AGL first-half profit dented by Loy Yang coal power outage
Power giant AGL suffers 20pc fall in first-half underlying profit after a coal plant outage, but is confident about full-year profits.
Power heavyweight AGL Energy has continued to feel the pressure of its ageing coal fleet and Australia’s increased renewables output, with the company’s underlying first-half profit falling almost 20 per cent.
Investors had already been bracing for a fall in earnings and the actual drop was less than the market expected, prompting AGL’s shares to close 3.6 per cent higher on Thursday.
But AGL managing director Brett Redman warned that the headwinds facing the business would continue, telling The Australian that the ongoing rise of renewables and the recent fall in gas prices would remain a challenge.
The volume of renewable energy in Australia has surged in recent years, putting pressure on traditional utilities, although Mr Redman noted that the pace of renewable development was starting to slow as they struggled to connect their capacity into the grid.
“As more generation gets built in different forms it puts downwards pressure on the price and we’ve been forecasting that for a while now,” he said.
“At this point we are seeing a little bit of a slowdown in new renewables build compared to what we might have forecast previously, so some of the downward pressure from renewables is not as strong as it was, but on the flip side we’re seeing a fall in the gas price outlook, which is much greater than we thought it might be, and that gas downward pressure feeds into more gas generation, which in itself puts downward pressure on price.”
AGL, Australia’s biggest electricity generator, delivered a $432m net profit for the six months to the end of December, down from $537m in the prior year. A previously flagged extended outage at its Loy Yang A coal plant in Victoria weighed heavily on the earnings.
Statutory profit, a figure watched less closely by the market, rose 11.4 per cent to $323m from $290m.
Sales edged 0.4 per cent lower to $6.31bn due to lower gas volumes after AGL lost large business and wholesale customers.
It announced a 47c per share, 80 per cent-franked interim dividend, down 8c from a year ago.
The company said it was tracking towards the upper half of its full-year guidance of $780m to $860m, but noted headwinds — including lower wholesale prices for electricity and renewables certificates and increasing fuel costs as old contracts end — would continue.
“It’s always hard to predict (but) the broader thematic over the next number of years is more downward than upward, even though the forward market now is a little overshot compared to where it might go, the longer term is still a downward trend,” Mr Redmond said.
AGL itself owns some of the nation’s largest coal plants — Liddell and Bayswater in NSW’s Hunter Valley and Loy Yang A in Victoria’s Latrobe Valley — but is increasingly shifting its investment focus to clean energy.
It inked plans to operate one of Australia’s biggest batteries in Queensland in January, matching Elon Musk’s giant storage facility in South Australia.
AGL agreed to add an extra year to the planned retirement of its Liddell coal plant until the 2022-23 summer to avoid supply shortfalls in the national power grid over peak summer months.
RBC Capital Markets analyst James Nevin said that while there were positives in the earnings result, the market fundamentals continue to go against it.
“This was a good first half result for AGL but we remain cautious on the longer term view due to falling wholesale prices and risks around its carbon-intensive generation portfolio,” Mr Nevin said.
Moody’s analyst Nicholas Chapman said AGL was well positioned to navigate through the current headwinds due to its manageable debt, limited investment needs and disciplined capital management. “(The results) highlight the challenges posed by moderating wholesale electricity prices,” he said.