Power price surge jolts Australia’s AGL to record profit, but political heat grows

SYDNEY: AGL Energy, Australia’s biggest power producer, said annual profit jumped nearly a third to a billion dollar record amid soaring prices that have brought growing political heat on the firm and its peers to slash household electricity bills.

But AGL shares slumped 5 per cent on Thursday as it warned it expects almost no profit growth this year, with wholesale prices dropping and a retail war persisting.

The record result came a day ahead of a key meeting of state energy ministers to consider a longawaited policy designed to boost power supply and lower prices while cutting carbon emissions, ending a decade of dispute between green energy proponents and those focused on costs and security of supply.

“Policy certainty is key to encouraging further investment in generation supply, which will place downward pressure on electricity prices and ultimately benefit customers,” AGL Chief Executive Andy Vesey told analysts. AGL backs the new policy, dubbed the ‘National Energy Guarantee’.

The company reported an underlying profit of A$1.02 billion ($758 million) for the year ended June, above analysts’ forecasts. But its outlook for a profit between A$970 million and A$1.07 billion for fiscal 2019, was weaker than expected, sending its shares lower in a broader market that was trading higher.

“It does show there are pressures in the business eating away at it, that’s why guidance was a bit tepid versus expectations. But it’s still a good profit,” said Jason Teh, Chief Investment Officer at Vertium Asset Management, which does not own AGL shares citing the challenges the company faces.

AGL said high wholesale power prices over the past year were largely due to the shutdown of two coalfired power stations over the previous two years, but said prices had peaked.

At the same time, it warned that an ongoing war for household and business customers, where its biggest rivals are Origin Energy and Energy Australia, will eat into its profit margin.

“We believe the level of competitive intensity we see in the market now will continue,” Vesey said.

To offset the margin squeeze, AGL has set out to cut operating costs by 13 per cent over the next three years, with A$120 million in cuts targeted for this year.

While facing heat to cut household power bills, AGL has also been pressed by the government to keep its ageing Liddell coal-fired power station open beyond 2022 or sell it to ensure there is back-up for intermittent wind and solar power generation.

AGL has instead opted to replace Liddell’s capacity with a A$1.36 billion combination of gas-fired plants, an upgrade of another coal-fired plant, renewable power, and possibly some energy storage, including pumped hydro.