that the bid includes the name of Mark Carney, the company’s head of transition investing since 2020.
He made his name as first the governor of the Bank of Canada, then the Bank of England and then the UN special envoy on climate action and finance in the lead-up to last year’s COP26 summit in Glasgow, Scotland.
A Brookfield renewable energy arm has about US$65 billion assets under management.
The bid is timed with at least one eye on the upcoming demerger, which AGL on Monday said was on track to happen by June 30.
The consortium said the split risked leading to the separated entities trading at a lower share price, reducing value for shareholders.
How did AGL respond?
There was a swift rejection after the board met on Sunday afternoon.
It said that the offer “materially undervalues the company,” as it offered only a 4.7 percent premium on Friday’s share price.
The consortium rejected this rebuttal just as quickly.
It said that the offer represented about a 20 percent premium on the company’s three-month volume-weighted average share price of US$6.28 and pointed to its expectation that the value would fall after the split.
Cannon-Brookes on Monday said that the consortium would continue to engage with AGL, and he would focus on “trying to explain to shareholders why we believe this is the best option.”
Within AGL, there was some excitement at the prospect that a billionaire entrepreneur with Cannon-Brookes’ success at creating a software firm was making a play for the company. It has lost up to 80 percent of its share value over the five years prior to the takeover offer, although its stock has started to bounce back in the past 12 months.
AGL shares gained more than 10 percent during trade on Monday.
Putting aside the business machinations, is this even doable?
According to experts, yes, although it would be challenging.
Cannon-Brookes was quick to point to a draft blueprint for the future grid published by the Australian Energy Market Operator in December last year, known as the integrated system plan.
That document said that under a step-change scenario — now considered the most probable path — coal would likely exit the system at roughly three times the pace proposed, and there could be a ninefold increase in large-scale renewable energy such as wind and solar farms.
It is not a report the government of Australian Prime Minister Scott Morrison tends to emphasize.
No one disputes that the rise of renewable energy is making coal plants unviable as the around-the-clock generators they were meant to be. They cannot compete with an influx of cheap solar energy in the middle of the day, and were mostly not built to ramp down and then back up when needed.
Officials have said that renewable energy is expected increase from about 30 percent now to 69 percent by 2030, while the Labor Party has said that under its policies it would reach 82 percent.
It is not only AGL that is under pressure. In the most recent announcement, Origin Energy gave notice that the country’s biggest coal-fired power plant, Eraring, could shut seven years earlier than scheduled — in 2025 rather than 2032.
Are there unanswered questions?
Plenty, including whether the consortium would be open to paying more, as well as the timing and specifics of the investment plan. The bid would have to be cleared by the Australian Foreign Investment Review Board and Competition and Consumer Commission.
Buying AGL would involve taking on 3.2 million gas customers.
Cannon-Brookes said that the consortium would want to move them to renewable electricity, a significant undertaking in its own right.
Cannon-Brookes said it is “on a global scale a massive decarbonisation effort,” but added that the plan makes sense.
The consortium’s offer letter said that it conducted detailed market modeling with consultants Marsden Jacob Associates and was confident its plan was achievable.
“The economics stacks up, the science stacks up, what we require is just the gumption to go for it and actually make it happen, and that’s what we’re trying to do,” Cannon-Brookes said.
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