Cannon-Brookes’ revolutionary plan a short, sharp shock to the system

Origin’s decision followed last year’s Energy Australia announcement that it would close its Yallourn power plant in Victoria in 2028, four years earlier than previously scheduled.

AGL itself announced last month that it would accelerate the timetable for its coal-fired generators in NSW and Victoria by three years. The Bayswater plant in NSW will close between 2030 and 2033 rather than the original 2035 end-date and the Loy Yang A plant in Victoria in 2045 rather than 2048.

Under the Cannon-Brookes and Brookfield plan the closures would be fast-tracked to around 2030, with the partners investing between $10 billion and $20 billion to replace AGL’s 7 gigawatts of capacity with 8 gigawatts of “clean” energy.

AGL would have net zero emissions by 2035, they say. There is, as there was with Origin’s timeline for Eraring’s closure, some flexibility in their plan to accommodate any hiccups in replacing the generation capacity lost as the plants are shut down, but the bottom line to the proposal is that a massive amount of existing coal-fired capacity could be withdrawn from the grid far earlier than anticipated.

The eventual closure of the coal-fired plants won’t shock anyone. That writing has been on the wall for some time as the share of renewables in the grid has exploded and the developed world has progressively signed on to more aggressive decarbonisation targets.

What will unsettle governments ( or at least some of them) and their regulators is the abrupt acceleration in the planned pace of change.

An electricity grid largely devoted to renewables and, perhaps, green hydrogen is quite different to one established to primarily handle the coal and gas-fired generators that still generate about two-thirds of the country’s electricity.

While there is a lot of planning and investment in the grid to manage the transition occurring, the evolution of the grid is already struggling to keep up with the rate of evolution in the energy sources. The Cannon-Brookes/Brookfield plan is more revolution than evolution.

What will unsettle governments ( or at least some of them) and their regulators is the abrupt acceleration in the planned pace of change.

For those – governments and regulators – charged with ensuring reliability and affordability of supply for households and businesses their plan would represent a significant challenge even though a considerable amount of work has gone into the design of a new national energy market that accommodates the transition to clean energy.

While most of the interested parties understand the eventual endgame — a national electricity market in which there is no coal-fired generation and limited, if any, gas-fired generation – there are plenty of heated arguments about the transition from the grid today to where it will need to be and the role that coal and gas might still play in that transition.

When the current government talks about “capacity mechanisms” and a “capacity market” it is really talking about direct and/or indirect subsidies for maintaining coal and gas-fired generation even when those plants aren’t generating – paying operators for not producing power as insurance against a winter when weather conditions impact solar and wind generation, for instance.

The presence of Canada’s Brookfield in the bid (and, inevitably, as the primary funder) means it will require the federal Treasurer’s approval.

If the Coalition were returned at the looming election that wouldn’t be guaranteed. Even an incoming Labor government would have to consider deeply whether the proposal envisages too much occurring too soon for the necessary development of the grid and storage facilities to cope.

While Cannon-Brookes is confident that the partners would be able to manage most of the issues in-house and would, like Origin, be flexible with their timing if not everything went exactly to plan, there are a lot of third parties interested and impacted by the fate of AGL’s generators.

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There is much that is compelling about the vision Cannon-Brookes and Brookfield have for AGL. No- one would doubt Cannon-Brookes’ commitment to responding to climate change and even AGL itself accepts that its plants now have relatively limited lives and need to be replaced by greener alternatives.

With $8 billion upfront and at least another $10 billion on the table, however, the partners will be driven by their economic interests rather than altruism.

That, and the prospect of a sudden and not-too-distant spate of closures of most of the country’s coal-fired capacity, requires a lot of thought and discussion about the potential for unintended consequences – and probably quite a lot of action – if the national electricity is to continue to deliver reliable and affordable power.

If the proposed bid for AGL provides greater urgency to those discussions and actions, of course, it might be a good outcome for everyone interested in the energy policy debates.

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