Price surge jolts Australia’s AGL to record high

Cranes can be seen on a construction site at the inner-city suburb of Barangaroo, with the Sydney Opera House located on Sydney Harbour. — Reuters photo

MELBOURNE: AGL Energy, Australia’s biggest power producer, said annual profit jumped nearly a third to a billion-dollar record amid soaring prices that have brought growing political heat on the firm and its peers to slash household electricity bills.

But AGL shares slumped 5 per cent on Thursday as it warned it expects almost no profit growth this year, with wholesale prices dropping and a retail war persisting.

The record result came a day ahead of a key meeting of state energy ministers to consider a long-awaited policy designed to boost power supply and lower prices while cutting carbon emissions, ending a decade of dispute between green energy proponents and those focused on costs and security of supply.

“Policy certainty is key to encouraging further investment in generation supply, which will place downward pressure on electricity prices and ultimately benefit customers,” AGL chief executive Andy Vesey told analysts. AGL backs the new policy, dubbed the ‘National Energy Guarantee’.

The company reported an underlying profit of A$1.02 billion (US$758 million) for the year ended June, above analysts’ forecasts.

But its outlook for a profit between A$970 million and A$1.07 billion for fiscal 2019, was weaker than expected, sending its shares lower in a broader market that was trading higher.

“It does show there are pressures in the business eating away at it, that’s why guidance was a bit tepid versus expectations. But it’s still a good profit,” said Jason Teh, Chief Investment Officer at Vertium Asset Management, which does not own AGL shares citing the challenges the company faces.

AGL said high wholesale power prices over the past year were largely due to the shutdown of two coal-fired power stations over the previous two years, but said prices had peaked.

At the same time, it warned that an ongoing war for household and business customers, where its biggest rivals are Origin Energy and Energy Australia, will eat into its profit margin.

“We believe the level of competitive intensity we see in the market now will continue,” Vesey said. — Reuters

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