EnergyAustralia hit by power price interventions, coal troubles

EnergyAustralia yallourn brown coal power station
Yallourn Power Station (AAP Image/David Crosling)

After a bumper year of profits in 2018, EnergyAustralia has become the first of Australia’s major gen-tailers to take a hit from state and federal retail power price re-regulation, with a write-down of up to $A1.3 billion.

Hong Kong-listed parent company CLP Group said on Friday that it was cutting the goodwill attributable to its EnergyAustralia retail business in half, by between $HK6-7 billion, and warned of an expected to hit earnings that would translate into a loss for the group for the first half of 2019.

CLP said the reduction in goodwill had followed the introduction of “default market offers” by both the federal and Victorian governments, effectively re-regulating “standing offer” electricity tariffs for residential and small business customers.

As forecast in its quarterly statement in April, CLP had expected these measures – once finalised – to have “a significant negative impact on the future contributions of the retail segment.”

And so they have – although not all that significant when compared to EnergyAustralia’s huge profits of 2018, which trebled between June 2017 and June 2018 from $A129 million to $A375 million.

As we reported at the time, that surge in profit had comes off the back of sustained high wholesale electricity prices – even as wrung out customers quit the company by the tens of thousands.

Indeed, it was this orgy of money-making enjoyed by each of the big-three gen-tailers at the expense of consumers that inspired the implementation of the “Default Market Offer” mechanism by the federal government and an electricity default offer mechanism in Victoria.

Whether these mechanisms will have the intended effect is another question. Smaller and start-up retailers argue it will serve only to consolidate market power with the incumbent gen-tailers, and reduce competition.

And while it appears to have delivered a hit to EnergyAustralia, it is a relatively small one. In its statement on Thursday, CLP said it anticipated earnings from the utility could fall by around $A50 million in the second half of 2019 as a result of tariff reductions and additional discounts.

But also troubling EnergyAustralia’s bottom line are ongoing problems with its coal-fired power generation, including lower production due to coal supply issues affecting Mount Piper Power Station, and maintenance issues its Yallourn Power Station.

According to The Australia Institute, the ageing Yallourn power station – which is Victoria’s oldest coal generator and the highest carbon emitter (per MWh) in the NEM – has suffered 26 outages since TAI began its ‘Gas & Coal Watch’ project in 2017, putting it in the top ranks of least reliable generators in the country.

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