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Coal giant AGL cashes in on higher electricity prices

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The veil has been lifted over how Australia’s big energy companies have been profiting from the big jump in wholesale electricity prices as the country’s biggest coal generation company, AGL, announced a big jump in earnings.

AGL on Thursday revealed a 27 per cent lift in its underlying net profit for the December half, to $493 million. But it is the results from its generation assets – both coal and gas – that tell the real story, and is of most interest to consumers.

Much of the blame for Australia’s high wholesale electricity prices have been sheeted down to the increased cost of gas, and by some leap of logic in some quarters, to renewable energy policies.

AGL’s results, however, reveal how the coal and gas generators – of which it is the biggest – have profited by bidding the wholesale price up even higher, and cashing in for the benefit of their shareholders.

AGL’s electricity gross margins – that’s the difference between the price it sells its output over the costs of generation – have jumped a whopping 30 per cent in the latest half – from $772 million to $996 million.

Gross margins from its gas division – the centre of much political angst over export parity prices and coal seam gas – were even bigger – up nearly 50 per cent, or 76 per cent, from $164 million to $240 million.

Margins and profits would have been even higher were it not for unplanned and planned outages at Loy Yang A plant in Victoria and the increasingly unreliable Liddell plant in NSW.

AGL’s profits would also have been higher had it not had to scramble to retain customers alarmed by the huge jump in electricity prices in the last year. (As indicated in the graph above).

It spent more money on operating costs (such as manning phone lines) and offering “discounts”. Even with that, its “margins” from electricity at the customer level jumped 8 per cent.

Ever since its purchase of the Loy Yang power station in Victoria (in 2012) and the Bayswater and Liddell coal generators in NSW (2014), AGL’s strategy has focused on maximising its earnings from the coal portfolio while it can.

The last few years – with the stalling in new renewable energy projects and confusion over government policy – have presented the perfect opportunity for the big coal and gas generators that domimate the market and set its prices.

Those margins are likely to fall in the next few years as more than 6000MW of new wind and solar projects come on line, and as some are tied in with accompanying storage facilities.

That will present the coal and gas incumbents with more competition. The generators, and even the government, say this will push down prices. It’s just a shame that consumers had to wait this long.

Already, the Tesla big battery is puncturing holes in the ability of the big generators to control and ramp up prices on small markets like FCAS in South Australia.

As more renewables become dispatchable, with the arrival of more battery storage and pumped hydro, and more competitors on the market, then that ability to corner the market will be reduced.

AGL plans – despite federal government opposition – to close the “ageing clunker” Liddell (which it bought from the NSW government for effectively nothing) and replace it with a mix of gas, renewables, demand response and maybe pumped hydro.

AGL has already written a contract for 300MW of new large scale solar with Maoneng, and on Thursday, CEO Andy Vesey said that the company was loolking at 250MW of “fast-start” generators near Newcastle.

It has also broken ground this week on the big 453MW Cooper’s Gap wind farm in Queensland, as well as two new gas/diesel fast start plants in South Australia (to replace some ageing Torrens units), and is building the Silverton wind farm near Broken Hill.

But its own generation portfolio is even more black and brown than Australia’s.

This table from AGL’s results presentation (the highlighted column shows the output in gigawatt hours for the December half, compared to previously) shows coal accounts for 83 per cent of its electricity production, and gas 7.1 per cent. That makes more than 90 per cent fossil fuels.

Wind acconts for 6.5 per cent, and large scale solar (Nyngan and Broken Hill) less than 1 per cent. Hydro accounts for the rest (2.4 per cent).  

Pocket
  • Joe

    The AGL shareholders will be loving this. The AGL customers will be scratching their heads….. and pockets.

    • Greg Hudson

      Any yet just a few weeks ago AGL gave me a rate of just half a cent/kWh more than the cheapest I could find (Alinta). AGL relies on their customers not shopping around…

  • Phil

    I’m 100% off grid and DIY for most consumables

    Mainstream energy prices have little to no effect

    The Bad business and government models are educating me where true value lies and it’s D.I.Y. The power of 1 is amazing

  • Cooma Doug

    If we were to make the energy sector government owned again, the coal would linger for many decades. AGL has a plan based on economics in a market. The signals are obvious and recognized by them and they are moving away from fossils.
    There are plans in place and the details not yet freely released due to the market impact.

