I told you so.
Back when AGL Energy Ltd (ASX: AGL) announced its discounted rights issue in order to fund the acquisition of Macquarie Generation's (MacGen) coal power assets, I pointed out that while the assets looked like a good purchase, there was a question mark around the long-term future of coal power.
Sure enough, fast forward a few months and AGL just last week released a statement outlining its intention to completely 'decarbonise' its electricity generation capabilities by 2050.
(I don't claim any special genius; almost anyone could have seen that coming, one way or another).
While this is a positive for the environment, investors will be asking what the real costs will be to AGL Energy over the long term.
As reported in Fairfax media on Monday, Energy Minister Ian MacFarlane has ruled out government funding for the closure of coal power stations, with some estimates indicating it could cost up to $3 billion to decommission a single facility.
AGL is Australia's leading renewable power generator, with 17% of its power coming from renewable energy sources.
This does however mean that 83% is non-renewable, and with AGL intending to 'Close, by 2050, all existing coal-fired power stations in its portfolio', that is potentially a lot of cash the company could have to generate – assuming estimates on decommissioning costs are accurate.
That's not including the cash that investors will expect as dividends between now and 2050 and the funds that management will have to outlay on growing the renewables portfolio.
Potentially government assistance could help, but there are no signs of that at this stage and ultimately there is a big question mark over the whole enterprise.
There's no need to panic and/or race to sell your AGL shares – bearing in mind that management has several decades to sort it all out – but the future of AGL's coal assets is a great unknown and something that investors should cast a shrewd eye over every now and again.
