Energy policy could spur more shareholder hostility

Concerns over investor activism are rising as the federal government's new energy policy forces power companies to include coal and gas in their generation mix.

The government's National Energy Guarantee is putting greater obligations on generators and retailers to ensure energy security and reliability of supply, which includes coal and gas.

According to Energy Minister Josh Frydenberg, coal and gas energy sources will account for between 64 and 72 per cent of Australia's future generation mix.

Speaking in a video released on his official Facebook channel, Prime Minister Malcolm Turnbull said the new policy will see energy companies compelled to "guarantee the reliability of their supply to ensure the lights stay on, and guarantee their energy sources will enable us to meet our emissions reduction commitments".

Industry groups warned the implementation of greater regulatory control may be harmful for the industry and lead to a rise in investor activism against generators.

"Moving away from market control to a highly-regulated environment is an odd move for a Coalition government," Energy Users Association of Australia chief executive Andrew Richards said.

"There may be conflict, as generators may say 'Here's another obligation we have to manage, and we are being forced to include things in our portfolio that our shareholders don't want us to do'," he said.

Earlier this week, activist investors announced their intention to vote against Origin's board over climate change risk disclosure.

"However, we are keeping an open mind, our role is to work with the government, opposition, and regulators these mechanisms deliver," Mr Richards said, "and ensure it gets us closer to a bipartisan policy."

AGL said the National Energy Guarantee would bring investment certainty. "The recommendation from the Energy Security Board is an important step forward," an AGL spokesman said.

"We are heartened by the emphasis on consultation and eager to work with government and our industry peers to make this work. If it gets bipartisan support, we believe it will provide investment certainty."

Energy Australia chairman Graham Bradley said. "Attracting investment in new generation is critical to restoring the vitality of the National Electricity Market and, if we're to achieve that, there is no substitute for stable, bipartisan energy policy.

"We have seen energy-buying standards for retailers used elsewhere in the world to good effect to manage system availability and reliability," he said

"Of course, no two markets are the same but the ESB's proposal is worth further consideration to see if it would work here."

Engie, which operates wind farms, gas-fired power plants, and the brown coal-fired Loy Yang B power station, declined to comment on how the policy would impact its operations.

Stanwell Corporation, which is in the unique position of being a miner, generator, and retailer that utilises a variety of energy source, also declined to comment.

Both Origin and AGL tracked similarly on the stock exchange, with their share price slipping before bottoming out at the time of the announcement, after which both saw share price increases towards the afternoon.

The Australian Industry Group, which represents a cross-section of Australian business, said it welcomed THE commitment by the government to create certainty in the market.

"Today's announcement by the Prime Minister offers a plausible new direction for energy policy with a welcome focus on energy security but further work will be needed by all concerned to help significantly drive down energy prices for hard pressed domestic and industrial energy users," Australian Industry Group chief executive Innes Willox said.

"If agreed and finalised, the plan would clarify the future treatment of electricity sector emissions and give investors greater confidence to build the new and upgraded generation we need. But only bipartisanship on energy policy will create the conditions for long-term investment in energy generation and by big energy users," Mr Willox said.

Speaking at a news conference, Energy Security Board chairwoman Kerry Schott and Australian Energy Market Commission chairman John Pierce said the crux of the NEG is implementing greater synchronous power - that is coal and gas - into the energy mix to ensure reliability.

"By placing obligation onto the retailers, you are placing two more requirements on them, that they can manage how they manage their contracts now; whether they are complying will be regulated by Australian Energy Regulator," Ms Schott said.

Mr Pierce said: "This policy gives certainty to this industry that hasn't been here for a long time, and brings investments that has stalled under renewable energy schemes."

Mr Pierce said it would also improve competition in the retail space, as it relies on existing contract style mechanisms, rather than the trading of certificates.

"It provides a reduction in uncertainty, and the unlocking of investment, as the mechanism uses existing market processes and existing market contracts so people have more options."

Energy thinktank, the Grattan Institute, believed the NEG can work, on principle.

"This is the first time since 2007 that we will have something may work,"Grattan Institute energy director Tony Wood told Fairfax Media.

"Concern was raised earlier in the month over Mr Frydenberg's comments at the National Energy Summit that there wasn't going to be a pathway, but this policy will provide that."

However, he raised concerns over government pricing claims, stating, "they're talking about a reduction in prices of more than Finkel forecast, but without the CET."

He added that it is even consistent with AGL chief executive Andy Vesey's comments on the need for a varied generation mix, and underpins AGL's upgrading of the Bayswater coal-fired power station.

"It is likely to see support by all, including Labor, industry, states, and environmentalists," he said.

"This is quite an effective solution, and does what industry is calling for."

This story Energy policy could spur more shareholder hostility first appeared on The Sydney Morning Herald.