Origin Energy is the latest big electricity and gas group to feel the pain from falling prices and the rising efficiency of renewable energy types like solar and wind.
The falling price of electricity has already forced AGL to split itself into two companies – one holding the old legacy power generating assets based on fossil fuels and the other the better-placed distribution and renewables side of the company.
AGL already revealed write down of $2.7 billion in its December half year accounts and is expected to add to that total in the wake of the decision to split the in two and reveal the figures when it reports its 2020-21 results on August 12.
Origin Energy on Friday revealed a total of $2.2 billion in write downs ahead of the release of its 2020-21 results in late August.
That news saw Origin shares fall nearly 8% on Friday and more than 9% for the week.
And Origin made sure its shares will remain under pressure this week after giving a hedged outlook for 2021-22 and a hopeful one for 2023.
Origin slashed $1.578 billion from the value of its business as renewables drives down wholesale electricity prices and undermines the viability and profitability of the Eraring coal-fired power station in the Hunter Valley.
Origin plans to run Eraring at a lower capacity because of the weakening electricity market. In the past origin has said it expected to run the station at a reduced capacity to respond as quickly as possible what is a volatile and fast-changing market.
Origin said the write-down reflects a significant reduction in wholesale electricity prices. It also takes into account a contraction in near-term gas earnings as a result of higher procurement costs and subdued business customer demand.
Origin added a further $669 million one-off write down for a deferred tax liability at its Asia Pacific LNG joint venture in Queensland. That write down reflects the expectation of increased distributable free cash flow and future unfranked distributions from Australia Pacific LNG.
These write downs are non-cash and will not impact earnings but judging by the tone of the outlook, the company faces further pressures in the next year, but remains confident of a rebound a little further down the track.
Origin on Friday said its previously issued earnings guidance for 2021 remained unchanged.
“As previously outlined, the Energy Markets business faces significant headwinds in FY22, though fortunately this is expected to be largely offset by higher earnings from integrated gas, demonstrating the benefits of Origin’s diversified business,” Origin CEO Frank Calabria said in the statement to the ASX on Friday.
“FY22 presents challenges for the energy markets business, and we are responding by targeting significant capital and operating cost savings, including from the introduction of the Kraken platform and new low cost and more efficient retail operating model, with customer migrations to the new platform continuing to progress very well.
FY23 energy markets underlying earnings are expected to rebound by an estimated $150 million to $250 million to between $600 million and $850 million, assuming current forward commodity prices continue and flow through to tariffs.
“The outlook for the business improves from next year, with Origin expecting to see a material rebound in energy markets earnings, based on the commodity price outlook and supported by disciplined cost management,” Mr Calabria said.
It isn’t the first time Origin has revealed a big write down – it revealed a total of $2.2 billion in charges in 2017 with much of that related to the value of its LNG business in Queensland.
Some analysts reckon that the lNG business is the only part of Origin that is doing well at the moment with the recovery in demand and prices in the past 9 months or so.
