AGL’s coal-fired power sector to benefit from rising prices

“There is no doubt that coal production will come out of the system sooner than previously thought, allowing for a faster decarbonisation path. However, we firmly believe that thermal generation shutdowns should not occur outside of a coordinated plan between governments, industry, regulators and the community, ”AGL said when AEMO released the project. from PSI.

AGL, whose Loy Yang A coal-fired power plant in Victoria has a theoretical lifespan until 2048, said that if the lights are to stay on, the country’s energy needs must be balanced with the commitment to decarbonize, ensuring a “orderly and affordable” transition. for the customers.

Futures price

In the meantime, AGL, which is preparing for a split this semester, is expected to benefit from higher forward wholesale electricity prices, with Credit Suisse estimating net profit in 2022-2023 to be 30% higher than forecast. consensus.

Analysts Peter Wilson and Matthew Abraham noted that forward electricity prices have risen in recent months, which they attribute to rising fuel costs rather than a significant shift in the supply / demand balance. on the market.

However, they found that operating coal plants more flexibly to move them to peak prices – as Origin Energy did with its Eraring generator – will not be enough to protect the profitability of power generators. coal and therefore “do not save coal power plants”.

AER last week asked AEMO to explain why it had ruled out the possibility that coal producers could produce more flexibly to complement the varying renewable energy supply and wholesale prices.

But owners say their options for operating more flexibly on a day-to-day basis are limited. The Stanwell Corporation of Queensland several years ago canceled a project to examine flexible production for commercial reasons.

Rising prices for gas and renewable energy certificates will also increase AGL’s margins, Credit Suisse analysts said, while expressing doubts the split will continue amid still depressed stock prices due the need for additional equity to support the debt.

A spokeswoman for AGL said the proposed split – into Accel Energy, the heavy coal-fired powerhouse and AGL Australia, which specializes in retail – created “a stronger future for both sides of our business,” the both being able to align with the future of energy.

“With this structure, we have the ability to unleash value as each company pursues its tailored goals and strategies,” she said.

“This will provide clarity on the value drivers, ESG weightings and investment propositions for each company, attracting the right investors and capital to better realize future value. “

Credit Suisse, which still expects AGL’s earnings to decline sharply this fiscal year, raised its price target for AGL to $ 8.50 per share from $ 7.30, putting the increase purely because of Accel.

With Colin Packham