AGL warns of $2.7bn writedown
AGL Energy’s warning of a hit to first-half earnings comes as it responds to a worsening outlook for wholesale energy prices.
AGL Energy warned of a $2.68 billion hit to first-half statutory profit as it responds to a worsening outlook for wholesale energy prices, triggering a hit on legacy wind farm deals and the value of its power stations.
AGL said after-tax charges include $1.92 billion in provisions for onerous contracts, largely tied to wind farm offtake agreements that were sealed between 2006 and 2012 to support the development of the renewables sector.
“These offtake agreements were entered at prices significantly higher than spot and forecast prices for electricity and renewable energy certificates today,” AGL told the ASX.
AGL also said it would lift environmental restoration provisions by $1.11 billion, and take an $532 million impairment charge against its generation fleet.
However, the impact on profit will be cushioned by a positive tax effect of $878 million, the company said.
“These charges follow an accelerated deterioration to long-term wholesale energy market forecasts in recent months, reflecting policy measures to underwrite new build of electricity generation and lower technology costs, leading to expectations of increased supply,” AGL said.
Stripping out these one-time items, AGL said its underlying profit forecast of between $500 million and $580 million for the year through June, 2021, remains unchanged.
Power station owners faces future liabilities for the environmental restoration of their operations.
In its fiscal 2020 accounts AGL set aside $344m in provisions for the restoration of all of its power stations and gas fields.
Currently AGL is in the process of decommissioning and rehabilitation of gas production wells at the controversial Camden coal seam gas project in Sydney’s west.
In its latest accounts AGL noted the coal seam gas project “has overcome many challenges with vegetation establishment in FY20 as a result of drought, bushfires and localised flooding”.
By June last year 45 of Camden’s 144 well sites have been, or were in the process of being, decommissioned, rehabilitated and returned to landowners.
Other obligations include the looming retirement of AGL’s aging Liddell Power Station in the Hunter Valley at the same time it is considering the planned retirement of the neighbouring Bayswater Power Station in 2035.
Among obligations here include the rehabilitation at the Liddell Ash Dam and the Ravensworth mine.
With Dow Jones Newswires
