Origin Energy will test private capital’s decarbonisation prowess

Brookfield Asset Management’s bid for the Australian Securities Exchange-listed Origin Energy (alongside EIG) is a line in the sand for Australia’s energy transition – and for whether private investors are truly able to assess value better and decarbonise quicker than public markets.

The Brookfield-EIG bid is likely to prove a knockout, coming as it does at a whopping premium to the pre-bid share price. Origin’s board has already signalled it will unanimously recommend the bid to shareholders should it proceed to a binding offer, after having successfully convinced the consortium to bid against itself twice since August.

It’s what comes next that will be really fascinating, assuming the bid also passes muster with the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

Brookfield, through its Global Transition Fund, has signalled that it intends to invest a further A$20 billion ($13.5 billion; €13.0 billion) in Origin, building out a major fleet of renewables and battery storage assets over the coming years. It may have to target acquisitions or strategic partnerships with other investors to achieve that aim. In fact, media reports in Australia suggest Origin is looking at buying Partners Group’s massive CWP Renewables platform, a deal the market will surely be watching with interest as to whether Brookfield will be keen for it to proceed.

Regardless, the ambition is clear – Origin’s energy generation fleet should begin to rapidly decarbonise under this plan.

If this sounds familiar, that’s because it bears some hallmarks of Brookfield’s previous attempt to acquire an Australian-listed energy generator, AGL Energy, earlier this year.

That bid, alongside billionaire Mike Cannon-Brookes’ Grok Ventures, ultimately failed, with Grok building up a shareholding in the listed AGL of more than 11 percent, scuppering its planned demerger, and then this week securing the election of four nominees to AGL’s board. AGL also has a new decarbonisation strategy in place because of Grok’s pressure – but it will have to carry that out as a public company (assuming it isn’t acquired by someone else).

That presents a huge challenge for the company, especially now that one of its rivals is set to go private and start deploying tons of capital into renewables. Will AGL be competing for the same supply chain resources? If Brookfield goes out and acquires a major renewables platform to achieve its aims (whether CWP or something else entirely), would AGL be shut out of being able to do the same?

And it’s reasonable to believe that Origin, as a private company, will have much more flexibility in how it deploys capital and raises debt to fund its goals, compared with the listed AGL, which is beholden to shareholders and will be under pressure to pay regular dividends to its large base of retail investors.

So, while the companies are quite different – Origin is much further along in its energy transition journey than AGL, for one – the fact that Brookfield failed first to acquire AGL before settling on Origin represents an intriguing sliding doors moment for Australia’s giant energy companies.

Split as they are on different paths, it will now be possible to directly compare how quickly the two companies decarbonise. That may prove a litmus test for the power of private investors to accelerate change at plodding listed entities.