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).