Storage, the future for AGL

During the record high energy prices experienced last winter combined with a rapid transition to renewable energy saw AGL Energy return a half year loss of $1B due to outages at Loy Yang A and their Hunter Valley power plant.

Despite this, AGL’s new chief executive Damien Nicks has an optimistic outlook for the second half, after a “challenged” first half. As a result of this drop in underlying profits, investors are worried about how AGL will fund its decarbonisation and whether the transition to renewable energy will occur fast enough, reinforcing the huge challenge faced by Australia’s energy-intensive industries.

AGL announced last year to committing to a $20B plan to develop 12GW of renewable energy by 2036 following pressures from shareholders and activists. A major component of the 12GW of renewables is 5GW to 7GW of firming capacity assets such as batteries and pump hydro. AGL are expecting the firming capacity assets to generate higher returns (7% to 11%) compared to wind and solar (6% and 8.5%).

Despite the decline in underlying profits, “Having a clearly endorsed strategy now, and now we have a board and management team in place means that the banks look at our transition plan and strongly support that,” Mr Nicks said. “That is a key part of us getting access to that capital.” The projects will be funded through cash flow, corporate equity, debt, and project debt.

While this may be a good strategy for AGL to improve shareholder value, it will be interesting to see how the strategy goes meeting Australia’s ambitious climate goals.