EnergyAustralia suffers profit warning amid market turbulence

The power giant’s earnings have taken a hit from being forced to buy expensive supplies on the market to cover a shortage of generation and still meet customer needs.

EnergyAustralia was hit by a profit warning after the power giant was forced to buy expensive supplies in the market to cover the loss of its generation and meet customer contracts. Picture: supplied.

EnergyAustralia, the nation’s third largest electricity company, has been hit by a profit warning after suffering from volatile power market conditions and ongoing issues running its two big coal-fired power stations in Victoria and NSW.

Amid speculation it was considering a partial sale of the business, EnergyAustralia faces a loss on forward electricity contracts of $HK7.2bn ($1.3bn) for the June half after the power giant was forced to buy expensive supplies in the market to cover a shortage of generation and still meet customer contracts.

The Melbourne-based company, owned by Hong Kong’s CLP Group, has suffered a series of outages at its Yallourn coal plant in Victoria and has endured several years of coal supply problems at its Mt Piper power station in NSW.

EnergyAustralia’s contribution to CLP’s operating earnings for the five months to May 31 was $HK1.1bn lower than the same time last year while the fair value of CLP’s forward contracts ballooned to $HK7.2bn for the five months to May 31 from $HK2.5bn in the first quarter of 2022. The group is set to release its results on August 8.

“Generation output from the Yallourn Power Station has been affected by forced outages while Mount Piper Power Station has been fuel constrained with lower than expected coal deliveries from EnergyAustralia’s coal supplier,” CLP said in a statement. “This has resulted in the business being short to the contract positions it has previously entered into and the business having to buy electricity in the high-priced spot market to cover these positions.”

Still, if wholesale prices remain high in Australia’s national electricity market, EnergyAustralia could ultimately benefit over the medium-term, according to CLP.

“The increase in wholesale prices that is driving the unfavourable fair value movements should increase earnings for EnergyAustralia’s energy segment business in the longer term, provided it can purchase fuel as required, generate and dispatch electricity at the higher prices,” CLP said.

The Australian Energy Market Operator last week suspended the national electricity market after it was forced to intervene and set caps on both power and gas while blackout risks also threatened the system as generators refused to supply the market at lower capped prices.

Wholesale spot power prices rose five fold in the first two weeks of June from the first quarter of 2021, the competition regulator said on Monday, with the huge power price surge linked to international factors such as the war in Ukraine, the global gas crunch, a cold start to winter and a reliance on ageing coal-fired power stations.

Market bodies are formulating ways to ensure a smooth transition to a renewables-led system as the uneven exit of coal from the power grid piles pressure on both prices and supply.

EnergyAustralia has backed a proposed capacity mechanism that would see coal and gas power stations receive payments to secure reliable supply and keep Australia’s ailing electricity system operating, as the government faces pressure to avoid blackouts and fix the ­national energy crisis.

“The tight supply conditions in recent weeks show the dangers of not having enough energy and capacity in reserve through the transition. A capacity mechanism can help support investment into the firm energy and capacity required to complement variable renewables in Australia’s net zero future,” EnergyAustralia managing director Mark Collette said.

“The details of the mechanism matter, the way the mechanism interacts with the existing market and planning for coal closures must fit together. EnergyAustralia looks forward to working with the Energy Security Board on the design of the capacity mechanism.”

It emerged in February that EnergyAustralia was hunting for investors to help fund its multi-billion dollar pipeline of projects in a move which could further accelerate a shake-up of the country’s big power players.

The power operator slumped to an annual operating loss in February amid low power prices and coal outages and warned of a tough year ahead amid intense retail competition, falling to a $HK83m operating loss for the 12 months to December 31 from a $HK1.69bn profit a year earlier.