Mark Carney’s $18.5 billion gambit puts money where the emissions are.
While much of the media focus on the United Nations’ COP 27 climate conference in Egypt, those looking for real climate impact can look to the land down under. In Australia, two, billion-dollar private equity deals will do what the Australian government has failed to do for decades — radically speed up Australia’s transition from carbon-polluting coal.
Canadian investor Brookfield Asset Management and U.S.-based EIG Global Energy Partners have agreed to buy Origin Energy, one of Australia’s largest gas and power producers, for AU$18.4 billion (US$11.8 billion). They describe it as a “once in a generation” opportunity to invest in the global energy transition. The value, says Keira Balderston, who manages renewable energy and transition investments for Brookfield Asset Management, reflected the group’s philosophy to “put your money where the emissions are.”
Australian mega deals
But the Brookfield deal has to compete with another mega sale, the hostile takeover of Australia’s largest coal power and CO2 emitter, by software billionaire Mike Cannon-Brookes. Cannon-Brookes is seeking control of the board of the publicly traded AGL so he can accelerate the company’s transition from coal to renewable energy from 2045 to 2030. In the deal, AGL is looking to retire Australia’s largest coal power plants while streamlining its retail operations.
Next week, his dream could take a giant step forward when three large Australian pension funds (superannuation funds as they are known in Australia) are expected to support his bid to take over AGL, the country’s largest power producer, and carbon emitter. They are expected to support three of the four directors nominated by AGL’s biggest shareholder, his private firm Grok Ventures.
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Both deals are transformative. The Origin deal, at AU$18.4 billion (US$12.3 billion), makes it one of the world’s most significant private equity deals of the year. They demonstrate the clout of private capital to accelerate the transition from fossil fuels. Both Origin and the hostile takeover of AGL will fundamentally change the dynamics of the industry and reverse decades of political inaction in Australia regarding its dependence on coal.
Both Origin and the hostile takeover of AGL will fundamentally change the dynamics of the industry and reverse decades of political inaction in Australia regarding its dependence on coal.
“Australia should aim for 500% renewables,” Cannon-Brookes said recently. “We’re one of the sunniest, windiest countries in the world.”
The future is now
This is what happens when private capital does what governments like Australia’s have failed to do — spur industrial transformation at speed and scale. It reflects an urgency to shift away from coal to renewable energy. In the short term, the war in Ukraine has only increased the geopolitical importance of gas supply, making Origin more valuable than ever.
Tim Buckley, Director of Climate Energy Finance Studies, says deals like this are vital tools for financial de-risking to accelerate decarbonization and support the rapid adoption of renewable energy. He says Australia is in an ideal position to “leverage the enormous opportunity to build a clean energy economy of scale.”
Welcome back, Mark Carney
And that is precisely what Mark Carney plans to do. The ex-bank of England governor and Special Envoy on Climate Action and Finance also moonlights as co-manager of Brookfield’s $15 billion Energy Transition Fund (BGTF). He and a bunch of young Brookfield climate capitalists, like fund co-manager Connor Teskey, are hunting for deals to transform carbon-intensive industries and bolster the development and accessibility of clean energy sources. “Working with one of the largest emitters in Australia, AGL (and now Origin), is a perfect example of going where the emissions are and tackling them head-on,” says their colleague Keira Balderston.
Companies like AGL and Origin have lost their “utility” status as public companies due to the investment needed to switch from fossil fuels to renewable energy sources, says Stewart Upson, head of Brookfield’s Asia-Pacific arm. He estimates that the government’s 43% carbon reduction target by 2030 will require $80 billion in capital to be invested in the network and new solar and wind generation. “The global energy transition is a once-in-a-generation investment opportunity,” he told the Financial Times.
“The global energy transition is a once-in-a-generation investment opportunity.”
Stick to deal-making
Carney has had better luck as an investor than a climate statesman. His much-vaunted Glasgow Financial Alliance for Net Zero (GFANZ) banking alliance is supposed to mobilize a tectonic shift in global capital allocation. So far, it has only succeeded in sparking squabbles among its largest partner banks. Unlike the hard money private capital deals that Carney oversees at Brookfield, 1.5 degrees Celsius promises by GFANZ members are only pledges and have no credible plan for implementation.
Different ways to deploy capital
Unlike GFANZ, both deals dramatically use capital to speed up energy needs, but in different ways. Both companies expect to get out of coal-fired power within the next decade. However, Brookfield will take Origin private and split the company in two, making Origin the country’s biggest green energy retailer. Its partner EIG is looking to capitalize on Origin’s rich natural gas reserves in a separate spinoff. Investors are now in a spirited debate about which is a better deal.
The benefits for the planet are not debatable. According to Buckley, a 1-gigawatt coal plant running 60% of the time generates more than 4 million tons (Mt) of CO2 emissions each year, so cutting the working life by a decade saves 40Mt of emissions.
Meanwhile, in Egypt, COP climate negotiations drag on …
Featured photo: AGL breaks ground on battery storage.