There will be a response “planned or unplanned”, he added, suggesting coal-fired electricity plants are headed for potential closure.
Calabria’s comments followed similar concerns expressed by AGL boss Brett Redman last week and comes as a flood of new renewable power threatens the stability of the network and the orderly transition out of coal-fired plants.
Australia has two million homes with solar rooftop panels representing 14 per cent of the demand but just 5 per cent of the generating capacity. Calabria’s comments came as he delivered a sharp fall in profits to $13m, from the $599m of a year ago.
Earnings before interest tax depreciation and amortisation was down $436m at $1.2bn, and free cashflow fell from $680m to $655m.
While AGL is long coal-fired power, Origin is long gas with just one coal-fired power station, Eraring, which is running at just 75 per cent of capacity and is due to close in 2032.
The generator has the flexibility to ramp up more supply if, for example, Australia was hit with a prolonged heatwave.
But the summer has been mild and that, combined with COVID-19, has reduced demand.
The AGL Liddell plant is due to close in 2023 and Energy Minister Angus Taylor has given AGL and Energy Australia until the end of April to come up with a final investment decision on a new firming plant or he will get Snowy Hydro to build one.
Taylor said this week: “We will always prefer the private sector to step up, but the government can’t sit on its hands in the face of a real risk to affordability and reliability.”
NSW Energy Minister Matt Kean is making the industry and Taylor’s job difficult because his energy plan boosts renewables, putting more pressure on ageing coal-fired plants.
The big energy producers are being hit from all ends because wholesale prices are down some 50 per cent over the past year to about $37 a megawatt hour, which is what Calabria calls unsustainable.
The wholesale price is about 30 per cent of the retail price, with transmission being about 40 per cent and the test hedging costs to smooth out price fluctuations.
At the same time, retail prices have also started falling, with Victorian prices down 11 per cent from January and the latest default market offer north of the Murray down between 4.9 per cent and 7.9 per cent. For Calabria and Redman, that means less money for the power they produce and less for what they sell.
These sorts of dynamics are why AGL’s Redman is considering splitting his business into good and bad AGL, with the latter being the generation arm.
Calabria has the benefit of a diversified base with his 37.5 per cent stake in the Gladstone APLNG plant generating $265m in earnings in the last half.
LNG prices are driven by oil prices, which hit the floor at peak COVID but are now increasing.
Calabria also has his foot on good-producing gas in Queensland and prospects in the Northern Territory with the Beetaloo project.
The industry plight is reflected in its stock prices, with AGL down 42 per cent in the past year and Origin about the same with the two down 49 per cent and 51 per cent respectively over three years.
Calabria has cut debt from about $9.1bn to $4.2bn in his four years as boss, and last year took a major step in his retail offering through the fast-growing UK-based Octopus Energy, which is a digitally based supplier offering customers better service through a team-based approach to cover each individual rather than a product approach.
Origin has taken a 20 per cent stake in Octopus, which is being rolled out in Australia.
But the steps forward are being overshadowed by the big macro picture, which Calabria warned could be a mess in the short term.
Lithium hopes
Wesfarmers executive Ian Hansen stepped into the ring on Thursday as the conglomerate rolled out its $1.7bn bet on the lithium market.
Hansen’s chemicals decision will be running the project for the company with Chilean partner SQM, which is being planned to be cashflow positive in 2025.
Chief Rob Scott plays down the risks, noting Bunnings in the last half reported $1.3bn in earnings and the company’s market value is $61.4bn.
But this was the same company that dropped more than $3bn on its failed UK hardware investment five years ago, and neither Scott nor Hansen want a repeat.
Lithium is a play on new technology given it is a key component in electric batteries and Scott would love to be a player in that market.
His earnings last half came from the old guard, with Bunnings, Kmart and Officeworks accounting for 87 per cent on 72 per cent of group capital.
Wesfarmers is more retailer than conglomerate, but the hunt goes on. A combination of last year’s writedown in the value of Target and property sales from Bunnings have meant that capital to the retail stars has fallen $800m to $5.3bn, while Hansen’s team saw a boost by $600m, to a total of $2.1bn.
The bigger change, according to Scott, is the increased investment in digital across the company, which is now primarily operating expenses in software and cloud services as opposed to capital spending like equipment purchases.
The company has what it calls its advanced analytics centre under Alan Lowthorpe and a platform base with Catch CEO, former Amazon executive Pete Sauerborn.
While Hansen attempts to show that lithium is more than a pipedream, these two are driving performance across the group.
Star ready to shine
Crown’s woes have dominated the news and Matt Bekier and his team at Star Entertainment have kept their heads down, but now they can roll up their sleeves.
Most of the action is happening in Queensland, with the Queens Wharf project in Brisbane opening next year and another tower being built on the Gold Coast, which will mean Star will have four hotels across the two venues.
Apart from obviously delaying competition by keeping Crown out of the game in Sydney, the NSW investigations will also fall Star’s way.
Bekier has tried to diversify into a more affluent high-end customer as opposed to the whales who dominate the junket market.
The end of that market, thanks to the NSW report, won’t worry Bekier in part also because high-rollers are a volatile market.
The consolidation of regulators also helps just because it makes life a little simpler when you have one arm of the law to deal with.
Last half’s financials were not pretty due to COVID-19 with revenue down 48 per cent at $72m and earnings down 43 per cent at $20m, but maybe blue sky is more evident while Crown still goes through its trials.
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