AGL - AGL Energy

[joeno]

AGL and ORG were capital killers long before "current problems" within the industry.
It's hard to envisage them doing anymore than reverting to type moving forward.

Excuse my ignorance but how was AGL a huge capital killer - what metric are you basing that on? It's expenditures look fine. Cashflow fine. Reasonable debt levels. Around 10% margin on capital and on revenue.

I'm not seeing the metric for AGL that screams distress.

Understand the whole industry is in the gutters at the moment. But as is usual, things that go down will come up again. Especially as AGL has a moat in the Australian market, and is not being threatened by other companies using newer technology.

 

[Smurf1976]

As a bit more information.....

AGL share price peaked in 2017 so I'll use that as the starting point.

For simplicity I'm using calendar years in order to get full years of data and as up to date as possible.

Following is for the entire National Electricity Market (NEM) taken as a whole. That is the main physical power system covering Queensland, NSW, ACT, Victoria, Tasmania and SA.

Note that Mt Isa and surrounds in Qld have a physically separate system not part of the NEM and various small outback towns also have their own diesel generators etc. All other major loads are part of it though - Broken Hill is on the main grid yes.

Total consumption from all sources and produced by all generation owners:

2017: 199,912 GWh at an average market price of $103.09 / MWh ($103,090.00 per GWh) = $20.6 billion

2018: 203,372 GWh at average $85.46 / MWh = $17.38 billion

2019: 204,474 GWh at an average $93.24 / MWh = $19.06 billion

2020: 202,146 GWh at an average $54.81 / MWh = $11.08 billion

So the physical consumption of electricity has dropped slightly, the causes being the La Nina weather phenomenon (a known, definite issue) and most likely some effects due to the pandemic also. Consumption fell in every NEM state except Tasmania which increased slightly.

So electricity generation as an industry has seen revenue fall in a heap, that's the crux of it.

Why?

There's a few factors:

Small solar system owners (households etc) don't respond to prices at all, they run when the sun shines. Output across the NEM by year as follows:

2017 = 6215 GWh
2018 = 8203 GWh
2019 = 10,654 GWh
2020 = 13,040 GWh

Large scale solar farms, once built, have basically zero difference in cost whether operated or not so whilst they're commercial businesses (and AGL does have some involvement here) they do tend to ignore price so long as it stays above zero. Here's their output:

2017 = 631 GWh
2018 = 1871 GWh
2019 = 4953 GWh
2020 = 6479 GWh

Wind farms do have ongoing maintenance costs, since it's a mechanical device, but no fuel cost and thus still a very low marginal cost to operate versus not operating. Their output as follows:

2017 = 11,273 GWh
2018 = 14,298 GWh
2019 = 16,833 GWh
2020 = 19,599 GWh

Now to consolidate those figures into something that gets us closer to the point:

2017 = 18,119 GWh from wind and solar (9.1% of total supply) leaving 181,793 GWh from other sources (coal, gas and hydro mostly).

2018 = 24,372 GWh from wind and solar (12.0% of total) and 179,000 GWh from other sources.

2019 = 32,440 GWh from wind and solar (15.9% of total) and 172,034 GWh from other sources.

2020 = 39,118 GWh from wind and solar (19.4% of total) and 163,028 GWh from other sources.

Meanwhile at the same time:

Energy Australia have overcome previous constraints on the supply of coal to Mt Piper power station. When coal supply was a problem they'd have been holding back supply, bidding higher prices since they simply couldn't run the plant too often. Now that's sorted, they can sensibly run at any price which exceeds the actual marginal cost of operating versus not operating. This facility is located in NSW and in practice is a partial direct competitor to AGL's operations in that state - with EA now active at lower prices than they'd have considered previously due to removal of that volume constraint on their operations.

The pandemic brought about a collapse in oil prices which remain relatively low (though rising) today. Whilst oil is a minor source of generation, well under 1%, a significant capacity does exist to use it with some in all states (including some owned by AGL). That threat, that oil-fired generation is now able to operate at a significantly lower price than previously, keeps a lid on the prices other generators (eg coal, gas, hydro) can bid into the market without losing market share.

Note there that pricing intervals are 30 minutes so when I say losing market share if they price too high that would happen pretty much immediately, we're not talking about some hypothetical scenario that takes a year to unfold here.

Gas prices also have come down very significantly from their highs a few years ago with a roughly 50% drop at the wholesale spot price level.

