Mike Cannon-Brookes and his associates have managed to send shockwaves through the boardrooms of major companies across Australia. His campaign has led to a mass purge of the board of Australia’s largest greenhouse gas emitter, AGL Energy, via shareholder activism. Perhaps more importantly, it has resulted in AGL management significantly accelerating its coal exit.
AGL’s decision to close the Loy Yang A power station by 2035 likely helped overturn the decision of the Victorian Labor Party (which on 26.
Crucially, board members and chief executives of other major Australian companies now clearly see that if they fail to take climate change issues seriously, they risk an investor backlash that could leave them unemployed.
Some environmentalists will still remain unhappy because AGL’s current climate transition plan does not align with an emissions reduction path to limit global warming to 1.5°C. Although Cannon-Brookes managed to elect all four of its board nominees, significant challenges still stand in the way of further accelerating coal decommissioning.
The increase in international gas and coal prices caused by Russia has impacted Australian electricity prices. Because the Bayswater and Loy Yang A AGL power plants receive coal that is not tied to international prices, these plants should be incredibly profitable right now. How long international prices will remain high is difficult to predict, but with profits feeding into financial results, it will be difficult to persuade the majority of AGL shareholders to bring the closing dates forward.
On the other hand, there are real obstacles and uncertainties in the expansion of renewable energies in this country.
The process of bringing new solar and wind power plants online is not working well. Many large projects over the last two years have been physically completed but then remained either unused or severely restricted for months.
New transmission lines are also required, but they are expensive, time-consuming, and can face significant community opposition. There are also arguments about who should pay for them.
Fortunately, Australia isn’t the only country looking to rapidly expand the use of wind, solar, batteries and electric vehicles. However, this has caused prices to skyrocket and the wait times for orders to have blown up. We also need more people, especially in electrical engineering and software.
Within a five year timeframe it looks very difficult. But over a 10-year period, it will get a lot easier – provided we keep up a concerted and coordinated effort.
It is not the job of the AGL board to solve these problems – that must be led by governments. Instead, they must consider how to respond profitably. This is not as easy as building many new renewable energy power plants and batteries. Households and companies are equipping their roofs with solar energy at a rapid pace. In the near future, they will also likely start installing large energy storage devices in their cars that can feed electricity into the grid (known as vehicle-to-grid). Given that we sell about 1 million new cars a year and assume they could each export the same amount of electricity as a typical solar array – 5kW – that’s an additional 5,000MW of available power per year. That’s more capacity than AGL’s Loy Yang A and Bayswater combined. The state governments of Victoria and Queensland are proposing to build and own several thousand megawatts of their own generation. Pension funds are also very interested in investing in new renewable energies.
The future for companies like AGL is in software and trading rather than power plants. In 10 years, many people will have more electricity capacity on their roof and car than they can actually use. In order to use this free capacity sensibly, someone is needed who can coordinate it so effectively that it is attractive and easy for the customer.
History shows that most companies fail at such important strategic decisions against less experienced but more technologically adept newcomers. The newly refreshed Executive Board is therefore faced with a very demanding task.
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