AGL has reluctantly agreed to the government’s request to take to its board proposals to extend the life of the coal-fired Liddell power plant or to sell it.
But in what has become an open tug-of-war between the company and the government, AGL will put forward an alternative blueprint with actions it would take to avoid a power shortfall once Liddell closes at the scheduled time of 2022.
AGL chief Andy Vesey spent 90 minutes with Prime Minister Malcolm Turnbull, Energy Minister Josh Frydenberg and Deputy Prime Minister Barnaby Joyce on Monday.
This followed Turnbull’s push for Liddell’s life to be extended for at least five years beyond 2022. If AGL will not itself keep the power station open, the government wants the company to sell it to another operator.
The government’s public pressure on AGL is based on last week’s report from the Australian Energy Market Operator (AEMO) warning that there will be a substantial electricity shortfall over coming years.
Frydenberg conceded after Monday’s meeting that AGL’s preference was to develop an alternative source of supply. “This would be firm, dispatchable capacity and would have no adverse impact on consumers in terms of both price and reliability of the system”, he said.
But he described it as “only an idea that AGL has put forward today”, and said the company had asked for 90 days to bring back its proposal.
Frydenberg said “the only option that is currently on the table to ensure that there is no supply shortfall in 2022 is the continuation of Liddell as an operating plant or its sale by AGL to another party”.
“The company clearly wants to find additional new supply as their option, but from the government’s perspective obviously our preference – as seen by what the options we know today – is to keep the power station open. But we haven’t seen their plan”, he said.
He said Turnbull “will not allow a shortfall in the market to occur that as has been identified by AEMO”.
Vesey said after the meeting: “I was asked to take to the AGL board the government’s request to continue the operation of Liddell post 2022 for five years and/or sell Liddell, which I agreed to do.”
He said 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.
“Short term, new development will continue to favour renewables supported by gas peaking.
“Longer term, we see this trend continuing with large scale battery deployment enhancing the value of renewable technology.
“In this environment, we just don’t see new development of coal as economically rational, even before factoring in a carbon cost,” Vesey said.
He said that by giving advanced notice of closure of its coal-fired power plants, AGL was meeting one of the recommendations in the Finkel report.
“The long notice period we have given reflects our commitment to managing carbon risk for shareholders and avoiding the volatility created by recent sudden withdrawal of capacity, he said.
He said that as Liddell approaches the end of its life in 2022, it was likely to see more unanticipated outages. That was why AGL would spend another $159 million to improve its reliability before it closed.
Frydenberg said Monday’s discussion was “instructive” and “good-natured”. “Both the government and AGL recognise there is a problem and that problem has been identified by AEMO as a thousand megawatt shortfall in the market if Liddell was to close in 2022,” he said.
Vesey tweeted after the meeting “AGL is doing more than any other company to develop new supply to help drive down power prices.”
AGL informed the stock exchange that Vesey had sold 50,000 ordinary shares on Friday at a price of $24.8 each. He retains 376,229 ordinary shares, valued at more than $9 million.
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 the academic appointment above.