APA Group chairman Michael Fraser has called for “realistic” energy policies to avoid blackouts and higher prices for consumers, warning of “political and economic upheaval” if climate targets are too ambitious.
Mr Fraser told the gas pipeline owner’s annual shareholders meeting that policymakers need to be aware of the significant challenges involved in reducing emissions while ensuring energy remains reliable and affordable.
“It seems abundantly clear that even with the industry’s best endeavours and most optimistic view of the road ahead, there are several factors at play that will inevitably delay the achievement of Australia’s renewable energy targets and hence emissions reduction targets,” Mr Fraser said in his address to the AGM in Sydney on Thursday.
The comments reflect mounting doubts that Australia can reach its goal of 82 per cent renewable energy usage by 2030 requiring emissions fall by 43 per cent from 2005 levels. Multiple factors are delaying the build-out of new clean energy generation, including slow planning approvals, community opposition and rising costs.
They came as the APA board suffered a large protest vote against its remuneration report amid concerns among some proxy advisers and investors that performance targets for 2022-23 were not high enough and that the starting point for long-term performance rights were in appropriate.
Some 25.79 per cent of proxy votes were cast against the remuneration report, signalling a big risk of a “first strike” against the board, depending on how the remaining votes are cast. Under ASX rules, a shareholder vote of 25 per cent or more against the remuneration report qualifies as a “strike”.
Institutional Shareholder Services, one of the key proxy advisers, recommended a qualified vote for the remuneration report, but still raised concerns that the targets for incentives were “not sufficiently rigorous”, and that only 35 per cent of the total short-term incentive was based on financial measures.
Mr Fraser noted the concern from some investors on remuneration and promised the board would take the feedback on board.
Shares in APA, which have dropped more than 23 per cent this year as interest rates climbed, were little changed immediately after the meeting, up 1¢ at $8.08.
On climate targets, Mr Fraser said competition for skilled labour, critical minerals and equipment across the world would also hinder meeting the goals. He highlighted inflationary pressures “that are significantly impacting project costs” as well as the “glacial” pace of approval processes. “Increasingly interventionist” energy policies across Australia have also rattled investment confidence.
He slammed Victoria’s ban on new gas connections in homes as “misguided”, saying the focus should first be on closing down the most carbon-intensive form of energy supply in the state – brown coal power. But banning new gas connections would only delay the closure of those generators by diverting renewable generation into households to replace gas, Mr Fraser argued.
“I would say it is a misguided policy until you have got rid of brown coal generation in Victoria,” he said in response to a question from a shareholder.
Mr Fraser, a former chief executive of AGL Energy, warned of the risk of losing public support for the switch to low-carbon energy if supply becomes unreliable and unaffordable.
“Public support for the transition will evaporate overnight, making the transition even harder to deliver, and that’s not what any of us at APA or others across our industry want.”
He pointed to the need for more investment in gas supply, especially in the southern states which the Australian Energy Market Operator has advised will increasingly require gas to be shipped from the north. APA’s expansion of its east coast gas grid is only part of the solution, and he called for government policies to support the rapid progression of several longstanding new gas projects.
APA, the biggest transporter of gas in the country, has been increasing investment in electricity supply and renewable energy as part of a strategy to reduce its exposure to fossil fuels in the decarbonising energy supply system. It agreed to pay $1.72 billion for Alinta Energy’s off-grid power generation assets in Western Australia, acquired the Basslink power cable, and is bidding to build renewable energy zones.
However, the Sydney-based company remains convinced that gas will have an important future in the energy supply mix, providing fast-start power generation and a critical feedstock for manufacturing.
APA stuck with guidance this financial year for distributions of 56¢ a security, up 1.8 per cent.
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