‘Not enough’: Government challenges AGL (ASX:AGL) over planned closures

The AGL Energy Ltd (ASX: AGL) share price has struggled throughout Thursday.

In afternoon trade, shares in the gentailer are trading 3% lower to $7.30. The downside deepened on the AGL share price from around 1:50pm AEDT.

While the company released its earnings for the first half of FY22 this morning, discontent appears to extend beyond the financials. The company can count the federal energy minister, Angus Taylor, and Greenpeace among the displeased — funnily enough, for opposing reasons.

ASX-listed AGL causes alarm with greener plans

To the disappointment of shareholders, AGL witnessed a 41% fall in its underlying net profits in the latest half-year. The poor result was partly blamed on further increases in the use of rooftop solar. With no signs of the renewable transition slowing down, shareholders are hoping AGL can insulate itself somehow.

Acknowledging the pressures, the company revealed it would be bringing forward closures of its coal generation assets. These changes will occur on behalf of Accel Energy (planned demerger from AGL on the ASX), which is the company’s offshoot responsible for providing ‘secure, low cost energy’.

Specifically, Accel Energy plans to close its Bayswater Power Station by 2033 and Loy Yang A Power Station by 2045. Previously, these coal-fired electricity producers were slated to shutdown by 2035 and 2048 respectively. In other words, this will eliminate a combined five years worth of electricity production and emissions.

The news has triggered concern from energy minister Taylor, as the closures would create a 5,000 megawatts gap in supply. This represents approximately 8% of Australia’s electricity generation.

Exit of such a considerable amount of reliable generation is a concern for the continued reliability and affordability of the system. Delivery of new, timely, replacement dispatchable capacity will be critical in keeping prices low and the lights on.

Angus Taylor, Minister for Industry, Energy, and Emissions Reduction

Assets aren’t getting any younger

Meanwhile, members of Greenpeace Australia Pacific have discredited AGL’s earlier closures as a “token effort”. In contrast, the environmental organisation has suggested the move doesn’t go far enough.

Dan Gocher of the shareholder advocacy organisation, Australasian Centre for Corporate Responsibility (ACCR) approaches the discussion from an economic viability angle. For instance, Gocher highlighted Bayswater and Loy Yang will be 48 years old and 61 years old respectively at their new destined closure dates.

AGL is facing increasing sustaining capital expenditure on its coal-fired power stations (up $17m to $162m), while it steadfastly refuses to invest in the transition, with growth and transformation capital expenditure declining (down $18m to $62m)

Dan Gocher, Director of Climate and Environment at ACCR

It comes with a caveat

Despite the green strides from ASX-listed AGL, it comes with a disclaimer. In the company’s earnings call, managing director and CEO Graeme Hunt noted a few conditions for these earlier closures to occur.

Citing numbers from the Australian Energy Market Operator (AEMO), a decarbonised future for Australia will come with a $70 to $90 billion price tag. As such, Hunt hints at a dependency for future coal closure dates.

We need the entire system to be ready to operate without our critical baseload generation.

Australia’s energy transition will not happen overnight – the market must continue to provide people with affordable energy while pursuing innovation and technology that will deliver decarbonisation.

Graeme Hunt, Managing Director and CEO AGL Energy

It looks like ASX-listed AGL will carrying out a balancing act for the foreseeable future. The AGL share price is down 35% in the last 12 months.

The post ‘Not enough’: Government challenges AGL (ASX:AGL) over planned closures appeared first on The Motley Fool Australia.

More reading

• AGL (ASX:AGL) takes a knife to dividends in its first-half earnings
• 5 things to watch on the ASX 200 on Thursday
• Both have had a bumper start to the year. But which is the better buy, AGL or Origin (ASX:ORG) shares?
• Could AGL (ASX:AGL) be gearing up for a major capital raise?
• Own AGL (ASX:AGL) shares? Here’s what to look for when the company reports next week

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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