“Baseload getting more difficult:” Origin doubles profits, still coy on Eraring and green energy transition

Origin Energy, Australia’s biggest energy retailer, has doubled underlying earnings to $1.995 billion in the first half, taking advantage of higher bills and lower coal costs, but remains coy about the future of the Eraring coal generator and the pace of its transition to green energy.

Origin says it has “evolving views” on capital allocation, but it has not changed its target of 4GW of new renewables by 2030, a fraction of the 14GW promised over the coming 10 years by its spurned suitors led by Canada asset management giant Brookfield.

“We are evaluating this,” CEO Frank Calabria told analysts in an investor call on Thursday. “But 4GW should be your starting point, not the 14 GW proposed by Brookfield.”

Calabria said later in the conference call that Origin did not intend to have wind and solar farms on its balance sheet, but was interested in taking some projects through the development stage to at least the point of construction, including a recently purchased 500 MW wind project in NSW.

Calabria was also coy about the company’s plans for Eraring, the country’s biggest coal generator at 2.88 GW, which it has said it plans to close in August, 2025.

But this date has never been locked in, and the company remains in talks with the NSW government about the exact closure date, with a growing expectation that at least some units may be kept open for another summer or two.

“Both parties are actively engaged and the talks are confidential,” Calabria said. He would give no timeframe on the outcome, but noted that the net present value of the plant remained positive, although this could be challenged over time because the grid will require more flexibility and capacity factors would fall.

“Running baseload these days is just getting more and more difficult,” the company said, noting the low prices particularly in the middle of the day. Origin says Eraring is already running its 720 MW units to as low as 210MW, but wouldn’t go lower than that.

Analysts have said that there is no need for Eraring to stay open, given the number of new renewable and battery storage projects currently under construction.

Origin, however, has contributed little to that build out, committing only to the first stage of the Eraring battery, a 460 MW, two hour facility and a 300 MW, two hour battery at Mortlake, where it owns a gas fired generator – neither of which will likely be commissioned before the current Eraring closure date.

Calabria also says the company is likely to make investment decisions this year on a potential 250 MW, two hour battery at Darling Downs in Queensland, where it also has a gas generator, and a 200 MW, two hour battery at Templers West in South Australia.

Calabria, however, says Origin’s greatest strength lies in the size of its thermal “peaking fleet”, the gas and diesel generators it can switch on to meet, and cash in on, demand peaks and price spikes, mostly in the evening. Its fleet is significantly bigger than rivals EnergyAustralia, Snowy Hydro, and AGL (see graph above).

He noted that the Mortlake gas generator was able to cash in on the price spikes in Victoria this week when storms tore down transmission towers, but said big batteries and the company’s growing VPP could also benefit in the same way.

Calabria said distributed assets connected to the company’s “virtual power plant” had grown to 1.17 GW, and it has plans to boost this to 2 GW.

“This lowers the cost of energy,” the company says, adding that these assets are also “capital light” (because customers are stumping up much of the cost of these assets, which include household batteries and EVs).

Calabria also noted that company’s trials with tariffs had succeeded in pushing the bulk of hot water and EV charging away from demand peaks, into the overnight or middle of the day depending on the nature of the tariff, and if the customer has rooftop solar.

“We’re very excited by this,” Calabria said.

The doubling in underlying earnings was driven entirely by the Origin’s energy business, which increased “gross profits” to $950 million from just $39 million in the same period a year earlier. Origin’s other main source of revenue and profits are its LNG and gas businesses.

Origin says $507 million of the profit increase came from revenue from higher electricity bills from customers, and another $245 million from lower fuel costs, mostly from coal, thanks mostly to the government-imposed price cap.

Calabria says that current and forward wholesale prices should result in a “moderation” of electricity tariffs for customers, at least the “default” price set by the regulator – although he said the regulator should be mindful of keeping an “orderly” market.

“There are good transition investment opportunities that deliver growth, but the need to deliver good returns to investors is paramount,” Calabria said.