That's a bigger threat than oil since there's a lot of gas-fired generating capacity that, whilst normally run during demand peaks only, most certainly can operate constantly from a technical perspective indeed there's only two that can't (and one of those is due to regulation not an actual technical constraint). That someone can fire up a gas turbine, and have the plant at full load in less than half an hour from cold, at a price circa $60 per MWh, is a very definite gun pointed straight at the heads of coal and hydro operators as to what prices they can bid.

There's also an issue in that some other operators of coal-fired generation have pursued an aggressive volume strategy, running flat out even when prices have gone negative as they have at times. It's not illegal, the market rules do permit negative prices, but it's a strategy which has raised some eyebrows. Not only is this strategy taking volume from rivals, of itself it directly depresses prices.

Then there's the politics of it all and by that I mean politics as such (government) and anything else that could be described in that terms. Heavy industry in particular has been very vocal that the price levels seen during the 2017 - 2019 period are unacceptably high and will not be paid on an ongoing basis - they'll walk away and go offshore rather than pay that much.

Which brings me to another points - government has stepped into the retail (consumer) electricity market with mandated Default Market Offer for consumers in SA, NSW and south-east Queensland meanwhile the same has been done in Victoria by a different legislative means. That's effectively the entire customer base so far as AGL is concerned.

The DMO isn't a price cap but in practice it is - no consumer is likely to sign up to a market offer that's priced higher than the one they must be also offered as per the law. So not technically a price cap but it's a de facto one in practice.

Another issue is Feed-In Tariffs (FIT), that being the price paid to the owners of very small generation systems (in practice, rooftop solar) for what they feed into the network. In most states prices are set by the market but, and here's the problem, are in practice sitting above actual value of that energy versus buying from a large scale generator. Retailers do that to attract customers, it's a loss leader, but nonetheless unprofitable as such.

A bigger issue is Victoria where the law sets a minimum FIT of 10.2 cents per kWh ($102 per MWh) for this financial year. That compares with 2020-21 financial year to date spot market value of this generation of just $26.16 / MWh and of all Victorian supply of $47.16 (the difference being due to the reality that there's enough solar to be flooding the market on mild sunny days, often sending spot prices below zero around midday).

So overall it's a situation of:

Stagnant total volume, the weather and pandemic having turned small growth into small decline year on year.

Continued strong growth in output from price-insensitive generators (wind and solar) who'll mostly run regardless. That means diminishing volume for everyone else as a whole.

Whilst they normally operate only for peak demand and backup, a large drop in fuel costs for oil and gas-fired generation means they're now a far more aggressive competitor on price against other generation sources.

Some coal-fired generation operators have pursued volume aggressively, regardless of price.

Government and big business have both made it extremely clear that prices at the 2017 - 2019 level are unacceptable and shall not continue. That's a "political" aspect and puts pressure on AGL and other companies to reign in pricing or face the longer term consequences (eg regulation) if they don't.

Government has actually stepped in with retail pricing in NSW, SA, Vic and SE Qld and with FIT rates in Vic.

So all that's pretty much the perfect storm for AGL.

So will the situation persist?

In my opinion, no it won't.

*Oil price seems unsustainable at this level since a higher than current level of drilling activity (globally) is required in order to sustain even flat production rates. Higher oil prices raise the price at which oil-fired generation can compete profitably in the market.

*Gas price also seems unsustainably low at this level. Higher gas prices raise the price at which gas-fired generation can profitably operate noting that, other than in SA, AGL isn't a major operator of gas-fired generation but is instead focused on coal and renewables both of which gain from a reduction of the pricing threat posed by oil and gas-fired generation (except SA where AGL is the largest operator of gas-fired plant but suffice to say NSW and Vic are far larger markets for the company than SA).

*Closure of AGL's Liddell (NSW) power station progressively in 2022 and 2023 removes some supply from the market. AGL is also closing the remaining two (of originally four) generating units at Torrens Island A station (SA) in 2021 and 2022 whilst Origin has announced closure of Osborne (SA) at the end of calendar year 2023. That takes some supply out.

*Other operators of coal-fired generation presumably won't pursue volume regardless of price indefinitely. At some point they run out of money or a political storm erupts over it and they back off.

*La Nina weather phenomenon is a cyclic occurrence and won't persist indefinitely.

*Pandemic presumably won't persist indefinitely.

*There's growing momentum in society to transfer energy load at the point of use to electricity. That is particularly the case for cars and for every EV sold, that's a change from petrol / diesel (which companies like AGL don't sell) to electricity which either AGL or a direct competitor will be selling - even if a competitor sells it AGL may still gain generation volume or at least higher generation price (supply and demand economics there).

