Australia's Clean Energy Plan Delays $10.6bn Origin Takeover Bid

The Australian government’s plan to speed up the rollout of renewable energy has confused a $10.6-billion takeover battle for Origin Energy, one of the country’s biggest power producers.

The plan to underwrite 32 gigawatts (GW) of new solar, wind and battery projects was announced on Thursday, hours before a key shareholder vote.

Energy experts have said that while the plan contained no figures on spending, it could spur investment of at least $20 billion (A$30 billion).

The plan to reshape the electricity market, where Origin is the second largest power producer, has scrambled the outlook for electricity prices, future investments, and existing plants.

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Board delays vote on takeover bid

It was released just before Origin announced a last-minute revised offer from Brookfield and EIG as it became clear investors would reject the consortium’s earlier bid. Origin’s board decided to delayed the vote to December 4 to consider the bid and the impact of the 32 GW scheme.

The uncertain outlook for Origin under the government’s new policy has made some investors say it makes more sense than ever to sell the company to suitors, but top shareholder AustralianSuper is adamant it wants to hold on.

More renewables will ultimately lower electricity prices, squeeze margins and shorten the life of Origin’s existing coal and gas assets, Max Vickerson, an equity analyst at Morgans, said.

“This move accelerates the destruction of value at the legacy assets owned by Origin and AGL,” he said, referring to Origin’s rival AGL Energy. “Cheaper wholesale prices are not a good thing on balance for Origin.”

However, the potential for new investment via the government’s scheme undercuts Brookfield’s argument that Origin and Australia needed its deep pockets to decarbonise quickly, Vickerson said.

Brookfield has not commented publicly on the scheme, but a person close to the asset manager said the revenue guarantee for eligible projects would diminish the benefits of having a large customer base for a big power producer, like Origin.

Should others take up the government’s underwriting offer, Origin could potentially save billions by letting others build new wind and solar farms and simply contracting power for its 4.2 million customers, Tom Leske a director at Churchill Capital, which advises event-driven hedge funds, said.

“But ultimately there’s so much variability about what the economic outcome is going to be,” he said.

Pension giant AustralianSuper has argued Origin’s stake in fast-growing British renewable energy company Octopus Energy, gas assets and millions of customers position the company well for the energy transition.

The government’s new scheme only strengthens the fund’s conviction about Origin, according to a person familiar with AustralianSuper’s thinking.

However, Simon Mawhinney, chief investment officer at fund manager Allan Gray, which owns a roughly 3% stake in Origin, said the government’s plan appears likely to push down returns.

More uncertainty only strengthens the case for taking the A$9.43 on offer today, he said.

“The price was fair given our perception of the risk and rewards before the announcement. This adds a lot of uncertainty.”

“It’s probably good for consumers and the environment and bad for everyone else,” he said.