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Business Value Driver

Environment

Access to and stewardship and use of scarce natural resources, and AGL’s impact
on the natural environment, both directly and as a result of the products and
services provided.

Transition to a low carbon economy

AGL acknowledges and accepts the scientific consensus on climate change. We recognise that to stay within concentrations consistent with two degrees Celsius or less of global warming, a gradual decarbonisation of the electricity generation sector is required by 2050. Our approach to transitioning to a low-carbon future is set out within the AGL Greenhouse Gas Policy, which provides the framework within which we are structuring our greenhouse gas reduction activities.

Strategic context

As one of Australia’s leading integrated energy companies, and as Australia’s largest greenhouse gas emitter, we have a responsibility to be transparent about the risks and opportunities that climate change poses to our business, the community and the economy more broadly.

For this reason, AGL follows the guidance provided by the Financial Stability Board's Task Force on Climate-Related Financial Disclosure’s voluntary disclosure framework (TCFD Framework) in both this report and in our associated FY19 Carbon Scenario Analysis report. Elements of the TCFD Framework are summarised in the diagram below.

We consider both physical and transitional risks associated with climate change and have incorporated these risks into the development of our strategy (refer to page Purpose, Values & Strategy) .

Transitional risks

Transitional risks include risks in end-of-life asset planning, rehabilitation of assets, misalignment of these plans with future scenarios leading to possible stranded assets and revenue loss and continued policy uncertainty.

Customer response to climate change is a driver of the increasing adoption of distributed energy services. To mitigate risks posed by changes to the nature of energy demand, we have developed a range of new products and services designed to focus on customers’ changing expectations, including developing capabilities to deliver residential battery solutions.

Physical risks

Physical risks include increased frequency and severity of extreme weather events resulting in operational disruption, higher average temperatures (causing increases to frequency and magnitude of peak electricity demand and de-rating thermal plant), and precipitation changes impacting upon the efficacy of hydroelectric generation assets.

Change to peak electricity demand presents risks and opportunities. Our hydroelectric and gas peaking assets allow us to rapidly respond to market signals at times of high peak demand. Conversely, as an electricity retailer, we could be exposed to high costs if hedge contracts for supply do not match peakier customer demand.

Operational disruption from severe weather resulting in plant damage or unavailability and associated revenue losses is a risk for which AGL has devised a range of deductive, preventative and corrective management measures.

More information

Historical data on AGL’s total emissions, emissions breakdowns by source and emissions intensities from FY15-FY19 is available at 2019datacentre.agl.com.au.

Detailed information about AGL’s FY19 Carbon Scenario Analysis methodology and results can be found at agl.com.au/specialreports.

Performance data in relation to other environmental aspects, including air emissions, water consumption and management, waste management, land use and biodiversity is available at 2019datacentre.agl.com.au.

Information on environmental non-compliances resulting in penalty infringement notices being issued is included on page Environmental regulation .

Creating value

Greenhouse gas emissions

KPI

FY19

FY18

FY17

FY16

FY15

AGL’s greenhouse gas emissions reduced in FY19 due to an increase in renewable electricity generation, particularly in the first half of the period, and a corresponding decrease in required coal-fired generation. Additionally, unplanned outages at the Loy Yang A Power Station has led to a further reduction in emissions.

There has been a corresponding decrease in our operated and controlled intensities. The emissions intensity of total revenue also decreased due to a decrease in emissions and an increase in revenue.

Operated scope 1 & 2 emissions (MtCO2e)

43.2

43.6

43.9

43.8

38.8

Operated generation intensity (tCO2e/MWh)

0.95

0.97

0.98

0.96

0.97

Controlled generation intensity (tCO2e/MWh)

0.95

0.96

0.97

0.95

0.96

Proportion of operated renewable generation output (%)

10%

9%

8%

9%

9%

Emissions intensity of total revenue (ktCO2e/$ million)

3.3

3.4

3.5

3.9

3.7

Modelling the transition: scenario analysis

Australia’s transition to a low carbon economy is subject to uncertainty including in relation to government policy and consumer uptake of new technologies.

Accordingly, we have undertaken scenario analysis of our operations to better understand the long-term impact to our generation fleet under a range of potential policy scenarios.

Utilising external modelling software by PLEXOS, three scenarios of the National Electricity Market were analysed:

  • Slow Change – Australia’s current renewable energy target of 33 TWh by 2020.
  • State Targets – Additional state-based renewable energy policies in Queensland and Victoria (50% renewables by 2030)
  • Deep Renewables – National policy requiring 50% renewables by 2030 and 45% emissions reduction from 2005 levels.

The results of the analysis show that the shift in AGL’s electricity generation fleet from coal to renewables will need to continue under all three scenarios, but that our Bayswater and Loy Yang A coal-fired power stations will be required by the market until at least 2030.

The analysis also indicates that AGL's current timeline for closure of our coal-fired assets is not inconsistent with reducing emissions to a level consistent with limiting warming to below two degrees Celsius above pre-industrial levels.

AGL percentage emissions change from FY16 baseline

Other environmental risks

KPI

FY19

FY18

FY17

FY16

FY15

During FY19 AGL Macquarie suspended coal ash sales as a precautionary measure after test results identified elevated levels of metals which could exceed limits set by the NSW Environment Protection Authority (EPA). External advice confirmed that the use of coal ash does not pose a risk to human health or the environment. In June 2019 AGL resumed supply of fly ash and AGL continues to cooperate fully with the EPA.

Environmental
Regulatory
Reportable incidents

12

14

10

16

Not reported

Legend

Improving trend and/or satisfactory outcome

Neutral trend

Deteriorating trend

KPI linked to remuneration outcomes for CEO and Key Management Personnel

Key relationships and trade-offs with other Business Value Drivers

Recognising that our thermal assets are significant emitters of greenhouse gases, AGL has set closure dates for our coal- fired power stations. We acknowledge the trade-off between the Environment Business Value Driver with the People and Communities & Relationships Business Value Drivers, as these closures will affect AGL’s people and the local communities in which these assets are located. Asset closure may also represent a trade-off between the Environment and Finance Business Value Drivers, as AGL may forgo short-term financial returns that may arise from extending the operating life of those assets. However, AGL’s analysis to date suggests that such extensions would not be financially viable in the long-term.

Beyond FY19

AGL’s Greenhouse Gas Policy, transition plans and robust approach to carbon risk management demonstrate our resilience against risks posed by the transition to a low-carbon economy. In FY20, we plan to broaden our scenario analysis to consider alternative transition pathways involving a larger paradigm shift, such as considering limiting warming to 1.5 degrees above pre-industrial levels. This will be considered in our strategic planning cycle for FY20 and reflected in our 2020 report. Recent and planned investments in renewables, storage and gas-firming capacity (page Infrastructure) are expected to contribute to lowering the carbon intensity of our portfolio.

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