AGL Energy signals early coal closures as GIP agreement ends

Following pressure from Mike Cannon-Brookes' Grok Ventures, AGL Energy will retire its coal fleet 10 years earlier and will invest up to A$20bn to decarbonise its portfolio.

Australian energy generator and retailer AGL Energy has formally ended its proposed energy transition investment partnership with Global Infrastructure Partners but has signalled a willingness to work with new partners on developing renewable energy assets.

The firm revealed the news today in a footnote to documents outlining its new strategic direction, which will see it bring forward the closure of the coal-fired Loy Yang A Power Station to 2035, 10 years earlier than the previously planned closure date of 2045.

AGL said it aims to further decarbonise its portfolio of assets with up to 12GW of new renewable energy and storage capacity that will require a total investment of up to A$20 billion ($12.9 billion; €13.4 billion) before 2036. This would be funded through a combination of investments made from AGL’s balance sheet, offtake agreements and partnerships with external investors.

AGL also confirmed that its A$2 billion Energy Transition Investment Partnership with GIP will end on 30 September because the deal was conditional on the demerger of AGL’s renewables and fossil fuel businesses proceeding.

Those demerger plans were shelved in May after shareholder pressure from Australian billionaire Mike Cannon-Brookes and his investment vehicle, Grok Ventures, which acquired a minority stake in the business and pushed for changes at board level.

On further partnerships with investors, AGL said in its strategic review documents: “AGL will discuss future funding opportunities with potential partners, including Global Infrastructure Partners, to facilitate its growth ambitions.”

AGL said it sees decarbonisation as a “potential long-term investment opportunity” that will help it deliver attractive returns to investors over several years.

Interim chief executive Damien Nicks said on an investor call that AGL’s new strategic direction would help it secure further funding from investors.

“What we believe is that setting this [strategic direction] from an ESG perspective, means we will have much better access to capital, both debt and equity, into the future. We’ve all seen the impacts of ESG on this organisation over the last three to five years. We believe this strategic direction will open up access to capital,” he said.

“Importantly, partners such as Tilt [Renewables], who have an incredible pipeline, we’ll continue to work closely with, and we’ll continue to work with others out there as well as we think about the sheer size and scale of this. But [ETIP] has fallen away.”

Decarbonisation strategy

AGL has a 20 percent interest in QIC-managed Tilt Renewables, Australia’s largest wind and solar energy generation business. The other 80 percent is owned by funds managed by QIC, including a mandate from Australia’s Future Fund and capital from its Global Infrastructure Fund.

The vehicle was previously known as Powering Australian Renewables (PowAR) and acquired the Australian assets of ASX- and NZX-listed Tilt Renewables in 2021. The vehicle subsequently rebranded to take on the Tilt Renewables name.

AGL Energy is emerging from a tumultuous period when it initially tried to pursue a demerger that would have seen the establishment of two separately listed businesses: AGL Australia, which was to be home to the company’s retail electricity business and its clean energy generation assets; and Accel Energy, which was expected to house its legacy coal-fired power stations.

A consortium comprising Brookfield Asset Management’s Global Transition Fund and Grok Ventures tried to prevent the demerger and offered A$8.5 billion to acquire the company, a bid that was rejected by AGL’s board in March 2021.

Following that, Grok Ventures quietly built a minority stake in the firm and began agitating for change, which resulted in the demerger being shelved and the resignation of AGL’s chairman and chief executive from their positions.

Newly appointed AGL chair Patricia McKenzie said in a statement today that the new strategic direction represented “one of the most significant decarbonisation initiatives in Australia”.

She said: “Today we have set a new direction for AGL. Our decarbonisation and energy investment strategy sets a clear pathway for the company’s future and its leading role in Australia’s energy transition. We have listened to our stakeholders – in particular, our shareholders, as well as government and energy regulatory authorities. Their views were an important consideration as we reviewed the company’s strategic direction after withdrawing the demerger proposal.

“AGL is committing to an ambitious but achievable strategy to deliver a responsible and accelerated low-carbon future. We are aiming to reshape our energy portfolio into a cleaner and more flexible one, transitioning away from coal and focusing on new renewable and firming capacity.”