EnergyAustralia, one of the country’s big three utilities, has reported a dramatic hit to its earnings and a $1 billion cash injection from its parent because of problems at its two remaining coal generators, but says its future hopes lie in its suite of new battery and pumped hydro projects.
The company’s coal operations were beset by problems in the first half, from fires at the coal conveyer system at the Yallourn brown coal generator in Victoria to shortfalls in coal deliveries to its Mt Piper coal generator in Victoria.
The loss of generation from both coal plants forced EnergyAustralia to buy on the spot market to meet its contracted sales in the midst of the most dramatic price rises ever seen in Australia, caused by surging fossil fuel prices triggered at least partly by the Russian invasion of Ukraine.
That sent EnergyAustralia’s “underlying” profit down to just $26 million, a tiny fraction of the $363 million for the same period in the previous year. (It is citing EBITDAF here, earnings before tax, interest, depreciation, amortisation and financial instrument movements).
Its net profit plunged dramatically into the red – a $1.55 billion loss – thanks to more than $2.03 billion in losses on its hedging portfolio, which are unrealised losses that may be at least partially reversed in the future depending on the course of wholesale electricity prices.
That is more than the $1.3 billion of hedging losses flagged in June, and resulted in its parent company, the Hong Kong-based CLP, providing another $1 billion in July to support the Australian company’s liquidity and “provide more buffer for its operations.”
The cash injection appears to have followed a downgrade by ratings agency S&P, which flagged in early July the need to boost liquidity.
The result from Australia also pushed its parent company, the Hong Kong based Asia energy giant CLP which has a huge portfolio in China, India and other Asia countries, into a 25 per cent fall in its annual earnings.
EnergyAustralia is due to close its Yallourn brown coal generator in 2028, under a secretive deal with the state government, and Mt Piper is currently scheduled to close in 2040, although most analysts believe it could close well before then.
In their place, the company is investing in new storage projects, both as an owner and as a contracted operator of the assets.
Its first big storage investment is likely to be the planned 350MW, four hour Wooreen battery in the Latrobe Valley, and the company says it has been evaluating contractors. It is also working on a big pumped hydro project at Lake Lyell, which currently provides water to Mt Piper.
EnergyAustralia already has dispatch agreements over the Gannawarra (25MW/50MWh) and the Ballarat (30MW/30MWh) batteries in Victoria, and has signed similar agreements with two batteries totalling 90MW and 180MWh to be built by Edify Energy at Darlington Point in south west NSW.
It also has the long-term energy dispatch agreement with the 250MW, 2000MWh Kidston pumped hydro storage project in Queensland, which is being built by Genex Power and is due to come on line in 2025/26
And it’s building a new gas generator at Tallawarra B in NSW, which it describes as “net zero because of its potential to convert to hydrogen.
“Volatility in spot prices in response to weather variations and changes in supply and demand looks set to continue amid the net-zero transition in Australia,” the company said in its statement.
“In this light, EnergyAustralia’s investments and contracts in batteries, pumped hydro and fast start gas and hydrogen generation are expected to improve financial results as these projects come online.”
It said it was looking forward to working with the new federal Labor government to help advance the clean energy transition, and is supportive of a new capacity mechanism, although there is fierce debate over what that should look like.
The accounts from EnergyAustralia’s Hong Kong based parent CLP reveal the biggest losses in the first half occurred at Mt Piper, with Yallourn also losing heavily. Those losses were partially offset by gains customer and retail division thanks to its hedging policies, and higher sales to its 2.4 million customers.
But this graph below illustrates the problem at Mt Piper, both in terms of the generation shortfall, due to planned and unplanned outages, and the problems with the coal supply (graph at left), and the surging prices and the comparison with the contracted prices.
Chief financial officer Alastair McKeown said the company had found itself in unchartered territory because of the mix of global and local events in the first half.
“During the first half of the year, the significant increases in the cost of energy were largely driven by adverse weather and geological issues which slowed domestic coal supply, along with untimely generator outages,” he said.
“Abroad, sanctions against Russia and the war in Ukraine, drove higher prices for Australia’s coal and gas. The culmination of these conditions found us in unchartered territory.”
