AGL milks huge profit

Higher power prices bring flood of cash

HIGHER wholesale electricity and gas prices have put AGL Energy on track to deliver a full-year underlying profit of almost $1 billion despite challenges on the retail side of its business.

The energy producer and retailer yesterday reported a net profit of $622 million for the six months to December – up 91 per cent on the same period a year earlier.

AGL said its bottom line was boosted by stronger wholesale electricity profit margins and gains on the value of its hedging contracts, used to offset risk from volatile price movements.

Underlying profit, which strips out one-off items, was up 27 per cent at $493 million. Revenue increased 7 per cent to $6.45 billion.

Chief executive Andy Vesey said he expected the strength in the wholesale markets business to continue given the policy uncertainty for new generation.

“We continue to see the current wholesale price set by the market as sustainable in the current environment, given the cost of bringing on new supply,” he said on a call with analysts. AGL, like other power producers, has benefited from a spike in wholesale prices over the past year as energy companies have pulled supply out of the national electricity market.

Concerns about supply have led the Federal Government to step in over affordability concerns. AGL last year rejected a Federal Government demand to keep its ageing Liddell coal-fired power plant in New South Wales running beyond 2022 in an effort to cap the increase in wholesale electricity prices.

The company has, instead, committed to replace the power station’s current output with a mixture of gas, wind and solar plants.

Wholesale prices make up nearly 45 per cent of the total cost for electricity retailers, although prices are regulated at the retail level.

Mr Vesey yesterday affirmed the group’s full-year forecast for underlying profit to be between $940 million and $1.04 billion.

But he disappointed some investors by saying that based on current expectations, AGL would hit the middle of this range – a slight lag on market estimates.