Power price fall hits AGL, Origin

AUSTRALIA’S two biggest electricity operators have taken a hit from weaker power prices, with Origin Energy slashing annual profit guidance and rival AGL Energy taking a surprise $2.69bn writedown.

Origin downgraded its fullyear guidance for the 2021 financial year, citing subdued energy demand due to the impacts of COVID-19 and a mild summer season and higher gas costs amid a jump in Asian LNG prices.

The energy company now expects its energy market fullyear earnings before interest, tax, depreciation and amortisation to be in the range of $1bn to $1.14bn, compared with previous guidance of $1.15bn to $1.3bn, a downgrade of 8.6 per cent.

Electricity gross profit is now expected to fall $250m to $290m year on year, compared with the previous expected fall of $170m to $220m.

The news sent Origin shares down by 6.9 per cent, or 34c, to close at $4.62.

AGL shares fell 3.6 per cent, or 43c, to $11.42.

AGL will write down $2.69bn in post-tax charges in its half-year results on February 11, after a deterioration in long-term wholesale energy prices and “challenging macroeconomic conditions”. While it did not change its earnings guidance like Origin, AGL took a giant write-off hit reflecting $1.9bn in onerous contracts relating to its legacy wind farm offtake agreements, a $1.1bn increase to its environmental restoration provision and $532m in impairments across its coal and gas power stations. It maintained underlying annual profit guidance of $500m to $580m after slashing its profit forecast just prior to Christmas.

It noted the impairment of the natural gas assets is linked to the rise in environmental restoration provisions.

Average electricity spot prices have halved from a year ago to between $40 and $45 a megawatt hour in most states as a flood of cheap renewables lowered daytime prices along with cheaper gas and coal and softer demand amid COVID-19.

Power prices averaged $44/ MWh across most states in the December quarter, 38 per cent less than the same quarter in 2019 and the lowest December quarter wholesale price since 2014 with only NSW bucking the trend.

Origin also upgraded its full-year forecast for its Australian Pacific LNG business in Queensland. It now expects production to be in the range of 685-705 petajoules, up 0.7 per cent from the previous guidance of 675-705 pj.