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Origin rides high power price wave – but says it has to stop

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Origin Energy has ridden the wave of high wholesale electricity prices and increasing demand for gas and coal power, to deliver an underlying profit of $550 million for the year ending June 30 2017, a 51 per cent jump on FY 2016.

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In a results statement delivered on Wednesday morning, Origin said its earnings had been well supported by its retail energy portfolio, consisting mostly of gas power generation, plus the Eraring coal plant in New South Wales, and 732MW of installed renewables generation.

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Origin said its energy markets division had locked in a 12 per cent increase in earnings before tax, to $1,492 million for the year to June 30, and buoyed investor hopes with an even better outlook for FY 2018, predicting growth in the region of 14-21 per cent.

The company also cut debt by $1 billion, and declared no final dividend for 2016-17, a decision chairman Gordon Cairns said was “not taken lightly” but in light of the board’s primary focus on reducing debt.

Speaking at a media briefing after the results announcement, Origin CEO Frank Calabria conceded that the 2017 energy market had been characterised by the “very well commented on and very critical” issue of high power price, which he said had been caused by the withdrawal of large, old coal-fired power stations, high demand over the summer period, and not enough new generation brought online.

“Clearly we haven’t had enough new supply added,” Calabria said, mirroring the recent comments of AGL Energy chief, Andy Vesey.

Calabria reaffirmed the company’s plans to help remedy that situation by investing in a lot more renewables, particularly as large-scale wind and solar continue to reduce in cost.

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“PPA prices are coming down, we certainly have seen that trend over time, so you’d expect that to continue,” Calabria said, adding that he expected there was “a little bit more to go in solar than in wind.”

On solar thermal – which has been thrust onto the radar this week by SolarReserve’s winning tender to supply the South Australian government’s energy needs with a 150MW solar tower and molten salt storage plant in Port Augusta – Calabria said it was technology that was still expensive, and at this stage was “just another example of suite of technologies that will be supporting the market.

“We have looked at solar thermal from time to time,” he added. “We don’t have an aversion to it. We’re just assessing the market and making our best decisions.”

Among its key achievements, Origin listed the 1200MW increase in committed renewable energy supply, which it has built up through a series of market-leading power purchase agreements. And the company plans to keep adding to its renewables portfolio – hopefully, Calabria says, with the added market security of a Clean Energy Target.

Interestingly – and despite the company’s profit from exorbitant electricity prices, and despite the fact that, as David Leitch points out, the retailer lost electricity customers across the year – Origin also noted an improvement in customer satisfaction.

But Calabria was keen to stress that the gen-tailer was well aware of customer pain caused by high power prices, and on board with both the federal government and the Victorian state government’s call for reform in the retail sector.

“We’re aware that rising energy prices are hurting many Australian households and businesses. We’re helping those in hardship by making sure they will not pay the recent price increases and ensuring they are on our best offer with no conditions attached. We’re also behind the push to simplify energy and help customers more easily compare offers,” he said in a media statement on Wednesday.

“Bringing energy prices down will require a whole of industry response, including networks, generators and retailers. Origin is taking action to put downwards pressure on prices by increasing our supply of low-cost renewables to more than 25 per cent of our generation mix within three years, and boosting generation from Eraring.”

In comments at the media briefing, this was reiterated.

“What’s clear is that prices can’t continue to go up. That would be bad for everyone,” Calabria said, hinting at the threat of retail pricing regulation raised by this week’s Victorian review of the retail electricity market.

“What’s important is that you get the investment in new supply by Origin and others,” he said. “That’s the important balance we’re striving for. …The Victorian review pointed to what they think could be done better in the retail market.

“It goes to transparency of communication, transparency of choice. We’re supportive of all of that. We certainly don’t think regulation would be in the best interests of (the) market, but I understand that governments are struggling with this decision.”  

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  • john

    Finding a mechanism to stop the gaming of payment to generators in periods of high demand would indeed be a help.
    Doing away with the fixed guaranteed payment for network expenditure is a given.
    As has been shown just allowing so called competition for what is an essential service is a recipe for increased costs.
    Let me explain it only takes one set of computers and one set of offices to run a business having 10 or more just ensures 10 times as much cost to the end user.
    If for instance you had to go find the cheapest way to use one road due to it being not an essential service what do you think you would be paying to the 10 different identities who have some proportion of that road usage to sell?
    The problem is now it is a political football and all kinds of inaccurate stances will be given to the voter and will appeal to whichever kind of outlook they hold.
    To my way of thinking the delivery of power is a duty of government rather like roads communication policing health etc.
    Now a lot of power delivery has been sold off unfortunately it is impossible to unscramble the mess the country is in.

    • nakedChimp

      They had that back in the middle ages.. every couple kilometers there was a beam over the road and you had to pay toll.. took them centuries to merge this into the EU.
      And then they go ahead and privatize those assets to create private monopolies again.

  • Just_Chris

    So, in summary, Origin have pushed the price of domestic gas through the roof causing a massive spike in whole sale electricity. This has doubled their profit and let them pay off a billion dollars in debt but they are probably not going to pay a dividend or put any of their money on the table to build new generation unless the government forces them to by bringing in a CET. I hope demand falls through the floor as millions of reasonably affluent middle class Australian’s take the solar + battery option or, even better, find ways to dramatically reduce their consumption and origin are left without a pot to p**s in.

    • Robert Westinghouse

      I agree….being a greedy company they are interested in profits and paying senior management far too much. I have increased my mortgage and put on PV and batteries….but I need to put on more….if the rules do not preclude this…they are coming so I will have to be quick.

  • Joe

    First AGL and now The Origin announce how badly us punters are being fleeced with their Oligopoly market power. But of course the reaction is coming from the punters. Rooftop Solar has never been cheaper and it is a no brainer for anyone owning a roof to install Rooftop Solar…..we do have power, pardon the pun. With cheaper home battery storage to follow and compliment Rooftop Solar the ‘electron wheel’ turns more favourably toward the punters. The energy majors can keep their gas and coal as well as their bamboozling offers / plans etc that just confuse punters.

  • MaxG

    This system cannot and will not fixed while in private hands. It will remain a cash cow one way or the other, no matter what actions are taken. I am glad I am out… as this was and still is the only way out from the leeches.

  • Robert Westinghouse

    If the stupid government still owned some of the power they would have made the 550million profit and that could be used for schools, hospitals or to reduce the price of energy….well one does not have to be a economics major to know that the government has made a HUGE mistake and we are paying for it….Tell your local member to fix it…..

    • nakedChimp

      The ones who made those decisions didn’t make a mistake, this is going well for the profiteers and the politicians after they start working for the profiteers.
      You’ve been had.

  • Michael Murray

    Looking at my old bills last week. In 2006 we spent $1723 on electricity for the year and in 2016 $3284. Nothing changed usage wise in that time. This is in Adelaide.

    • Greg Hudson

      Based on those figures, and the fact that a 5kW PV array can be bought for under $5k, installing solar should be a no-brainer for you (assuming you have the roof space)…