Nice article in AFR
AGL goes big with Tilt as energy urgency grows
The acquisition of Tilt Renewables by an AGL-led consortium is an example of the big-picture thinking Brett Redman needs to bring to the energy transition.
Updated Mar 15, 2021 – 1.57pm, first published at 11.59am
It’s inevitable that the acquisition of renewable energy giant Tilt Renewables by an AGL Energy-led vehicle will be viewed through the prism of what many see as the gentailer’s existential crisis.
After all, AGL chief executive Brett Redman is only weeks away from an investor day when he has promised to share his thinking on the best business model and capital structure for the group, which is being buffeted by a savage drop in wholesale energy prices and a surge in both renewable energy capacity and customer demand for that clean power.
AGL chief executive Brett Redman sees his baby grow up with the Tilt deal. David Rowe
Much of the speculation about AGL’s structure has focused on the potential for it to split its generation business from its retail business.
But regardless of where Redman and his team land on AGL’s future configuration, the Tilt deal is an example of how Redman can – and really must – attack this transition from a position of size and strength.
PowAR, the consortium that will acquire Tilt’s Australian assets, is very much Redman’s baby. He designed and launched the vehicle (previously known as the Powering Australian Renewables Fund) in 2016 when he was AGL’s chief financial officer, seeing it as a way to finance large-scale renewable generation projects off the group’s balance sheet.
AGL has a 20 per cent stake, with the rest effectively held by the country’s two biggest sovereign wealth funds: the Queensland government’s QIC and the Commonwealth’s Future Fund.
AGL brought $200 million in offtake agreements to the venture five years ago, with the goal of building a portfolio of 1000 megawatts of large-scale renewable projects. It will now contribute $341 million to fund its portion of the Tilt deal, which sees Redman’s baby become a fully grown adult.
Chanticleer has been struck by the way CEOs, investors and investment bankers are talking about the sudden urgency of the energy transition.
Tilt’s Australian portfolio includes 1313 megawatts of renewable generation across seven operating wind and solar farms (with a further two wind farms in the final stages of commissioning) and a pipeline of more than 3500MW of capacity across wind, solar, battery storage and peaking capacity.
The deal cements AGL as the country’s biggest developer of renewable generation; AGL has offtake agreements over PowAR’s existing capacity and will be at the front of the queue to negotiate offtake agreements on the new capacity developed from Tilt’s pipeline, and as the existing offtake deals on Tilt’s portfolio expire.
PowAR itself will also be transformed. The team, run by chief executive Geoff Dutaillis, will expand from just seven to almost 60, giving Dutaillis the firepower not just to develop Tilt’s pipeline, but to move beyond generation into other parts of the energy value chain.
Have AGL and QIC overpaid for Tilt? Certainly competition for Tilt was intense, with PowAR rivals for the business including ASX-listed APA Group, Canadian pension fund giant Caisse de dépôt et placement du Québec (CDPQ) and Australian fund manager Infrastructure Capital Group with its partner Engie.
Perhaps not surprisingly, there are already whispers from the vanquished that PowAR has paid a full price that in no small part reflects the difficult predicament that AGL finds itself in.
There’s probably some truth to that. But at the same time, size matters here.
As Australia’s biggest electricity retail and generator, which connects 30 per cent of the Australian population, any moves Redman makes to guide AGL through the transition from coal to renewables needs to be done at scale.
‘Bigger is better’
The Tilt deal, and two deals done last week that made AGL the biggest commercial solar provider in Australia, are examples of the “bigger is better” mentality that Redman needs to have if he is to be able to deliver what his 4.8 million customers increasingly want.
That is a crucial point here. In the words of one senior energy industry executive on Monday, customers and the community have emerged from COVID-19 with a “supercharged appetite for change in energy”.
“None of the trends are surprising. But everything is going faster and faster,” the executive said.
This sense of urgency isn’t quarantined to the energy sector; Chanticleer has been struck in recent weeks by the way CEOs, investors and investment bankers are talking about the sudden urgency of the energy transition.
While the federal government might be tiptoeing around the idea of net zero by 2050 – Prime Minister Scott Morrison declined to lift his level of commitment beyond this target being “preferable” at The Australian Financial Review Business Summit last week – the corporate sector finds itself under huge pressure to from consumers who are demanding change, and activists and institutional investors also beating the drum.
Monday’s announcement that Fortescue Metals Group chairman Andrew Forrest put the hammer down on his own green ambitions, announcing the iron ore miner is targeting carbon neutrality by 2030, a full decade ahead of a target set just nine months ago, is another example of this urgency.
The story of AGL’s energy transition is the story of Australia’s energy transition. Balancing the shorter-term needs of consumers and the economy with the rapid decarbonisation of the world will be complex, difficult and at times pretty painful.
Big, bold moves will be required to drive the changes both company and country need.
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