Shell acquisition heats up mass market retailing
Shell has further jacked up the competitive threat to traditional electricity suppliers such as AGL Energy, snapping up the 185,000 customers of online green retailer Powershop in what is the energy giant’s entry into the mass market for power on the east coast.
The heavyweight player joined with Infrastructure Capital Group to buy Meridian Energy’s Australian operations for $729 million, with a plan to split the assets between retail and generation once the transaction completes early next year.
The move deepens the shake-up of the power and gas retailing sector under way in the National Electricity Market, where the incumbent suppliers are facing a wave of competition from new entrants that include huge local names such as Telstra encroaching into their space.
The changing demands of customers in the decarbonising and digitalising energy market is one reason behind AGL’s proposed demerger. Another is the pressure on its generation business where lower wholesale prices are crippling owners of inflexible, baseload coal generators. Sunday offered the latest example of the challenging market for generators, when total demand for power on South Australia’s grid went negative just after midday, when all of the state’s demand was being met by rooftop solar.
Shell’s entry into business electricity retailing on the east coast in 2019 – through the $617 million acquisition of ERM Power – was seen as a precursor of ambitions to build a presence in the household market, as the group already has in the UK and Germany. A previous investment in the early 2000s through Melbourne-based Pulse Energy was later abandoned.
“This is an acquisition that most of the market has been waiting for,” said Matt Rennie at consultancy Rennie Partners, who expects Shell to be a “formidable” player in the Australian retail sector.
“Shell’s acquisition of ERM in 2019 was never going to give it the reach that it needed into the household energy transition,” he said.
“The next few years will bring new and significant competition for the big four Australian energy retailers, as energy, transport and information technology intersect and as new value pools are created.”
The group’s chairman in Australia, Tony Nunan, said the deal would extend Shell’s 120-year history of providing Australians with energy, only now it would be in their homes. He said Powershop customers would benefit in future from access to Shell’s broader suite of energy products, linked also to e-mobility and battery storage.
Shell was known to be one of the parties in the running for the Meridian business, alongside Ampol and others, after the Kiwi parent company initiated a review of its Australian operations in June. It has already expanded its local business well beyond oil and gas to include carbon farming, battery supply and solar farm development.
“Our aim is to become a leading provider of clean power-as-a-service and this acquisition broadens our customer portfolio in Australia to include households, said Elisabeth Brinton, Shell’s executive vice president of renewables and energy solutions, who knows the Australian market well from a stint at AGL Energy.
The bulk of the purchase price will be paid by ICG to secure ownership of Meridian’s wind and hydropower generation assets on the east coast, and its projects in development.
The deal is ICG’s fifth acquisition in the past 24 months and will expand its already significant renewables project pipeline, as well as adding producing hydropower assets and a first-of-its-kind combined hydro and battery project.
“It’s a decent portfolio, and we’re keen to for the benefit of our investors to grow it more, so acquiring what we’ll end up our own in-house development team, once this transaction completes will only assist us in delivering more projects,” ICG chief executive Tom Laidlaw told The Australian Financial Review.
“The more the merrier, in a way, because we don’t have to invest in them, we can always sell them to someone else.”
He singled out Meridian’s proposed Hume battery energy storage system, which involves a new two-hour, 20-megawatt battery alongside the existing Hume hydropower project near Albury-Wodonga, helping overcome water discharge restrictions at the plant.
Mr Laidlaw said storage would play an increasingly important role in the energy system as coal power plants exit and the energy mix becomes more reliant on intermittent renewables.
The acquisition follows ICG’s unsuccessful bid for Tilt Renewables, which was eventually snared by Mercury and the PowAR fund, partly owned by AGL, for $2.7 billion.
As part of the deal, Shell will acquire Powershop’s portfolio of renewable energy power purchase agreements with the Meridian generation assets, which cover all their output.
Meridian chief executive Neal Barclay described the deal as “an outstanding result” for Meridian’s shareholders and said it represented an opportunity for the new owners to grow the business as Australia shifts towards cleaner energy.
“With emissions the problem, and renewable energy the solution, the buyers are readying to invest heavily in a cleaner future,” Mr Barclay said.
Shell still requires approval from the Foreign Investment Review Board and completion is expected early next year.
Under an agreement signed with Meridian, services provided by the parent company to the Australian subsidiary will be transitioned over the next 12 months.