AGL slashes profit guidance after Liddell fire leaves $25 million damage bill

AGL Energy has slashed its profit guidance for this financial year, saying the combined impacts of a fire at the Liddell power station and falling wholesale electricity prices would dent profits by between $80 and $100 million.

In a statement to the ASX on Monday, AGL Energy provided further details about an incident that occurred at the Liddell power station last week, which left a worker seriously injured and will see a unit at the power station remain offline until March next year.

AGL said that the incident had been caused by a fire in a transformer of Liddell Unit 3, while an oil cooler filter was being replaced. The fire caused damage to the transformer and resulted in the 420MW unit to be shut down. AGL said that it would be able to replace the transformer from the company’s existing inventory, but the unit was expected to remain offline for the rest of the summer, returning to operation in early March.

AGL said that the injured worker was now recovering following medical treatment and that an investigation into the cause of the incident was ongoing.

The company said that the cost of the unit outage, and the replacement of the transformer were likely to total $25 million. AGL said that the cost of the fire would not be recoverable via insurance in future years.

The incident proved to be an early test for the electricity market operator, which activated the Reliability and Emergency Reserve Trader (RERT) mechanism to intervene in the energy market to procure additional supplies of electricity to maintain electricity supplies in New South Wales.

AGL also cited falling demand for electricity, attributed to warmer winter months, and a fall in wholesale electricity prices, due to increasing supplies of lower cost wind and solar entering the market and falling gas prices, as also squeezing margins in its generation business.

AGL told the ASX that it had been forced to revise down its earning guidance to between $500 and $580 million for the 2020-21 financial year, down from a $560 to $660 million guidance originally indicated in August. Contributor David Leitch had forecast tough times for AGL in this analysis.

AGL shares were trading down by more than 5 per cent on Monday, following the announcement.

Its the second significant outage at a coal-fired generator operated by AGL, with a unit at the Loy Yang brown-coal generator in Victoria being forced offline for most of 2019, due to equipment failure.