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INTERVIEW-Australian coal champion AGL cautiously expands in renewables
November 7, 2016 / 4:26 PM / in a year

INTERVIEW-Australian coal champion AGL cautiously expands in renewables

* AGL limits balance sheet risk from renewables investment

* Hazelwood closure no direct impact on AGL coal plants

By Geert De Clercq

PARIS, Nov 7 (Reuters) - Australian utility AGL, the country’s largest carbon emitter, will invest in renewable energy via a minority stake in a fund but has no plans to speed up its planned exit from coal, its chief executive said.

Andrew Vesey, CEO of AGL Energy, said the Australian electricity market already has overcapacity of about 7,000 megawatts while power demand is forecast to be flat for the next 20 years.

In order to help the Australian government meet its 2020 renewable energy target, AGL - Australia’s second-largest energy retailer - announced in July that it had set up a fund to develop 1,000 MW of renewables capacity, about 20 percent of the country’s target.

Vesey said Australia’s challenge in moving to a low-carbon energy system is how to make room for new investments when any additional capacity will further depress wholesale prices.

“We are committed to building large-scale renewables, but it is not an easy market to invest in because the risks are very high, so we created the Powering Australia Renewables Fund (PARF),” Vesey told Reuters in Paris.

Unlike many European peers who are investing billions in renewables in a similarly oversupplied European market, AGL will not risk its own balance sheet, but will provide A$200 million of equity to the PARF.

“We are at the mercy of the market and we do not want to put our balance sheet at risk long term,” Vesey said.

Two Australian public funds will contribute another A$800 million in equity. Including debt, the fund will dispose of about A$3 billion to build utility-scale renewables.

PARF will start by acquiring two existing AGL solar plants with combined capacity of 150 MW and two AGL wind farm projects with combined capacity of up to 650 MW. Construction could start in early 2017 if funding is approved soon, Vesey said.

He said he does not expect that French utility Engie’s decision to close its Australian coal-fired power station Hazelwood in March 2017 will lead AGL to speed up the closure of its own plants. Engie said further investments in the ageing plant could not be justified.

“Our plants are producing value for our customers and shareholders,” Vesey said.

In February 2014, just months before Vesey was appointed chief executive, AGL bought state-owned power company Macquarie Generation for A$1.5 billion.

In April 2015, Vesey pledged that AGL would close all its coal-fired power plants by 2050 and that it would not acquire or finance any new coal-fired plants.

AGL has total capacity of 10,200 MW of which about 6,000 MW coal, 2,000 MW gas and 2,000 MW renewables, but 80 percent of the power it generates comes from coal.

Vesey said that when AGL closes the first of three coal-fired power plants, Hunter Valley, by 2022, the share of coal in AGL’s generation mix will fall to about 60 percent. In 2035 and 2048 AGL will close two more plants.

“Based on how the world changes and how events go, things could happen sooner but they surely won’t happen later,” he said. (Reporting by Geert De Clercq; Editing by Susan Fenton)

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