A tale of two coal plants

This morning’s news showed the contrasting fortunes of two of the NEM’s coal plant owners. While Trevor St Baker’s Delta was celebrating the Morrison government’s largesse in supporting an upgrade of his Vales Point coal plant in NSW, the AGL Board was nursing a black eye from a shareholder resolution to accelerate the closure of its Victorian Loy Yang A brown coal plant. While the shareholder resolution did not pass, it achieved 20 per cent support, thanks to the giant US investment manager BlackRock throwing its weight behind the resolution.

The Vales point grant of $8m shows the government hasn’t forgotten about coal despite its much publicised pivot to gas and is slated to come from the federal government’s underwriting new generation investments program (UNGI). Curiously, the government, despite shortlisting the project in March 2019 and promising its NSW counterpart in January 2020 that it would fast-track NSW UNGI projects  is only now inviting Delta to apply for the grant. Also curiously it’s not one of the two projects from the UNGI shortlist that the government said it was fast tracking in December 2019 and about which nothing has been heard since.

The grant didn’t make the list of budget initiatives to support energy that Energy Minister Angus Taylor trumpeted in his budget night press release. Possibly he considered it too small an amount to be worth mentioning.

Details are scant on exactly what the money is buying, although it appears to be a turbine upgrade that will deliver an additional 40MW to the 1320MW plant. Helpfully it will also reduce emissions slightly (2 per cent) despite delivering higher output, as the efficiency gains will mean less coal is required. If the reported figures of 1.05m tonnes saved over 8 years are credible, this is an abatement cost of $8/tonne, which the government will see as good value since it is used to paying  up to $15/tonne for projects under its emissions reduction fund. Despite the upgrade the plant is still slated for closure in 2029.

Meanwhile, the AGL Board – amongst others – will be considering the implications of having a mainstream institutional investor align itself with the activist shareholder group the Australasian centre for corporate responsibility (ACCR). The company’s Achilles heel seems to be its own TCFD disclosure that the current scheduled closure date of 2048 for Loy Yang A is incompatible with scenarios that limit global warming to 1.5 degrees. Origin has faced similar challenges over its plans for its Eraring black coal plant in NSW. However, as this is due to close in 2032 anyway and is less emissions intensive than Loy Yang A, Origin has been able to declare its plans as consistent with a  science -based target. With its 2019 shareholder resolution on coal power failing to get much traction, ACCR has narrowed its focus for Origin to its fracking plans in the Betaloo Basin (ostensibly based around the basis of its consent from Native Title holders) and industry association membership. As it happens Origin, along with BHP have resigned from one of the offending associations, the Queensland Resources Council, over its political advertising for the Queensland election where it is lobbying voters to rank the Green Party last.

This will only be more grist to the ACCR’s mill, and so this kind of shareholder activism is only going to get ramped up. If they continue to cause AGL headaches, then it could take a leaf out of ENGIE’s book. The French global power giant announced a few years back that it was getting out of coal power. After closing its ageing Hazelwood plant, it simply sold the Loy Yang B plant to Alinta. Alinta is privately owned by Chow Tai Fook, a Hong Kong-based family business. If owning Loy Yang A gets too hard optically while the plant still has several years of economically viable operation left, AGL can always realise some value by selling it to private or foreign state owners who care less. The majority of privately-owed Australian coal plants are already owned by such businesses, although the single largest owner is the Queensland state government. Maybe Trevor St Baker will get a chance to expand his portfolio in the next few years…