AGL Energy commences trade of carbon permits
What is it?
AGL became the first Australian company to provide a two-way market in future
Australian Emission Trading Units (AETUs) when it posted its first AETU
trade with Westpac Banking Corporation (WBC) on 13 May 2008.
AGL Hydro Partnership sold to WBC 10,000 tonnes of AETUs @ $19.00/tonne for
settlement 1st February 2012.
Through making this trade, AGL has established a market price for AETUs with
the intention of providing ongoing liquidity in energy markets beyond 2010.
AGL has a leading position in the renewable energy space and is the only
Australian energy company generating from a full suite of proven renewable
technologies. We have invested significantly – more than $2 billion - to prepare
for a carbon-constrained future and have the best energy assets in the country
under our control.
The value of this generation fleet enables AGL to commence trading Australian
Emission Trading Units (AETUs) ahead of the formal development of the
Australian Emissions Trading Scheme.
AGL will offer two-way prices in AETUs with the intention of trading this product
for 2011 and 2012.
How does it work?
AGL engaged Minter Ellison to construct the documentation around which AETUs
will be traded. The documentation covers a multitude of plausible outcomes whilst
still enabling a degree of certainty of what it is to be traded.
AGL is allowing for a range of market designs hence the scheme does not
necessarily have to be legislated before trading in future permits can commence.
Europe, as an example saw early over-the-counter trading in European Emission
Allowances (EUAs) prior to the completion of the impending legislation around the
Scheme.
It is a way of allowing for a smooth start to trading ahead of the scheme actually
being established in legislation.
Why are we doing it?
AGL’s sustained application of its Integrated Strategy has resulted in the
development of a renewable generation fleet that enables it to lead the Australian
energy market within the carbon constrained economy and within the Emissions
Trading Scheme that will be operating from 2010.
The value of this generation fleet enables AGL to commence trading Australian
Emission Trading Units (AETUs) ahead of the formal development of the
Australian Emissions Trading Scheme. AGL will offer two-way prices in AETUs
with the intention of trading this product for 2011 and 2012.
This endeavour is designed to deliver a number of beneficial outcomes.
First, we will be able to provide some certainty for customers that fall within
AGL’s Major Customer portfolio that wish to lock in retail energy pricing now.
Second, by providing the opportunity for electricity market participants and other
wholesale parties to access a carbon price, it may enable some additional liquidity
to be restored in forward electricity contracts beyond July 2010 (the proposed
commencement of emissions trading in Australia).
In addition, AGL’s large business client base is seeking certainty of energy supply
for the years beyond 2010. AGL has developed an electricity contract for selected
customers within its Major Customer portfolio who are concerned with carbon
pass-through variability whereby with the payment of a premium, they will be
able to hedge against future carbon increases to their electricity contract until
2012.
AGL’s ability to build, with confidence, a market for AETUs is the result of the
strong renewable generation platform that we have developed with expected
generation of some 2 million megawatt hours per annum by July 2010.
The new permit will encourage liquidity in the forward contracting of electricity
derivatives beyond 2010 and assurance in the business sector.
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