Christopher Niesche: The big challenge to billionaire's bid to turn Australia's energy market green

Billionaire Mike Cannon-Brookes has mounted a takeover big for energy company AGL Energy. Photo / Brook Mitchell

OPINION:

With his long hair, bushy beard and baseball cap, Mike Cannon-Brookes looks like a craft brewer.

Yet instead of passing off disgusting concoctions as beer, Cannon-Brookes is an IT billionaire with plans to spend several billion dollars revolutionising Australia's energy market and doing more than any other individual to help Australia radically cut its greenhouse gas emissions.

Last week Cannon-Brookes teamed up with Canada's Brookfield Asset Management to launch a surprise bid for AGL, Australia's largest electricity generator.

Along with the A$8 billion the partners plan to spend taking over AGL, they have put aside another A$10b to A$20b to retire AGL's coal plants and build wind and solar generation in their place by 2030.

If they succeed, they would remove a huge chunk of Australia's carbon emissions.

On its own, AGL emits more carbon dioxide than Sweden or every car on Australia's roads.

Two of AGL's power plants – Bayswater in NSW and Loy Yang A in Victoria – account for 10 per cent of Australia's total carbon emissions.

The bid was rejected by AGL last Monday, but first bids in a takeover almost always are and the partners are presumably prepared to increase their price.

AGL said the offer undervalues the company and management's plans to split the company in two later this year. One company would hold the coal-burning power stations; the other will hold AGL's electricity retailing arm, which has about 4.5 million customers.

AGL argues the best way to deal with the coal assets is to hive them off into their own company and slowly switch them over to renewables. At the same time, AGL argues, the retail arm would thrive, unencumbered by ageing and polluting coal generators on the balance sheet.

For shareholders, the question is simple: Do they believe AGL's own plan will increase the value of the two arms, or are they better off accepting the immediate gain of a takeover offer.

Cannon-Brookes might well win over shareholders, but by far the biggest hurdle his bid faces is winning government approval.

The deal will need to be approved by competition regulators, because Brookfield already owns a large NSW transmission company, and by foreign investment regulators, because Brookfield is Canadian.

You might think the Government would at least consider an offer by two deep-pocketed investors offering to spend their money slashing Australia's carbon emissions by 10 per cent in the next eight years.

But not Scott Morrison's government. The Australian Prime Minister was hostile to the idea from the outset.

"We need to ensure that our coal-fired generation of electricity runs to its life because if it doesn't electricity prices go up. They don't go down," he said.

It's true that switching from coal power to wind and solar will create some difficult and expensive technical issues. Firstly, there is ensuring security of supply – when it's still and cloudy we'll still need power. The solution most generators propose is quick fire gas power, to top up wind and solar until technology such as batteries improve enough for this to be unnecessary.

That's why under Cannon-Brookes and Brookfield's plan, AGL won't be carbon neutral until five years after the coal power stations are retired in 2030.

The other problem is converting an electricity grid built to carry consistent coal-fired power travelling in one direction into one that can handle the fluctuations of renewable energy. But this isn't insurmountable; Australia's energy regulators have been working on just the scenario proposed by the two bidders.

The objection to the plan to phase out coal that Morrison specifically named – increasing power prices from renewable energy – is also ill-founded. In some cases, coal power still has a price advantage over renewable power, because the coal plants have already been built and paid for. But renewable energy will soon be cheaper in just about all scenarios, including when compared against existing coal plants.

We've seen where coal power is going. In the last few weeks Australia's three big coal-fired electricity generation owners have all announced plans to shut some of their coal plant earlier than planned.

The offices of AGL Energy in Sydney. Photo / AP

Cannon-Brookes just wants to shut them down even earlier.

But no matter who owns them, the outcome will be the same – coal has no long-term future because it is uneconomic.

When billionaires speak, people listen, so it's easy for them to talk big. But Cannon-Brookes has already demonstrated he is prepared to put money into environmental goals.

A Twitter bet with Tesla boss Elon Musk in 2017 led to the creation of the world's largest battery in South Australia. Cannon-Brookes and his wife Annie have also committed A$1.5 billion of their fortune to climate change philanthropy. His personal investment company Grok Ventures has backed a raft of green energy and carbon reduction start-ups.

The big question now is the extent to which the Government will stand in his way and try to delay the inevitable.