A dodgy coal-fired generator in Victoria has again bitten the finances of AGL Energy, the country’s biggest electricity generator, forcing it to cut its 2021-22 profit forecast with just two months to go in the financial year.
At the same time the second lot of problems at the huge brown coal fired power station in Victoria have added more doubt to the ability of AGL to split itself in two at a shareholder meeting in late June.
AGL said in a statement issued on Monday morning that it had been forced to cut its full-year profit target because of a breakdown of one of the generation units at its giant Loy Yang A coal-fired power plant in Victoria’s Latrobe Valley.
The company had warned of problems with the generator in a statement to the ASX in late April. Monday saw the costs emerge – $40 to 70 million at least off earnings and an enormous blow to the company’s credibility to separate itself into a standalone power generator, including Loy Yang and a second company based on growth assets like retail, distribution, gas and renewable power sources.
AGL had previously expected underlying earnings before interest tax depreciation and amortisation (EBITDA) profit for the year to June to be between $260 million and $340 million, but on Monday said it now forecast a range of $220 million to $270 million.
Underlying EBITDA for the June year is now forecast to be between $1.230 and $1.300 billion, down from the previous guidance range of between $1,275 and $1,400 million
Unit 2 at AGL’s Loy Yang A power plant was taken out of service in April because of an electrical fault with the generator.
The company noted the financial impact of the outage cannot be recovered through insurance. It does not expect the unit to be back online until August 1.
“However, engineering assessments are continuing, and AGL will inform the market of any material changes to this timeframe,” it said in Monday’s statement.
Loy Yang A, which runs on brown coal, is Victoria’s biggest power station, supplying about 30% of the state’s electricity.
It’s the second time that Unit 2 has broken down in the past three years following a seven-month outage in 2019 caused by a major electrical fault.
The latest breakdown is untimely for AGL, given wholesale electricity prices are on the rise. Wholesale futures prices in Victoria have surged to $176 per megawatt-hour, up from less than $60 earlier this year thanks to the sharp rise in global oil, gas and coal prices after the Russian invasion of Ukraine.
The news adds more uncertainty to AGL’s proposed demerger, under which it intends to split the company’s carbon-heavy power plants off from its retail arm and cleaner generation assets.
The board’s plan to break up the 180-year-old utilities giant into two entities – AGL Australia and Accel Energy – will be put to a shareholders vote on June 22.
In its statement on Monday, AGL said the estimated total financial impact of this outage is approximately $73 million pre-tax ($50 million after tax) “based on an expected return to service by 1 August 2022.”
“This includes the direct trading impacts to date and the estimated portfolio trading impacts through to 1 August 2022.”
“The financial impact split between FY22 and FY23 is expected to be approximately $60 million pre-tax ($41 million after tax) and approximately $13 million pre-tax ($9 million after tax) respectively. The financial impact of the Loy Yang A Unit 2 outage is not recoverable via insurance,” AGL said.
In May 2019 Loy Yang A’s unit 2 generator operates (with a rated 530-megawatt capacity went offline and remained offline for the rest of that year, returning back to service more than seven months later, after extensive repairs.
The company said that the 2019 outage cost it around $100 million in lost revenue (later recovered via insurance).
AGL shares eased by just on 0.7% to $8.62.
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Monday night saw market rumours that Sydney businessman, Michael Cannon-Brooks is trying to buy a blocking 11.5% stake in AGL.
His Canadian partner in the JV company, Grok, Brookfield, is said not to be involved in this attempt to snatch a stake in AGL
Grok bid $8.25 a share for AGL earlier this year but was rejected. That was after a first offer of $7.50 a share.
The Financial Review said it understood Connon-Brookes is seeking the stake via derivatives arranged by JPMorgan.
The stake would be worth about $650 million if secured, and could help Cannon-Brookes try to block AGL Energy’s proposed demerger at next week’s meeting.
“Grok Ventures and its affiliates are looking to acquire a combined physical and economic interest in up to 11.5% of AGL Energy Limited shares as part of a strategic derivative transaction,” JPMorgan’s equities desk told investor clients in a cleaning statement after market on Monday, the AFR reported.
“If we elect to proceed with the transaction, we will announce our interest in AGL before opening of trade tomorrow morning,” the AFR reported JPMorgan as saying.
