Case Study - Origin Energy
Origin Energy is an integrated Australian energy company, operating across power generation, energy retailing and natural gas exploration and production. As Australia’s largest energy retailer, Origin has approximately 4.2 million customers across its electricity, natural gas and LPG businesses, including large-scale energy users and residential and small business customers. Origin is also Australia’s leading provider of low-carbon products such as GreenPower, GreenGas and solar PV.
Origin operates one of the largest electricity generation fleets in Australia, with close to 7,000 MW of owned and contracted generation, comprising black coal, natural gas and renewable power stations.
Origin is also a major shareholder in the Australia Pacific LNG (APLNG) joint venture. APLNG is delivering Australia’s largest coal seam gas to liquefied natural gas export project (by reserves and nameplate capacity).
As a major contributor to the energy industry in Australia, Origin recognises both the responsibility and opportunity to deliver climate change action. In 2015, Origin became the first energy company in the world to sign up to seven of the We Mean Business commitments. And in December 2017, Origin became the first Australian company to have an endorsed science-based target.
We spoke to Sarah Cullen, Senior Manager Sustainability Strategy.
Why did you set a science-based target?
The transition to a low emissions energy sector is a key strategic priority for Origin. There are differing views on the magnitude and speed at which change is required, particularly in the energy sector. At Origin, we unequivocally support the Paris Climate Accord and actions consistent with ensuring global temperatures rise at a maximum of 2oC. For us, the alignment with the Paris Agreement made a science-based target an excellent framework for our future business direction. Our target will help us deliver our primary goal of getting energy right for our customers, our communities and the planet.
What do you see as the advantages and business benefits of having a science-based target?
Many of Australia’s existing energy assets are nearing the end of their life-cycle, with nine of Australia’s 12 largest operating coal-fired power stations more than 30 years old. This provides a unique opportunity to shape the energy future of Australia. We believe that a science-based target provides the right direction for this transition.
As well as providing future direction, the endorsement of our science-based target is an additional driver to review existing emissions performance, allowing asset managers to consider innovative carbon reduction initiatives. It has also generated a great sense of pride among our employees to know that our company is aligned to a global leadership position on climate change.
What was the process of setting a science-based target like for Origin?
Addressing climate change is not a new concept for Origin. We operate in an industry that contributes around one-third of Australia’s total emissions and therefore we have a responsibility to lead the transition to lower carbon. We continually assess the resilience of our asset base in a carbon constrained world to give us the commercial flexibility we need to adapt to changing market dynamics.
The process of setting a science-based target extended this future scenario modeling – to stress test different points at which we could meet our decarbonisation goals while ensuring energy affordability and stability.
Given we operate in both power generation and upstream exploration and production, the existing calculation methodologies did not work for Origin’s hybrid-sector business model. This led us to construct our own modeling and calculations. This process took some time as we engaged industry experts, CDP & WRI representatives, as well as benchmarking against existing sector requirements (for power generation) and peers. We also wanted to ensure that the rate of change we modeled was consistent with our customers’ expectations and was ambitious.
The most important factor in setting our science-based target was to establish a multi-disciplinary team, across the sustainability, public policy, accounting and commercial, asset management, environmental and investor relations functions of our business. Gathering a smart, dedicated team ensured the project’s success.
We also had the support of our executive management team and board, both of which recognises climate change as a significant risk to our business.
What challenges did you encounter?
As we discussed in the previous question Origin’s hybrid business model created some unique issues for setting our target. Notably, there were no existing guidelines for the upstream oil & gas sector which created challenges from a benchmarking perspective. We were fortunate to have ongoing dialogue with Science Based Targets initiative (SBTi) representatives to work through this hurdle.
Another challenge faced by energy companies in Australia is the perception that decarbonization (in particular renewable energy) will lead to higher energy costs. Affordability is a key issue for customers and other stakeholders like government and Origin strive to provide information regarding the positive effect a structured, long-term decarbonization plan will have on energy prices. We will continue to provide transparent, clear information to our customers and welcome feedback at any time.
The announcement of our target had implications for our employees, in particular those working at our single black-coal fired power station, Eraring, which will be retired by 2032. It was important for our target to be longer-term (15 years) to allow an effective transition plan for our people and to signal to the Australian electricity market future capacity requirements. On the flip side, we also had to educate people outside our company that we were not “just closing Eraring”. Eraring is the largest power station in the country and therefore replacing this capacity is crucial. Our dedication to a science-based target provides guidance on our future acquisition path – ensuring we replace this load in the least emissions intensive way possible.
What steps are you taking to implement the target now it is set?
Origin has a five-pillar approach to progressively decarbonise our business:
- Exit coal-fired power generation by 2032
- Significantly grow renewables in our portfolio
- Utilise our strong gas position as a lower-emissions firming fuel in the medium term
- Empower customers with cleaner, smarter energy solutions
- Demonstrate leadership in climate change advocacy.
Consistent with our public commitment to add up to 1,500 MW of new renewable energy by 2020, we continue to invest in renewable generation. By 2020, we expect renewables to grow from approximately 10 per cent of our generation mix today to more than 25 per cent.
Is this something investors and other stakeholders wanted you to do?
Climate change continues to be high on the radar for many of our investors, who want comfort that Origin is managing potential business risks. In October 2017 we published a paper on the resilience of our generation portfolio to a low carbon economy. Having a medium- to long-term, science-based target is very helpful as it demonstrates a clear, decisive path to minimize stranded asset risk and effectively manage our business through changing market conditions.
Setting a science-based target addresses the concerns of our customers, many of whom are thinking about their own carbon impact. The target also helps Origin drive innovation, through smarter, cleaner energy products and services.
How was the target received by your external stakeholders?
The response to our target has been overwhelmingly positive. The target, along with our scenario analysis, has helped Origin to demonstrate our leadership position on climate change. Origin is increasingly seen to be strategically well placed in a changing energy market with a focus on renewables and a large flexible existing portfolio.
Businesses in the energy sector and beyond have also reached out to Origin, as the first SBTi-endorsed Australian company, to assist with setting their carbon targets. It is fantastic to know that we have inspired others to act.
We have also been fortunate to receive positive support from WWF-Australia and other NGOs.
 By capacity – consists of owned and contracted generation