AGL’s $10b shift from coal to clean power ‘on target’

Power giant AGL says it is on track to deliver on its plan to build up to $10 billion of new energy projects in time for its exit from coal in 2035, but warned greater co-ordination between government and industry is needed to transition the wider east-coast grid.

Billionaire climate activist Mike Cannon-Brookes and other AGL shareholders last year staged a revolt against the 185-year-old utilities company’s strategic direction, forcing it to replace its chairman and chief executive, fast-track the retirement of its coal-fired power stations, and develop a plan to deploy more renewable energy and storage projects by the time they close.

AGL says its loss is largely due to writing down the value of its emissions-intensive coal-fired power stations after deciding to bring forward their closures to fast-track the decarbonisation of its business.Credit: Joe Armao

Following last year’s upheaval, AGL chief executive Damien Nicks on Thursday said active investors had begun rejoining the company’s share register in the past six months, reflecting growing confidence in its financial outlook and strategy for replacing coal-fired power with 12 gigawatts of cleaner sources of energy.

AGL has increased its pipeline of new projects by 60 per cent in the past six months, while its 250-megawatt Torrens Island battery and 50-megawatt Broken Hill battery were expected to begin operating this year.

“We had a very tough start to the year, but certainly ... we’ve turned that around, and we’ll continue to turn that around,” Nicks said.

The ASX-listed power and gas supplier on Thursday reported it had sunk to a $1.26 billion full-year loss following a volatile 12 months, which included costly coal-fired power station breakdowns at critical times and a write-down on the value of one of its coal plants. However, it now expects earnings to sharply recover amid rising wholesale prices for the electricity it produces and improved reliability across its generation fleet.

AGL Energy CEO Damien Nicks told investors the group expected “positive momentum” to continue into the 2024 financial year and boost earnings.Credit: Eamon Gallagher

On an underlying basis, AGL’s profit rose 25 per cent to $281 million, and the company said it expected “positive momentum” to persist through the financial year.

Jamie Hannah, deputy head of investments at AGL shareholder Van Eck, said AGL’s strong set of results “bodes well for their energy transition”.

“They’ve been able to deliver some solid results with a change of management and a new strategic plan while, at the same time, starting on the energy transition,” he said.

Under AGL’s new climate strategy, its Bayswater coal-fired power plant in NSW is now due to shut no later than 2033, while the retirement of Loy Yang A in Victoria’s Latrobe Valley has been brought forward by up to 10 years from 2045 to 2035. The company will also spend between $8 billion and $10 billion building 12 gigawatts of new renewable energy projects and “firming” assets – such as big batteries and pumped hydro – to support them when the wind isn’t blowing and the sun isn’t shining.

Despite the stronger climate commitments, AGL continues to face calls from Cannon-Brookes, its biggest shareholder, for even earlier coal closures. The board has said if the wider energy transition accelerated and there was an opportunity for AGL to exit coal more quickly, “we will certainly consider that”.

However, it comes as some power industry leaders and the Australian Energy Market Operator are becoming increasingly nervous about the lagging pace of the rollout of new generation and storage projects required to compensate for coal plants’ withdrawals. There are also concerns that the build-out of more than 10,000 kilometres of high-voltage transmission lines, which will be needed to link up new renewable energy zones and facilitate the flow of clean electrons from one part of the country to another, is happening too slowly amid funding issues and local community opposition.

Nicks on Thursday acknowledged that cost pressures and supply chain logjams posed significant hurdles for the necessary rebuild of the power grid, but expressed confidence they could be overcome. He said the challenge demanded greater co-ordination and planning between state and federal governments. “I think that would help,” he said. “But the right conversations are taking place right now, and the right questions are being asked.”

AGL’s strengthening financial outlook comes as the company and other major retailers, including Origin Energy and EnergyAustralia, have been allowed to increase consumer bills across Australia’s eastern states by hundreds of dollars a year following significant rises in the wholesale cost of energy.

Wholesale prices – what retailers pay for electricity before they sell it on to their customers – blew out to record levels across eastern Australia last year due to power-plant outages and coal mine flooding curtailing supply, while the war in Ukraine was driving up the cost of additional coal and gas needed to plug shortfalls.

Nicks said AGL recognised that many Australians were struggling with cost-of-living pressures, including rising energy bills.

“We are committed to supporting our customers during this difficult time and will spend at least $70 million over the next two years to help our customers manage cost-of-living pressures,” he said.

Sarah Xie, assistance vice president at Moody’s Investors Service, said the improved performance of AGL’s power stations in the second half of the financial year had offset the worse than expected first-half results, when a series of failures at coal plants had slashed AGL’s electricity supply amid a period of intense demand and forced it to buy expensive wholesale power from the grid to meet its customers’ needs.

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