Origin still unhappy about renewables ruling and target

Australia’s largest energy utility, Origin Energy, remains unhappy about the findings of the Climate Change Authority’s review into the Renewable Energy Target (RET), saying it had “missed the opportunity” of identifying the real costs of the scheme.

“We don’t believe it was an effective review,” Origin Energy CEO Grant King said in response to a question posed by RenewEconomy at a media briefing on Thursday. In particular, he said, the CCA had “grossly underestimated” the costs of the small-scale part of the scheme, which focuses mostly on rooftop solar.

The bulk of Australia’s electricity industry, the network operators, fossil fuel generators and retailers such as Origin fought hard against maintaining the status quo of the RET, saying it would lead to significant costs on consumers and would also have a significant impact on their own businesses, particularly the generators.

The CCA rejected that position, and recommended the fixed 41,000GWh target by 2020 be retained, rather than diluting it to a “floating target” reflecting actual, rather than projected, demand. It said the cost savings of altering the target were negligible and were outweighed by the investment impact of changing the rules.

Sill, the Labor government has yet to rubber-stamp the CCA finding, and the position of the Opposition remains unclear. Renewable energy developers such as Infigen Energy have been calling for both parties to make their positions clear, so that the build-out of renewables can continue. (See separate story).

King said on Thursday that following its recent contract with the Snowtown 2 wind project, it is in no need to make any major decisions within the next six months at least. This includes the Stockyard Hill project in Victoria, which could be more than 300MW and up to 500MW. Origin sought a buyer for that project last year but has decided to retain the development rights.

Origin Energy is currently focused on its massive CSG to LNG project in Gladstone, which will now cost about $24.7 billion, but will deliver its first revenues ahead of schedule in 2015.

In the meantime, its results are driven, essentially, by its energy business, which has been suffering from weakening overall demand, intense competition, rising wholesale prices, and various regulatory decisions.

In the latest half, its net profit fell by 34 per cent to $524 million, with underlying earnings from its energy markets division down 20 per cent to $660 million, and its margins to 9.4 per cent from 14.1 per cent – mostly to do with reduced demand and competition.

King said that the uptake of solar PV had been well beyond what anyone had anticipated and had had an impact on demand. However, the uptake was falling sharply, even if profitability from the solar PV business had increased. (see separate story).

Electricity demand from Origin’s mass market customers fell by a whopping 11.1 per cent compared to the previous half. Apart from the overall weak demand, this was caused by the loss of 179,000 customers compared to the same period a year earlier as competition among retailers intensified. This had been slowed to 23,000 in the latest half, and had been partly offset by an increase in demand from its commercial and industrial customer base.

The reduction in electricity volumes caused a $28 million impact to profit, the increase in wholesale energy prices caused a $53 million impact, and the Queensland regulatory ruling that put a ceiling on retail prices cost another $58 million.

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However, the hot weather in January in Queensland also caused a huge number of peak pricing events (see graph to the right), with more than 20 per cent of the half hour intervals in the NEM pricing at between  $100/MWh and $300/MWh. Origin said its hedging strategy accounted for the possibility of higher average prices, but not for such dramatic spikes and volatility.

King said that would cause a loss of around $35 million and further reduce annual profits. “When we see hot weather … we see people wanting to turn all those switches on,” he said.

Comments

8 responses to “Origin still unhappy about renewables ruling and target”

  1. Chris Fraser Avatar
    Chris Fraser

    In January those half-hour pool prices reached $150/MWh. (i think Liz Aitken could find a link). To me this seems to be some distance off the ceiling pool price of $12500/MWh. It would be interesting to see how pool prices in the recent January heatwaves compared with the pool prices in the 2008 heatwaves, when there was 2GW less rooftop PV.

    Isn’t the problem here that heatwave demand for gas and coal-fired energy is suddenly not high enough and not consistent enough ? That could be a cause for the loss of $35 Mill.

  2. John Avatar
    John

    Perhaps the loss in customers is due to disillusionment with Origin’s position from those who would prefer to see more Renewable generation in the mix. As a long-standing Origin customer, buying GreenPower, I am fast approaching that point.

  3. John Avatar
    John

    …and don’t they think it a bit disingenuous to complain about rooftop solar when it is profitting so much from it? From: https://reneweconomy.wpengine.com/2013/origin-closes-transform-rd-lifts-australia-solar-profits-58342
    “Origin Energy is one of the biggest solar PV installers in the country, and said the number of installations in the December half fell by around a quarter to 7,772, from 10,606 a year earlier. This compares to a peak of 18,028 installations in the December, 2010 half year.”
    “Still, despite the fall in revenue to $102 million, it increased profits from the division by $11 million to $29 million, citing higher margin solar products, and lower hardware costs.”

    1. Pete Avatar
      Pete

      Yes I was thinking the same, a complete contradiction!

    2. David Miles Avatar
      David Miles

      Like you John I am now an equally disillusioned Origin GreenPower customer after receiving corespondance from them this week. Apparently “For the last 12 months you have enjoyed the benefit of GreenPower for just $1 extra per week” (how do I benefit?)… “your pricing for your GreenPower is due to change shortly” “green energy charges will be usage based (from 20/03/2013) and charged at the rate of 1.452 cents kWh in addition to your energy charges”. A recent 91 day account for use of 2030 kWh would see my GreenPower contribution (or is it now a penalty) increase from $13.00 to $29.47 (inc GST). The frustrating point is that they are at will allowed to change my ‘contract’ terms but I will incur a penalty of $70 to change

  4. Pete Avatar
    Pete

    The protest from Origin recently made me switch to AGL who at least supports the RET target as it is and a carbon price.

  5. Dave Smith Avatar
    Dave Smith

    On the contrary, I get some perverse pleasure from buying renewable energy from a company that obviously hates the stuff.

  6. Dan Cass (@DanJCass) Avatar

    So Grant King is happy to make easy solar lucre out of all those STCs in its solar business and then wants this compensated for its poor fossil fuel business, burdened by the success of solar?

    That really is a whole new page in the history of Australian corporate chutzpah!

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