    There will be products emerge in the next few years that will compete in the load side market. The value of products that emerge will turn things upside down. We have to take a hard look at all things that become available. I can see already that there will be s lot of changes emerge in the home storage market.
    Within a few years the average customer about town will see through the coal dust. Like henry Fords exposure of horse dung in the streets..

  • lin

    What Malcolm’s mates are doing to us is legalised theft. This is why the Libs continue to oppose renewables against all evidence about it being the better, cheaper option.

    • Andrew Gelencher

      no way is it cheaper. You and many others omit to add the cost of baseload power genetated from coal onto the renewable’s cost. Not only that you all conveniently omit the cost of subsidies the taxpayers of this country pay to Elon Musk and the like including wind and solar farms. To say renewables are a cheaper option is a joke

      • solarguy

        You’re only fooling yourself with that crap. Fossil fuel subsidies are in the $billions. Stop being a trollie.

        • Andrew Gelencher

          insults from the misinformed. Typical.

          • solarguy

            Typical from the coal lobby by accusing people of insults. You insult your own intelligence, by thinking we will believe that rubbish!

            Now go away before you hurt yourself.

          • Andrew Gelencher

            Typical of the coal lobby. You are a joke. I find it absolutely facinating how sensitive you green people are. I also find that when you have little fact on your side you resort to the insults. One thing is for sure I at least have the guts to use my real name on a post and back up my statements. By the way I have never worked in or belong to the coal lobby.

          • solarguy

            Good back up your statements coal man!

      • lin

        Why would you want or need to add the cost of “baseload” coal power onto renewables? Just because coal cannot turn off when it is not needed does not mean we should pay for it to run when it is not needed if a cheaper dispatchable alternative is available. And before you talk about subsidies, all of the coal generators were built from the taxpayer’s purse, and miners (including coal and gas miners) get billions a year in subsidies in Australia alone, with estimates ranging from 3x to 10x the subsidies for non-fossil fuel electricity generation. Subsidies is not an argument coal lovers should pursue unless they like being laughed at.

  • Grpfast

    So! After being shafted for so long is there an alternative generator to AGL. It gets very tiresome having to take this. It’s generally acknowledged that this is criminal behaviour but nothing is done.
    I want to take my business elsewhere. I have 10Kw of solar generation but need supplementary power. Suggestions?

    • Jon

      So what crime has been committed and who knows about it. You can take your business to any number of retailers……and pay roughly the same price. Seriously!

    • Greg Hudson

      I’ve just switched to AlintaEnergy and after discount, pay 20.13c / kWh (inc GST). Way less than the 29.8c that Red Energy were charging me.
      If you don’t have time to research, call iSelect or CompareTheMarket

      • Grpfast

        Thank you Greg. This was the sort of experience I was looking for.
        Unfortunately I was hoping to find alternative to AGL to take my money elsewhere. Unfortunately most retailers source from AGL and I’ve already used “compare the market” to get the best deal.

  • Jonathan Prendergast

    It’s a great time to be a generator, due to high prices. Worth noting that solar households with high feed in tariffs are also profiting from the high current market prices (not a bad thing).

  • Hettie

    It will be very interesting to see what the next qtr, with HPR in full operation, brings for AGL.

    Meanwhile, chez moi, I have finally got round to applying accounting principles to my power account.
    Please tell me if I’ve finally got this right. Or not.
    Before solar, per calendar month
    Power Debit $141. After low income rebate.

    Post solar, debit pcm
    Power 67
    Loan 173
    Total $240

    Credit
    FIT 97
    LIT 23
    No power bill
    141
    Total $241.
    So I’m $1 per month better off than before.

    Have I finally got this right?

    • rob

      When you pay off your loan you will be LAUGHING!

      • Hettie

        I’m grinning widely now.