AGL posts $1.26b loss, expects major turnaround as east coast energy market settles down

After announcing a major loss, leading Australian energy company AGL Energy (ASX: AGL) is anticipating a turnaround for FY 2024.

The company pointed the finger at significant issues related to the east coast energy market as playing a major role in the company recording a dramatic statutory loss after tax of $1.26 billion.

The company was also hit by $0.68 billion in post-tax impairment charges relating to the carrying value of the AGL Energy Generation Fleet cash-generating unit, propelled by a decision to accelerate the targeted closure dates of AGL’s thermal generation assets.

The statutory loss was also hit by a negative movement in the fair value of financial instruments of $0.89 billion, largely due to the impact of a drop in forward prices for electricity relative to AGL’s hedging of its electricity generation position to manage pricing risk through forward contracts.

In comparison to the big hits, AGL was able to achieve a 25% increase in underlying net profit after tax of $0.28 billion thanks to the exclusion of the movements in the fair value of financial instruments and a number of significant items.

Promising 2024 outlook

While AGL stated that first half issues were largely related to major changes occurring within the east coast energy market, it also identified a solidification of that market as providing it with positive optimism for FY24.

Managing director and chief executive officer, Damien Nicks, said AGL has maintained its underlying earnings guidance ranges for FY24 including a lift in the underlying EBITDA of between $1.88 and $2.18 billion and an underlying net profit after tax of between $0.58 and $0.78 billion.

Mr Nicks pointed to strengthened wholesale electricity pricing over a more sustained period as providing the company with confidence it can obtain the increase in AGL’s earnings for FY24.

The company also highlighted the likelihood of improved plant availability and flexibility of the asset fleet, including the commencement of operations of the Torrens Island and Broken Hill batteries, that will provide more earnings certainty.

This is expected to be partly offset by the closure of Liddell Power Station and higher operating costs.

“AGL’s financial result for FY23 reflects a strong second half following a challenging start to the year, which was impacted by volatile energy market conditions and forced plant outages, including the prolonged outage of Loy Yang Unit 2,” Mr Nicks told shareholders.

“We saw a significant improvement in plant availability as the year progressed, which contributed to the increase in earnings compared with FY22, along with the strong performance of our well risk managed gas portfolio and customer business. We expect this positive momentum to continue into FY24, as indicated by our earnings guidance which is unchanged from our announcement in June 2023.”

Cost of living pressures

Mr Nicks said AGL will be providing financial support to help its customers through difficult times.

“We recognise that many Australians are struggling with broad cost of living pressures, including rising energy prices.”

“We are committed to supporting our customers during this difficult time and will spend at least $70 million over the next two years to help our customers to manage cost of living pressures.”

Developing a cleaner energy future

Mr Nicks said AGL’s strategy to connect its customers to a sustainable future and transition its energy portfolio had been a major focus of FY23.

“The first major milestone of our decarbonisation journey was achieved in late April with the safe and respectful closure of the Liddell Power Station after almost 52 years of operation. Importantly, we maintained our commitment to no forced redundancies and transferred around one hundred employees from Liddell to Bayswater Power Station.”

“We’re already making good progress on our ambition to deliver 12 GW of new renewable generation and firming capacity by the end of 2035, increasing our development pipeline by 60% over the past six months from 3.2 GW to 5.3 GW. In addition, both the 250 MW Torrens Island Battery and the 50 MW Broken Hill Battery are expected to commence operations this year.”

“We also recently signed a 15-year PPA with Tilt Renewables for an offtake of 45% of Rye Park Wind Farm in NSW, which equates to a share of approximately 513 GWh of energy per year derived from 178 MW of capacity.”