AGL pulls pin on Victorian offshore windfarm project

The decision marks the highest-profile exit from Victoria’s offshore sector to date and underscores the challenges facing Australia’s most fossil fuel-dependent state.

Victoria has placed offshore wind at the heart of its plan to replace coal. Picture: Thomas Traasdahl/AFP

AGL Energy has abandoned its offshore wind ambitions in Victoria, in the latest blow to the state’s efforts to replace coal with zero-emissions power.

The decision marks the highest-profile exit from Victoria’s offshore wind sector to date and underscores the challenges facing Australia’s most fossil fuel-dependent state.

The company, along with its partners, has surrendered its so-called feasibility licence for a project in Gippsland, effectively halting plans to explore the potential for large-scale offshore turbines in the region.

Victoria has placed offshore wind at the centre of its strategy to reduce emissions and secure new energy sources as coal-fired power plants are scheduled to retire over the next decade.

Two other offshore wind projects had already been shelved, raising concerns about the state’s ability to deliver on its 2032 offshore wind target.

The federal government has attempted to prop up developments by waiving ongoing licence fees, reportedly worth close to $1 million annually, but this has done little to stem the withdrawals so far.

State government officials had hoped that Gippsland, with its relatively favourable wind conditions and proximity to the national electricity grid, could become a hub for large-scale renewable energy investment.

A spokesperson for AGL said the company and partners had determined the project known as Gippsland Skies will cease.

“Gippsland Skies has made the decision to discontinue feasibility studies for a potential offshore wind project off the coast of Gippsland.

“AGL will prioritise options in its development pipeline of onshore wind, batteries, pumped hydro and gas firming projects, including an expectation of taking final investment decision on 900MW of grid-scale batteries in the next 12-18 months,” the spokesman said.

The state Labor government insisted the sector is on course, but the rapidly dwindling field will once again create fresh doubt.

Victoria’s reliance on coal has made the transition to renewable energy more urgent.

The Yallourn and Loy Yang coal-fired power stations, which supply a significant portion of the state’s electricity, are set to retire in the next decade.

Without new zero-emission generation coming online, households and businesses could face higher energy costs and the state may struggle to meet emissions reduction targets.

Earlier this week, Victoria’s auditor-general said the state’s offshore wind targets are not on course to be met as it warned the closure of EnergyAustralia’s Yallourn coal power plant will leave the state grid precariously placed.

The exit also adds to broader uncertainty in Australia’s renewable energy sector, where ambitious state and federal targets are colliding with practical challenges on the ground.

While AGL’s withdrawal is a blow to proponents for an accelerated transition away from fossil fuels, it is likely to be welcomed by the energy company’s shareholders.

AGL faces one of the most ambitious and costly overhauls in corporate Australia as it works to retire its ageing coal-fired power stations and replace them with low-emissions assets including large-scale solar, wind and battery projects.

The company plans to spend up to $20bn by 2035 to build about 12 gigawatts of new generation and storage capacity – a goal that will demand tight cost control at a time when profit margins are already under pressure.

The upfront outlay remains considerable.

The company has warned that higher capital spending will weigh on near-term earnings, guiding for underlying profit in the 2026 financial year of between $500m and $700m – compared to FY25’s $640m result.

Industry experts say the decision underscores the financial and technical challenges facing large-scale offshore wind in Australia.

Regulatory hurdles, transmission constraints and the sheer scale of upfront investment make the sector a risky proposition for developers, particularly as states and the federal government work to co-ordinate a patchwork of policy incentives.

AGL’s exit highlights the tension between corporate investment priorities and political ambitions.

While renewable energy remains a national and state priority, companies like AGL are balancing the need for profitability with the demands of energy transition.

For now, Victoria’s offshore wind sector will need fresh support if it is to attract new investors and avoid further setbacks.

Originally published as AGL pulls pin on Victorian offshore windfarm project