AGL forecasts a huge profit surge as households grapple with their own surge - in power costs

Energy giant AGL has forecast a huge increase in profits, while households are grappling with power costs which will jump by hundreds of dollars this year.

AGL shares surged on Friday after the company forecast its profits would more than double in the coming financial year, during which time households will be grappling with their own surge - in electricity costs.

The energy company’s shares were up more than 14 per cent to $11.05 in early trade on the ASX after AGL said its underlying profit after tax would come in at between $255m and $285m - the top of the previously forecast range.

But the underlying profit after tax would then more than double to between $580m and $780m in the 2023-24 financial year, the company said.

AGL’s huge boost to its profit expectations came as fellow energy retailer EnergyAustralia unveiled price increases of more than 20 per cent for its electricity customers, with households on the default market offer to be slugged with an average increase in NSW of 20.5 per cent, 23.6 per cent in Victoria, 23 per cent in South Australia and 20.3 per cent in South East Queensland.

Its gas customers on the standing offer tariff will be hit with price increases from July 1 of 20.5 per cent in NSW, 15.8 per cent in SA, and 18.1 per cent in the ACT. Victorian customers will not experience a price change.

EnergyAustralia chief customer officer Mark Brownfield said the increases “reflect higher prices for wholesale electricity and gas due to energy market volatility in 2022’’, while the electricity price increases were also related to recent price determinations by the Australian Energy Regulator.

AGL said in a statement to the ASX its better performance in the current financial year, “reflect(s) an improved second half, in line with expectations, driven by increased generation due to improved plant availability and a reduction in forced outages, and higher customer margin due to disciplined margin management and an increase in customer services’’.

AGL chief executive Damien Nicks is predicting bumper profits.

“This is partly offset by higher operating costs (excluding depreciation and amortisation) due to increased maintenance costs, seasonal net bad debt expense and the impact of inflation.’’

Data crunched by News Corp shows Australian electricity is among most expensive in the world, with more pain to come after the Australian Energy Regulator last month approved a hike of up to 25 per cent for people on default plans.

News Corp analysed electricity prices based on government figures for average household electricity usage and bill size.

The analysis show that at 36.1c/kWh, South Australian electricity is the most expensive in the country, while NSW’s was the cheapest at about 26.5c/kWh.

All Australian states and territories were more expensive than the US, where electricity costs about 22.6c/kWh.

South Australia and the ACT, where electricity costs about 29.8c/kWh, were more expensive than the UK, where power costs about 30.8c/kWh.

While the amounts paid by consumers in their power bills also factor in costs such as distribution, AGL’s mega-profit forecast will be a bitter pill to swallow for households struggling to pay their power bills.

AGL chief executive Damien Nicks said the company’s improved performance in the current financial year owed a lot to better performance on the power generation side of the business.

“Looking ahead to FY24, without the challenging energy market conditions that we saw at the start of this financial year, namely widespread planned and unplanned outages coupled with unprecedented market volatility, we expect FY24 to be a stronger year as we see the sustained recovery of wholesale electricity prices roll through.”

AGL said it would benefit next financial year from “sustained periods of higher wholesale electricity pricing, reflected in pricing outcomes and reset through contract positions’’.

It also expected “improved plant availability and flexibility of the asset fleet, including the commencement of operations of the Torrens Island and Broken Hill batteries, and the non-recurrence of forced outages and market volatility impacts’’.

“This is expected to be partly offset by the closure of Liddell Power Station and higher operating costs, including: the impact of higher revenue from pricing outcomes increasing variable costs such as net bad debt expense and anticipated market activity; increased maintenance spend to improve asset fleet availability and reliability; and inflation.’’

Originally published as AGL forecasts a huge profit surge as households grapple with their own surge - in power costs