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Brookfield Aussie Coal Bid Hits Toxic Smokescreens

INTERNATIONAL: MELBOURNE, Brookfield Asset Management and Grok Ventures’ A$5 billion ($3.6 billion) offer for AGL Energy has reignited Australia’s dirty climate wars. The asset manager and the investment fund of Atlassian co-founder Mike Cannon-Brookes want to plough up to A$20 billion into the coal-heavy power company to speed its shift to solar and wind. That ought to be a welcome development for a struggling target and for a federal government finally paying lip service to net-zero greenhouse-gas emissions. Instead, they’re returning to tired old anti-renewables tropes.

Australia currently produces the highest carbon emissions per capita in the world from burning coal for power generation. The country’s government is highly attached to fossil fuels. Not long before becoming the current prime minister, Scott Morrison brought a lump of coal to parliament and announced: “This is coal. Don’t be afraid, don’t be scared, it won’t hurt you.”

On 19 February, he made an A$8 billion bid in partnership with Canadian asset management firm Brookfield to buy electricity company AGL, which owns three of Australia’s 16 coal plants. If successful, they will spend another A$20 billion replacing these coal plants with renewable assets like solar, wind and battery infrastructure by 2030.

The bidders face some deserved hurdles as it is. Success would mean Brookfield part-owning not just Australia’s largest power producer and retailer, but also, thanks to a recent A$10 billion club deal for AusNet, significant parts of the country’s transmission grid. That raises potential but probably not insurmountable competition concerns.

To seal a deal, wannabe buyers also need to up their 4.8% premium. Some shareholders may agree that AGL’s plan to demerge its two divisions will destroy value, but Brookfield and Grok have to work off where the shares trade, not where they think they should. AGL Chief Executive Graeme Hunt is overplaying his hand implying he needs at least a 30% premium to start talks. But there’s probably some middle ground.

Trouble is, Hunt is raising the more serious spectre of Brookfield-Grok disrupting the energy market. That seems disingenuous while pitching for a higher offer, but he’s following the government’s lead: On the back of the bid, Prime Minister Scott Morrison warned early coal plant closures to mean “electricity prices go up”. Treasurer Josh Frydenberg asserted it was an “indisputable fact” proved by the 2017 closure of the Hazelwood power station.

That specific comparison is wielded out of context: French owner Engie only gave six months’ notice before switching Hazelwood off, with no plans to replace production. And rising gas prices and big coal suppliers gaming the system also played a big role in price hikes, according to Australia’s own competition commission and researchers at the University of Melbourne.

Brookfield and Grok are giving at least eight years’ notice and will only mothball coal once enough renewables are up and running. Of course, a parliamentary election due by May is fuelling tried and tested populist politics. The buyers could do without the toxic smokescreen.

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