7 October 2020
AGL today refused to adopt a shareholder proposal to bring forward the closure of its coal fired power stations in line with the company’s own analysis of closure dates required to meet the Paris Agreement’s 1.5°C warming goal.
Big investors, including many of Australia’s super funds supported AGL’s plans, with just 20% of investors voting in favour of the proposal to bring forward AGL’s coal plant closures.
Investors going backwards
Last year 30% of AGL’s shareholders voted, against the board’s recommendation, in favour of a Market Forces-led resolution calling for the company to set Paris-aligned emission reduction targets.
The 2019 proposal specifically referenced the need for Australia to phase out coal power by 2030 in order to reduce emissions in line with Paris. The lower vote on today’s resolution therefore represents a major and disappointing backward step from AGL’s shareholders.
Apart from a long term target of net-zero emissions by 2050, AGL has failed to act on the clear demands set by a third of shareholders at last year’s AGM.
Shareholders today asked AGL if it will be setting Paris-aligned emission reduction targets in the near future, and wondered what action AGL and its board might face if it continues to fail to do so.
Chair Graeme Hunt responded that the company will balance investor calls for Paris-aligned targets with what the company believes to be in the best interests of shareholders and customers.
This suggests AGL does not believe action to limit global warming to 1.5°C is in the best interests of customers – that is the Australian public – or shareholders, despite a third of those shareholders clearly stating the opposite view last year.
Are investors going backwards on climate action? This year just 20% voted for @AustCCR‘s resolution calling on @aglenergy to bring forward the closure its coal power stations, after 30% called for emissions targets that would have required the same outcome last year— Market Forces (@market_forces) October 7, 2020
Assuming the failure of Paris
A number of questions at today’s annual general meeting focused on the assumptions underpinning AGL’s financial statements. Mr Hunt confirmed these financial statements assume two of the company’s coal power stations will operate beyond 2030: Bayswater until 2035 and Loy Yang A until 2048.
This means the amount AGL is telling shareholders these assets are worth is based on the expectation that they will operate far beyond the date at which climate science tells us they need to close in a Paris-aligned scenario.Put simply, AGL is assuming the failure of the Paris Agreement when stating the value of its coal power stations.
This is in direct contradiction of the expectations set in a recent open letter from investor groups representing over US$100 trillion in assets under management, which demands that “the assumptions made by companies in preparing financial statements under International Financial Reporting Standards be compatible with the Paris Agreement”.
Mr Hunt repeatedly stated the 2035 and 2048 closures are ‘backstop’ dates, and that market conditions may bring them forward. But by failing to build Paris-aligned market projections into the company’s current asset valuations, AGL is brazenly presenting financial statements that do not account for the increasing climate action required to hold warming to 1.5°C.
Throwing good money after bad
While the environmental and social imperative to transition from coal to renewables as quickly as possible should be all the justification AGL needs, there is also a strong financial case.
ACCR’s analysis in support of its coal closure proposal shows AGL is spending significantly more on sustaining its existing coal-dominated generation fleet than it is on ‘growth and transformation’.
As stated by ACCR, “This allocation of capital expenditure suggests AGL’s maintenance of its coal-fired power stations is coming at the expense of accelerating the energy transition.”
When asked for a breakdown of future spending between sustaining coal power and developing renewables over the next 3-5 years, Mr Hunt did not provide it.
Mr Hunt was also asked whether sustaining capital is likely to increase, especially considering an extended outage at Loy Yang A during 2019, and responded that further capital will need to be spent as the company’s coal power stations get older.
This is unsurprising, given the increasing unreliability of AGL’s coal power plants, but raises major concerns that the company will continue its recent trend of pouring hundreds of millions of dollars into propping up its dirty coal fleet, instead of rapidly replacing its capacity with renewable energy and storage solutions.