AGL flags huge profit lift as power prices roar back

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Energy giant AGL s expecting to more than double its earnings in the coming year on the back of a sharp recovery in wholesale electricity prices and improved reliability across its coal-fired power stations following a spate of costly breakdowns in 2022.

After slumping to a $1.1 billion loss in the final six months of last year, the electricity and gas supplier, which is responsible for 8 per cent of Australia’s greenhouse gas emissions, delivered upgraded full-year profit targets on Friday morning.

Last year’s months-long breakdown of Loy Yang A’s Unit 2 contributed to a worse-than-expected $1.1 billion half-year loss.Credit: Justin McManus

The revisions have narrowed AGL’s underlying profit guidance for the 2023 financial year to between $255 million and $285 million, while its expectations for financial year 2024 are between $580 million and $780 million.

“Without the challenging energy market conditions that we saw at the start of this financial year, namely widespread planned and unplanned outages coupled with unprecedented market volatility, we expect financial year 2024 to be a stronger year as we see the sustained recovery of wholesale electricity prices roll through,” AGL chief executive Damien Nicks said.

Last year’s months-long breakdown of Loy Yang A’s Unit 2 came amid a string of outages at other major power plants which slashed electricity supply just as a burst of cold weather was driving a surge in demand from households dialling up their heaters.

Loy Yang A’s reliability problems forced AGL to buy more expensive electricity from the grid at a time of soaring wholesale prices to meet its customers’ needs, contributing to a worse-than-expected $1.1 billion half-year loss.

Mike Cannon-Brookes, AGL’s biggest shareholder, has led a drive for the energy giant to dramatically speed up its decarbonisation targets.Credit: Oscar Colman

After giving several years of notice, AGL retired its Liddell coal-fired power station in New South Wales’ Hunter Valley earlier this year, leaving the neighbouring Bayswater plant and Victoria’s Loy Yang A as the company’s last-remaining coal-fired generators.

Billionaire climate activist Mike Cannon-Brookes, who has become AGL’s biggest shareholder with an 11 per cent stake, last year led a successful push to block the company’s plan to spin out its coal-fired power stations into a separate entity, forcing the resignations of its chairman and chief executive, and heaping enough pressure on the board to dramatically speed up its decarbonisation targets.

AGL has since agreed to fast-track the closure of Bayswater and Loy Yang A and spend up to $20 billion building more renewable energy and “firming” assets.

Bayswater is now due to close by 2030, while Loy Yang A’s retirement has been brought forward by up to 10 years from 2045 to 2035.

While the accelerating rollout of cheaper-to-run renewable energy is slashing wholesale electricity prices and hammering the economics of coal-fired power, especially during the middle of the day when solar is most abundant, AGL and other utilities are working on ways to reduce their plants’ minimum loads and boost their ability to ramp up and down in response to prices.

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