EnergyAustralia takes $1.1 billion hit on retail unit as business model shifts

EnergyAustralia, the third biggest energy retailer in the country, has taken a $1.1 billion hit to the value of its retail business, citing reduced margins and growing competition for the move.

The write down of goodwill was announced late on Tuesday by EnergyAustralia’s Hong Kong based owner CLP Holdings, and will be included in the annual accounts to be released in late February.

CLP noted the write down, or impairment, accounted for more than two thirds of the goodwill of the retailing business, built up from two purchases of retail operations, going all the way back to the old TXU business back in 2007.

In those days, energy utility businesses were able to make fat retail margins. That’s no longer the case, a legacy of the radical changes that are happening in the energy markets themselves – new technology, consumers emerging as producers with rooftop solar – and the general economic environment.

EnergyAustralia CEO Mark Collette says retail margins have fallen from more than eight per cent of customer bills as recently as 2015/16 to just 2.3 per cent now. He also cites increased competition and the higher cost of capital.

• “The impairment in goodwill is the result of more demanding economic and operating conditions that has seen a revision of assumptions on retail margins, customer growth and EnergyAustralia’s weighted cost of capital, with retail margins being the key driver of the impairment,” he said in a statement.

How this affects the ongoing business is not entirely clear. The whole industry is having to rethink their business models as the market moves away from centralised fossil fuel generation and one-way traffic on the networks, to more consumer focused technologies and two-way traffic on the grid.

Collette says the company is working hard on its “behind the meter” solutions with customers, essentially trying to discover what role it can play in helping households manage rooftop solar, battery storage and the growing push to electricifation, including EVs and household appliances such as cooktops and heaters.

What is working well for EnergyAustralia, the company says, is an improvement in its wholesale market operations – essentially the money it makes from selling electricity into the wholesale market through its own production and from market deals.

It has completed work on two of the four units at the Yallourn brown coal generator in Victoria and will continue work on the other two units this year.

It is also progressing new investments such as the newly announced Hallett battery in South Australia, the Woreen battery in Victoria, and the redesigned Lake Lyell pumped hydro plant in NSW.

EnergyAustralia is also the biggest contractor of third party storage assets in the country, with deals to operate the Gannawarra and Ballarat batteries in Victoria, the Riverina battery in NSW, and the Kidston pumped hydro project in Queensland that is due to come on line later this year.

It has also begun generation from the new Tallawarra B gas-fired peaking power station in NSW. It all means that the entire business is likely to at least break even for the 2023 calendar year.

“After a difficult 2022, we made good progress in 2023 by strengthening our operational and financial performance,” Collette said in the statement.

“These outcomes have placed us in a stronger financial and strategic position to shape our future and accelerate our participation in the clean energy transformation.”