Mike Cannon-Brookes and his collaborators have succeeded in sending shock waves throughout the boardrooms of major companies around Australia. His campaign, via shareholder activism, has resulted in a mass clean-out of the board of directors of Australia’s largest greenhouse gas emitter, AGL Energy. Perhaps more importantly it has resulted in AGL management substantially accelerating their exit out of coal.
AGL’s decision to close Loy Yang A power station by 2035 probably helped precipitate the decision of the Victorian Labor party (facing an election on 26 November) to commit to seeing all coal power closed by 2035, and an expansion of renewable energy to 90% of the state’s power supply.
Critically, board directors and chief executives of other major Australian companies can now see clearly that if they fail to take climate change issues seriously, they risk an investor backlash that could put them out of a job.
Some environmentalists will still remain unsatisfied because AGL’s current climate transition plan is not consistent with an emissions reduction pathway to contain global warming to 1.5C. While Cannon-Brookes has succeeded in getting all four of his board nominees elected, significant challenges remain in the way of a further acceleration in coal closure.
The Russian-induced spike in the international prices of gas and coal has flowed through to Australian power prices. Because AGL’s Bayswater and Loy Yang A power stations receive coal that is not tied to international prices, these power plants are likely to be incredibly profitable right now. For how long international prices remain elevated is difficult to predict, but as the profits flow through to financial results, it will be hard to persuade a majority of AGL shareholders to bring forward the closure dates.
The other issue is that there are genuine constraints and uncertainties surrounding the expansion of renewable energy in this country.
The process for connecting new solar and wind power plants to the grid is not working well. Many large projects over the past two years were physically completed but then left for months either idle or heavily constrained.
New transmission lines are also necessary but they are expensive, time consuming and can face significant community resistance. There are also disputes over who should pay for them.
Thankfully, Australia is not the only country looking to rapidly expand the use of wind and solar power, and batteries and electric vehicles. But this has meant prices have risen and wait times on orders have blown out. We also need more people, particularly those skilled in electrical engineering as well as software.
Within a five-year time frame, things look very difficult. But over a 10-year period it will become far easier – provided we maintain a concerted and coordinated effort.
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It’s not the AGL board’s job to solve these problems – that needs to be led by governments. Instead, they need to consider how to profitably respond. This isn’t as simple as just building lots of new renewable energy power plants and batteries. Households and businesses are adding solar to their rooftops at a rapid pace. In the near future, it’s likely they will also begin adding large energy storage devices within their cars which can discharge power into the grid (known as vehicle to grid). Given we sell around 1m new cars a year, and assuming they each could export the same amount of power as a typical solar system – 5kW – that’s an additional 5,000MW of dispatchable power every year. That’s more capacity than AGL’s Loy Yang A and Bayswater combined. The Victorian and Queensland state governments are proposing to build and own several thousand megawatts of their own generation. While superannuation funds are also keen to invest in new renewable energy.
The future for companies like AGL is in software and trading rather than power stations. In 10 years many people will own more power capacity on their roof and their car than they can possibly make use of. To make good use of this spare capacity will require someone who can effectively coordinate it in a way that makes this appealing and easy for the customer.
History suggests most companies fail in such major strategic pivots against less experienced but more technologically savvy new entrants. So the new refreshed board faces a very challenging task.