Origin Energy’s big news about the earlier-than-forecast closure of its huge Eraring coal-fired power station in NSW’s Hunter Valley (see separate story) overshadowed the mixed bag of a half year result for the energy group on Thursday.
Because of weak energy and gas prices and demand (blame the effects of La Nina on the East Coast), the company’s financial performance was not all that inspiring.
The steady interim dividend of 12.5 cents a share is testimony to that and a hoped-for recovery in the current half and the rest of calendar 2022.
In fact Origin upgraded its forecast for full year underlying earnings a little in the report on Thursday.
Perhaps that’s why the company’s share price, which fell more than 6% in the morning had recovered by early afternoon to end up nearly 1% at $6.16.
And as explained below, there is a hidden gem in the origin financial report that will investors will need to keep an eye on as the company moves from a coal fired powered utility to gas dependent and renewable growth, plus a growing ‘virtual presence’ so far as its retailing is concerned.
But it was the news about Earing’s looming closure than dominated headlines.
It is Australia’s largest coal-burning power station and its viability has been undermined by the remorseless slide in the cost of energy from renewables and higher thermal coal costs for much of the past six months thanks to Europe’s gas crisis, China’s power crisis and rationing last October and then the latest upsurge in tensions (and prices) as Russia pressures Ukraine and Western Europe and the US.
Origin says it has given notice to authorities that it intends to shut down the 2,880-megawatt Eraring station and its four generating units on Lake Macquarie, north of Sydney after the required notice period of three and a half years, saying “rapidly changing” energy market conditions have hit the plant’s viability.
Originally scheduled to close in 2032, Eraring and its coal-fired power is now too expensive in the face of low-cost renewables — especially with the sharp rise in thermal coal prices which do not looking like returning to the lows of 2020 and early 2021.
The NSW Government revealed on Thursday that it will build a 700-megawatt battery in the lower Hunter to handle power needs. It will be built with involvement from the private sector (Origin?) and the government says it will be ready by 2025 when Eraring closes. At the same time government said it will announce later today (Friday) an assistance package for Eraring workers for when the closure happens.
That’s a sign there will be no going back on the decision – even if there is a small delay past mid 2025 and the issue goes all political in the forthcoming federal poll.
At some stage Origin is going to have to start talking about the costs associated with closing Eraring, its dismantling and clean up – a payment to the government looks like being on the cards for what sounds like a big outlay.
In its December financial report Origin reported a Statutory Loss of $131 million, which reflected the one-off impairment and net capital gains tax expense associated with the $2.1 billion sale of a 10% interest in Australia Pacific LNG in Queensland in late 2021.
“Once completed, the sale will allow Origin to both crystallise some of the value in that asset and strengthen the balance sheet, while retaining a significant shareholding,” Origin explained.
Underlying earnings before interest tax depreciation and amortisation (EBITDA) were lower at $1,099 million, as increased earnings from Australia Pacific LNG were offset by expected lower earnings in Energy Markets.
Underlying profit rose 18% to $268 million for the half.
The outlook for the full-year has improved on the strength of commodity prices, with guidance for Origin Underlying EBITDA higher at $1,950 – $2,250 million.
Origin CEO Frank Calabria said n Thursday’s release “Origin achieved a solid result in the first half given the continued economic disruptions from COVID-19 and challenging conditions in the electricity market driven by more subdued demand and lower tariffs.
“The performance of Australia Pacific LNG was outstanding, achieving record-high revenue off the back of a strong rebound in commodity prices. Australia Pacific LNG delivered a first half cash distribution of $555 million.
“Superior field performance and an ability to keep costs low, has put the business in a strong position to benefit from the buoyant commodities market. Australia Pacific LNG is expected to distribute more than $1.1 billion in cash to Origin for the full-year, net of oil hedging.
And buried in the report was a small update on what could be a hidden gem in Origin – its stake in the rapidly growing UK based energy retailer, Octopus, whose valuation has more than tripled to over 3 billion pounds or close to $A6 billion in less than a year.
That means Origin’s 20% stake has risen to more than $1.1 billion. It paid around $400 million for a stake last year.
“Octopus has now established a retail presence in seven of the world’s largest deregulated energy markets and has increased its UK energy customer numbers by 2.7 million in the past 15 months,” Origin said on Thursday.
Most of that growth came during a terrible power crisis that saw a slew of small to medium UK energy retailers collapse – Octopus took over millions of customers during the supply and price crisis in 2021.
