Retailers’ power choice: Cannibalise or be consumed

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Market analysts say big retailers headed in right direction on solar and storage, arguing it is better to cannibalise than be consumed.

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Australia’s leading energy analysts have given cautious approval to the belated shift by the big retailers into the rooftop solar market, and their efforts to embrace the incoming battery storage sector.

Trina-5.0kW-Solar-System1AGL Energy held an analysts briefing earlier this week, which we reported on here and here, and Origin Energy is scheduled to the same on June 10.

Both companies are focusing on how they can adapt to the rapid transformation of the energy markets, and the emergence of technology that makes their own consumers potential competitors.

AGL, which has established a new energy division that will focus on rooftop solar, battery storage, electric vehicles and smart communications, is winning plaudits for its efforts, even if analysts are not yet convinced how it will turn out, such is the scale of transformation ahead.

“In our view AGL’s new strategy demonstrates the company has taken the first critical step in recognising that the industry is changing, and there is no future in standing still.,” Deutsche Bank’s Hugh Morgan said in a report.

“We remain of the view it is too early to pick winners losers from emerging technologies led by solar PV, interval meters, battery storage and electric cars. However, AGL’s existing 3.8m customers are a strong competitive starting point, and we favour those seeking to innovate over those who choose to follow.

“We can foresee a future where current energy providers are the ones best placed to manage and optimize household energy flow decisions. Will this new source of revenue replace existing generation and retail revenues?

“A difficult question to answer, however if an industry is changing we believe it is better to cannibalise than be consumed.”

Morgan Stanley echoed a similar view, noting in a report that AGL was emerging from the “valleys” (Latrobe Valley, where its big brown coal generator is located) to the “rooftop”, where solar panels are bing installed.

“Since many households will take up solar (and likely batteries) anyway, we think AGL is prudent to take as much market share as it can,” analyst Rob Koh writes.

“AGL acknowledged that its core business (grid electricity) is declining and we endorse its strategy of providing a high-visibility division with a separate culture as part of its longer-term transition.

“We understand that AGL New Energy also includes monitoring of new technologies and business models (threats and opportunities), including providing equity funding and incubation for select start-up businesses. “

But Koh is also cautious, saying his recommendation on the stock remains underweight because it is not yet clear that the utilities can overcome the many industry headwinds.

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5 Comments
  1. john 4 years ago

    AGL has enough decisive decision makers within the company to make the finding that it is better to lead than follow where the market will go.
    The market will choose PV and storage.
    So AGL has decided to be proactive and make sure they are on the floor ensuring they have a presence with this transition and are able to have skin in the game.
    They have a proactive market plan and I am sure it will work.
    The person who buys the plan will look at their offering and make a decision so AGL has to make sure its offering is compelling.
    If AGL does not measure up with its plan then it will fail and frankly heads should roll.

  2. Paul Turnbull 4 years ago

    If Agl can execute its strategy effectively they will dominate the electricity market through this period of extraordinary disruption. It has a courageous CEO and Board – it is presently comfortable with a profitable business – it looks to the future and says wow – this is going to end – lets get with the program, change our business and prepare to reduce our devastating air pollution – and provide a clean way for consumers to enjoy the benefits of electricity. I am trying to do the same myself – but it is not easy!

  3. adam 4 years ago

    “AGL acknowledged that its core business (grid electricity) is declining
    and we endorse its strategy of providing a high-visibility division
    with a separate culture as part of its longer-term transition.

    What would colour this discussion would be a side by side business comparison between the two units, both now and projected.

    Hopefully we get that detail in the annual reporting season.

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