Followers of AGL Energy (ASX: AGK) will know that the company had been planning to purchase the Macquarie Generation (MacGen) coal station in New South Wales for $1.5 billion, funded through a massive rights issue and $300 million in bank loans. The acquisition has since been blocked by the ACCC, because the consumer watchdog felt it would remove too much competition from the NSW markets.
AGL is considering an appeal against the decision, however, I think the company might be equally well off counting its blessings and looking for other opportunities. If we work on the assumption that coal is bad for the environment and thus undesirable (it's also a finite resource), it follows that there will be political and economic movements over time to reduce the usage of and demand for coal power.
Households will increasingly become more efficient with electricity as prices rise, and alternative sources like gas, solar and geothermal will also become more widely used.
I reason that the end result of this evolution will be shrinking earnings for coal station owners and AGL. While the MacGen asset had potential to make a great contribution to earnings now, shifting trends in energy demand over the next 10-20 years' may shrink its value, which would disproportionately diminish earnings for AGL shareholders (bearing in mind the acquisition was to be funded with $1.2 billion in new shares).
Other power companies like Origin Energy (ASX: ORG) also have the potential to leapfrog past AGL by investing in alternative power like geothermal (which Origin has done), while AGL pours $1.5 billion into dirty coal power. Origin also recently stated that it expects household solar panels to become economically viable (regardless of government incentives) over the next few years, which would place additional pressure on coal power in the future.
What's more, there are now several different methods of harnessing power from the sun (and the moon, even) which means that coal power could well be on its way out. Solar cell technology is also continuously improving, and new solar cells are significantly better than the current silicone photovoltaic arrays. One small Australian start-up, Dyesol (ASX: DYE), is even set to begin manufacturing its own 'artificial photosynthesis' solar panels next year.
Foolish takeaway
Now don't get me wrong, I'm not trying to say that MacGen power would have been a poor acquisition or anything of the sort. It potentially could have made a great contribution to earnings for AGL. However there are also various risks that would continually increase in relevance over the life of the asset. Now that the purchase has been blocked by the ACCC, AGL may want to write this one up to collateral damage and begin looking for other new opportunities.
