Wednesday, September 27, 2017

AGL pushes back on pressure to keep Liddell open, urges more policy and regulatory "certainty"

The energy giant AGL is continuing to push back against federal government pressure and possible intervention to keep its Liddell power station in the New South Wales Hunter Valley open beyond its scheduled closure in 2022.

Speaking at today's annual general meeting, chairman Jerry Maycock called for "a greater degree of certainty in policy and regulatory settings" to encourage AGL and its competitors to invest in new energy infrastructure.

While Mr Maycock said AGL would continue to negotiate with the government to ensure secure energy, he warned that the 45 year old Liddell station was nearing the end of ts lifespan and was not at peak reliability.

"It is still likely to experience unanticipated outages and will become less reliable as it approaches the end of its operating life in 2022 - even with significant planned investment by the company of $159 million in the plant before it closes," Mr Maycock said in Melbourne.

"While it may be technically possible to extend the life of the power station, the costs of doing so in a way to ensure the plant is even moderately reliable are certain to be substantial."

AGL announced in 2015 that as part of its greenhouse gas policy, its coal-fired power stations including Liddell would close by 2022.

In what is seen as possible market intervention, Prime Minister Malcolm Turnbull has given AGL until mid-December to deliver a plan to either keep Liddell operating or options to sell it.

AGL has committed to announcing its strategy post-2022 which will include the replacement of a significant portion of Liddell's base load generation with new technology.

Chief executive Andy Vesey – who was summoned to Canberra recently over the planned Liddell closure – said there were attractive opportunities to repurpose the site for gas fired or battery storage energy.

“I want to emphasise that no one has more to lose from failing to mitigate the market impact of Liddell’s closure than AGL,” Mr Vesey told shareholders.

“We support measures that would prevent the disorderly removal of plant and would enable market outcomes that would support this future.”

However, Mr Maycock told shareholders that any new investment needs with fit with AGL's strategic vision including "sufficiently attractive" returns to shareholders.

Mr Maycock raised a number of AGL's concerns including whether investment in Liddell or a potential sale was in line with regulatory requirements including any renewable energy target.

"Are the risks from future changes to law or regulation acceptable and are any changes to those laws and regulations necessary to support the investment?" Mr Maycock asked.

"Is the investment robust against reasonably foreseeable changes in technology, customer behaviour, digital disruption, economic growth or dislocation?"

Last week, AGL opened the Liddell station to the media to demonstrate the ageing technology and susceptibility to outages especially in peak periods during summer heatwaves.

AGL is also dealing with shareholder discontent after last year’s meeting when 25 percent investors voted against its 2016 remuneration report, constituting a "first strike".

Mr Maycock said since then, the AGL board was “seeking to understand” the concerns but had made changes to remuneration practices to avoid another protest vote given that a "second strike" would force a boardroom spill.

As it deals with higher energy prices, Mr Maycock said shareholders would now be offered discounted energy plans.

AGL reported a statutory profit of $539 million in 2017 after posting a loss of $408 in the previous year.

AGL shares were trading slightly weaker at $22.87 at 1055 AEST.