How dependant on coal closure is the AGL share price?

Climate activists disagree with AGL’s decision to hold onto coal, saying its depleting shareholder value.

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Key points

  • The AGL share price has tumbled 68% over the last five years, with climate activists blaming the fall on the company's commitment to coal 
  • Previously, 55% of the company's shareholders supported the implementation of Paris-aligned targets that would see the company ditch coal by 2030 
  • However, AGL's management believes that's impossible. It argues the demerger is the best way to protect shareholder value while continuing to burn coal until 2045 at the latest 

The talk of an earlier coal exit has increased this month after Mike Cannon-Brookes bought into AGL Energy Limited (ASX: AGL) shares in a bid to shut down its coal fired-power plants sooner.

The tech billionaire snapped up an 11.28% stake in the company with the intent to block its planned demerger. He, alongside notable climate organisations, believes the split will prolong the lifespan of the company’s coal assets and drive its value down.

But would an earlier than planned coal exit be detrimental to the AGL share price, as the company argues? Let’s take a look.

As of Friday’s close, the AGL share price is $8.40, 0.84% higher than its previous close.

The S&P/ASX 200 Index (ASX: XJO) also traded in the green on Friday. It finished the day 1.93% higher.

Could earlier coal closures aid the AGL share price?

The argument for dumping coal

The AGL share price has tanked 68% over the last five years and climate activists argue the company’s refusal to ditch coal has been a major driver of its downfall.

And its shareholders arguably appear to agree. 55% of AGL investors called for the company to implement short and long-term emissions targets in line with the Paris Agreement last year.

Such targets would force the company to ditch coal by 2030, says the Australasian Centre for Corporate Responsibility (ACCR).

On the other hand, the AGL share price tumbled 6% last month after a unit at its Loy Yang A power station faulted.

It was the second time the company had announced such news in 2 years. The first outage cost $105 million.

The plant is earmarked to close by 2045 at the latest – 12 years after the Bayswater power station will be shuttered.

Thus, ageing coal assets might continue weighing on the stock for the foreseeable future.

Additionally, it’s predicted closure dates go against the National Energy Market Operator’s expectations. Its Step Change scenario predicts most coal will be scrapped from the national energy market by 2030.

The company rebutted such a speedy exit from coal after the regulator released the scenario in December.

The case against earlier coal closures

On the other hand, the company’s management reportedly believes an earlier exit from coal is an “engineering impossibility”.

It claims ditching coal by 2030 would cost $30 billion and force it to double the speed in which it takes to build wind farms over the coming five years.

Of course, a $30 billion hit to AGL’s bottom line would likely also dint its share price.

Instead, it believes demerging AGL Energy into a retailer and a generator will offer greater value for shareholders.

Following the demerger, the company’s retail business – AGL Australia – would be less exposed to risks associated with coal.

AGL Australia will boast net zero emissions on listing under the plan.

Should you invest $1,000 in AGL Energy right now?

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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