AGL Energy Facing Tough Time On Gas Plants As The Customers Are Unwilling To Sign Long-Term Contracts

According to the current interim CEO of AGL Energy Limited (ASX: AGL) -Mr. Brett Redman, the collapse of the National Energy Guarantee (NEG) and the unwillingness of industrial buyers to sign a long-term contract are obstructing to AGL’s push for new gas-fired power stations in New South Wales (NSW). Following this news, the share price of the company decreased by 1.917 percent as on 15 October 2108.

Mr. Brett Redman pointed that the Company’s board had committed the funding for the first gas generator which will help in replacing the Liddell coal plant. But the company is struggling to get long-term contracts from the buyers as buyers found the pricing on offer really tough and they are expecting that the prices will go down in the future. Moreover, due to the collapse of National Energy Guarantee (NEG) in the final days of the Turnbull government, there is an uncertainty in the energy policies. The National energy guarantee had imposed two obligations on energy retailers, which includes an obligation to provide satisfactory quantities of reliable power to the market, and a compulsion to reduce emissions over the decade between 2020 and 2030. Recently Australia’s Prime minister announced that Neg is going to be dumped, however, they are committed to meet the Paris emission target. 

Mr. Brett Redman also pointed that if the industrial customers kept on waiting for the prices to go down, and the company is not able to invest, it could have an opposite effect and the prices could go up instead. The company is currently working on convincing the large customers so that they dedicate at least part of their energy purchase portfolio to longer-term contracts. The company is closely working with state and federal governments to introduce measures to reduce the impact of higher prices, especially for those customers that are in difficult economic circumstances or on low incomes. The company recently announced a 50-million-dollar debt relief package for customers experiencing hardship.

On the Financial front, the revenue of the company increased by 2% to $12,816 million in FY 2018 as compared to the previous year. In FY 2018, the underlying Profit after tax increased by 28 percent to $1,023 million compared to the previous year. The increase in Underlying Profit was a result of strong earnings growth in AGL’s Wholesale Markets business unit. The company is expecting the Underlying Profit after tax in FY 2019 to be between $970 million and $1,070 million. The company is also planning to reduce the operating cost by $120 million in FY 2019 which will reduce the impact of increased competitive intensity in Customer Markets.

AGL’s shares traded at $18.420 with a market capitalization of $12.32 billion as on 15 October 2018 (AEST 4:00 PM).

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