Origin Energy’s share price rose 4 per cent on Tuesday (10 October) after the Australian Competition and Consumer Commission (ACCC) authorised its reported $18.7 billion acquisition by a global energy consortium made up of Canada-based Brookfield and US-based MidOcean.
The ACCC conceded it remains unconvinced the deal would not “substantially lessen competition”, but claimed these risks are outweighed by the potential benefits for the renewable energy transition.
“We found that the public benefits and public detriments in this matter were finely balanced. Likely detriments, particularly anti-competitive effects from vertical integration, had to be weighed against likely benefits to Australia’s renewable energy transition,” ACCC chair Gina Cass-Gottlieb said.
“We considered undertakings offered by Brookfield, AusNet, and MidOcean in this weighing process.
“The ACCC considers that the acquisition will likely result in an accelerated roll-out of renewable energy generation, leading to a more rapid reduction in Australia’s greenhouse gas emissions.”
The competition risks flagged by the ACCC included concerns resulting from vertical integration in the electricity supply chain in Victoria, given Brookfield would control energy network infrastructure firm AusNet as well as Origin’s energy retailing and generation business.
“There are longstanding competition concerns with combining monopoly energy network assets with businesses that use those assets, such as electricity generators and energy retailers,” Ms Cass-Gottlieb said.
“When the controller of a monopoly network owns downstream or upstream market interests, it may have the ability and incentive to discriminate against its rivals across the supply chain and favour its own market operations, lessening competition.”
However, the ACCC said its primary competition concern relates to the control of AusNet’s Victorian high-voltage electricity transmission system and Origin’s current and expected future generation assets in Victoria.
“We are particularly concerned with Brookfield’s ability to influence AusNet to obstruct rival generators from connecting to the transmission grid or operate the transmission network to favour Origin’s generators,” Ms Cass-Gottlieb said.
“The ACCC is not satisfied there would not be a substantial lessening of competition given these concerns,” Ms Cass-Gottlieb said.
Touted benefits unpacked
Origin Energy’s acquisition comprises of two intendent transactions – the takeover of Origin’s energy markets business (including its electricity generation and electricity and gas retail businesses) by Brookfield Global Transition Fund; and MidOcean acquisition of Origin’s upstream gas interests.
The ACCC claimed the Brookfield Global Transition Fund – which was established to support the clean energy push – would provide Origin Energy (Australia’s fourth largest emitter of greenhouse gases) with a “strong imperative and commercial incentive to lower emissions quickly”.
“…In this case, we determined that the likely gains for Australia’s renewable energy transition amount to a public benefit sufficient to outweigh the likely public detriments,” Ms Cass-Gottlieb added.
“We drew extensively on our engagement with industry participants to weigh these public benefits and detriments.”
The touted clean energy benefits include the earlier-than-anticipated replacement of fossil fuel generation as part of a $20–30 billion proposal by Brookfield.
However, the ACCC has cast doubt over the touted scale of the benefits touted by the Canadian energy firm, pointing to “constraints within the electricity transmission network”, which could impact the proposed timeline for Brookfield’s development of renewable energy generation.
The competition watchdog also claimed many of Brookfield’s proposed investments in renewable energy may be made irrespective of its decision to approve the acquisition of Origin Energy.
Origin Energy has acknowledged the ACCC’s decision, which it said “marks an important milestone”, but noted the transaction remains subject to the satisfaction of outstanding conditions.
The deal is subject to additional regulatory approvals by the Foreign Investment Review Board and National Offshore Petroleum Titles Administrator.