Origin expects energy bill relief as it moves to evaluate its renewables build

Australian households and businesses will see a moderation in electricity bills from July 1, the country’s largest energy retailer says, but investors should brace for leaner times in 2025.

Australian households and businesses will see a moderation in electricity bills from July 1, the country’s largest energy retailer says.

Origin Energy said it would also evaluate its renewable energy build in what was a rapidly evolving market.

The outlook, which came as Origin posted soaring half-year profits, should be a relief to Australians struggling under a cost-of-living crisis and the Reserve Bank of Australia which have been forced into aggressive interest rate rises due to inflation that has been swelled by higher energy bills.

Proposed annual tariffs from July 1 will be announced within weeks by the Australian Energy Regulator, which uses a complex formula to consider the wholesale cost of electricity, the toll of transporting electricity but Origin CEO Frank Calabria said indications suggested a small fall.

A declining default market tariff would be a headwind to Origin’s energy market business, which was a significant driver of the company’s soaring half-year results.

Origin Energy on Thursday said underlying profit for the six months ended December 31, 2023 jumped nearly 1700 per cent as the company profited from strong performance across its portfolio,

The results were inflated by Origin’s energy markets business which were boosted by higher retail prices. Underlying EBITDA for the segment totalled $1.044bn, up on the $231m recorded one year previously.

Origin said the company expected a strong end to 2024.

It declared an interim dividend of 27.5c a share, up from 16.5c a year earlier.

Investors welcomed the result, which easily surpassed market expectations. The company’s shares rose 2.5 per cent after the result was announced, tempering any concern about Origin becoming distracted by Brookfield and EIG Partners’ failed $20bn offer for the Australian energy giant.

Origin shareholders in November rejected the consortium’s bid, stoking concern about Australia’s renewable energy transition.

Brookfield – which would have acquired the company’s energy markets business – had promised to develop 14GW of zero-emission generation. The scrapping of the deal led to some investor unrest about Origin’s own transition goals.

Some investors have argued Origin would need to increase its target, which would be a financial drag on the energy giant as projects were increasingly expensive and offered lower returns. In contrast, other investors want the company to prioritise returns.

But Mr Calabria said the company was undertaking work to assess its pipeline strategy.

“Brookfield came up with 14GW, not Origin. We were 4GW so we will go back and test that hypothesis, but start with 4GW and then we’ll see whether we think we should be doing more than that; Not start with Brookfield’s,” Mr Calabria said.

Mr Calabria said the company had positioned itself to allocate capital towards batteries, which were increasingly profitable amid wild swings in Australia’s wholesale electricity price.

Origin has committed about $1bn to developing big batteries at the site of soon-to-close Eraring coal power station in NSW and Mortlake Power Station in Victoria.

Other generation would be off Origin’s balance sheet. The company would develop assets such as offshore wind and then seek third party financing. Such an arrangement would reduce the financial toll on Origin and allow it to supply its customers, Mr Calabria said.

Origin is unlikely to struggle to entice third party capital, and its largest shareholder – AustralianSuper, which played a critical role in stopping the Brookfield and EIG deal – last year said it was willing to provide capital to new generation.

Mr Calabria, however, said Origin had not struck any agreement with AustralianSuper.

“When we are at the stage that we’re seeking funders alongside us, they and many others can be considered in that context,” Mr Calabria said.

“But very much my role and relationship with them is to continue to deliver shareholder value.”

Origin is pushing ahead with its renewable energy pipeline build as it continues to work through when its largest generator, the Eraring coal power plant, will be decommissioned. Eraring is the biggest source of NSW’s electricity but the state wants to keep it open to give it enough time to accelerate the development of new sources of electricity.

Mr Calabria said discussions with NSW were continuing but declined to reveal how long the NSW government proposed to keep it open for.

“We want to bring that to conclusion as soon as possible,” Mr Calabria said.

Originally published as Origin expects energy bill relief as it moves to evaluate its renewables build