EnergyAustralia’s Hong Kong-listed parent company books $1.1bn impairment against retail unit

CLP Holdings, the owner of EnergyAustralia, has booked an impairment charge of $1.1bn against Australia’s third-largest electricity operator.

EnergyAustralia’s Yallourn coal-fired power station in Victoria’s Latrobe Valley. Picture: Daniel Pockett

CLP Holdings, the owner of EnergyAustralia, has booked an impairment charge of $1.1bn against Australia’s third-largest electricity operator, as the company’s retail unit struggles with increased competition and the higher cost of capital.

The revelation from the power giant’s Hong Kong-listed parent CLP Group is the latest blight on the retail player, which has suffered a spate of heavy financial losses that analysts believe has dented its capacity to fund a transition to renewable energy.

CLP said EnergyAustralia had enjoyed a strong 2023, but the so-called impairment in goodwill is the result of more demanding economic and operating conditions that has triggered a revision of assumptions on retail margins, customer growth and Energy-Australia’s weighted cost of capital, with retail margins being the key driver of the impairment.

Goodwill impairment reflects a decline in the value of that asset since it was acquired.

The EnergyAustralia writedown relates to goodwill included in the acquisitions of TXU in 2005 and EnergyAustralia in 2011.

EnergyAustralia’s managing director Mark Collette said the impairment charge illustrates the tough environment faced by energy retailers.

EnergyAustralia’s managing director Mark Collette.

“The 2023 ACCC report on the National Electricity Market released on December 1 noted continuing pressure on industry margins and an increase in costs for retailers,” said Mr Collette.

“Retail margins as a percentage of residential bills were 2.3 per cent on average across the National Electricity Market in 2022–23. This contrasts with equivalent retail margins of 8.9 per cent in 2016–17.”

The writedown was announced just weeks before the Australian Energy Regulator (AER) announces its much-anticipated default market offer.

The default market offer is calculated annually; the AER considers the wholesale cost of electricity, the toll of transporting electricity and the cost of compliance with government rules and regulations.

Only a small minority of households and businesses are on the default market offer as retailers typically offer discounts to entice customers. But retailers insist the default market offer be allowed to rise to allow them to remain profitable.

The default market offer has jumped more than 20 per cent for each of the last two years, but retailers insist the increases did not cover their costs, and there is widespread pressure to limit the 2024/25 increases.

Limited increases to the annual tariff would heighten pressure on EnergyAustralia.

The financial accounting writedown comes as CLP prepares to publish its 2023 financial results.

In August, CLP revealed EnergyAustralia had recorded losses of more than $100m for the first six months of 2023, prolonging the financial troubles of the country’s third largest electricity and gas retailer.

The result was in contrast to the fortunes of local rivals AGL Energy and Origin Energy, but CLP said EnergyAustralia continued to be weighed down by higher interest costs to service debt incurred in recent years.

In 2022, CLP recorded half-year losses for EnergyAustralia totalling $1.55bn that stoked concern about the capacity of Australia’s third-largest electricity and gas retailer to fund its transition away from coal. Now, EnergyAustralia risks being left behind as it grapples with ongoing financial losses and interest in becoming a part-owner of the retailer appears sluggish.

Originally published as EnergyAustralia’s Hong Kong-listed parent company books $1.1bn impairment against retail unit