*The various battery storage projects proposed by several companies (including AGL) will provide a buy low / sell high trading opportunity and tend to eliminate short duration periods of very low, even negative, spot pricing currently being experienced.

*The bulk storage hydro projects being built by Snowy Hydro (Australian Government owned) and proposed by Hydro Tasmania (Tasmanian state government owned) will even out pricing over longer periods. Whilst to some extent they're a competitor, in the main they work with batteries, wind and solar owned by others (including AGL) not against them. So long as AGL and others approach it the right way, government-owned companies storing electricity generated by others (including that generated by AGL) is a change in business but not something that puts them out of business.

*AGL has a major (in both company terms and overall whole of industry terms) proposal for an LNG import terminal located in Victoria. If it goes ahead then that's a significant business change and growth opportunity for AGL. I'll caution however that the proposal is controversial so approval isn't a given.

I'll add to that an observation that AGL is physically hoarding energy resources at present. The company's gas (LNG) storage in NSW is presently 64% full and currently being filled at maximum filling rate - if that continues then it's about 50 days away from being 100% full.

For AGL's hydro storages, Rocky Valley Dam (headwater storage for the Mackay, Bogong, Clover and West Kiewa stations in Victoria) is close to full at present.

AGL has less direct control over storages other than Rocky Valley, due to a requirement to release some water for irrigation use (a requirement that stands by law whether or not it suits AGL to do so) but storage is nonetheless building up at Dartmouth (62% full) and Lake Eildon (64%).

Others are doing much the same too. It's no secret in the industry that Hydro Tasmania has been enthusiastically buying from the market, thus holding back its own hydro-electric generation for future use, over the past 6 months or so. A classic "buy low, sell high" strategy albeit one involving physical delivery.

Others are also storing physical energy commodities. Not all, some companies aren't, but certainly some are - the Iona gas storage (non-AGL owned) has been filled to 90% now and there's more gas being put into it daily.

So there's quite a few who are betting on higher prices ahead by means of storing resources while they're cheap. Either buying fuel and storing it, or holding back that which falls naturally from the sky but either way it's a case of physical hoarding of the raw materials for power generation.

 

[Smurf1976]

Comparing AGL with Origin Energy:

Similarities:

Both own coal-fired generation in NSW using coal purchased from unrelated mining companies.

Both generate small volumes from gas in Victoria (though Origin is the larger of the two).

They are the two largest operators of gas-fired generation in SA.

Both have gas and electricity retail businesses covering SE Qld, NSW, Vic, SA and some less significant operations elsewhere.

Both have wind and solar generation under contract from others.

Differences:

AGL owns a coal mine and coal power station in Victoria which supplies all of AGL's coal in that state and also supplies coal to another electricity company.

AGL owns a gas storage facility in NSW.

AGL generates more electricity than it sells via its retail operations whereas Origin sells more than it generates.

Origin is heavily involved in oil and gas production and LNG liquefaction for export (from Queensland) which AGL has no significant presence in (very minor activities only).

AGL has a proposed LNG import terminal in Victoria.

Origin physically distributes bulk and retail LPG nationally including in areas where the company has no other operations. Origin's association with LPG is absolute in many regional areas. LPG = Origin and Origin = LPG in the minds of many.

Origin's hydro operations are confined to a single pumped storage scheme in NSW. AGL's hydro operations are based on natural inflows, not pumping, and located in Victoria.

Historic = AGL is one of the oldest companies operating in Australia, being historically a monopoly gas supplier to much of Sydney dating back to 1837 and a quasi-governmental albeit shareholder entity for much of that time until its more recent transformation.

Origin was split off from Boral after Boral had purchased over many years an assortment of previously unrelated gas companies - networks, retail and gas production. The oldest predecessor company being the Launceston Gas Company formed in 1857 and acquired by Boral during the early 1980's although that wasn't Boral's first venture into the gas industry, just the oldest company they bought out.

Comment - Note that I've deliberately avoided direct mention of company share prices here. That's intentional on my part - I'll leave others to form that view, I'm just sticking to the fundamental stuff and the actual business.

Ultimately though - grid electricity is here to stay and as society seeks to transition away from fossil fuels, demand for electricity, regardless of how it's produced or by whom, is ultimately going to go up not down over the longer term. Renewable sources produce electricity, they don't produce petrol, and electricity's what we're going to be using.

Any move to bring back production of goods to Australia, and there seems to be at least some push in that direction, will likewise use at least some amount of electricity that otherwise wouldn't have been used.

The challenge for companies like AGL is positioning themselves correctly to benefit from all that but the business itself isn't dead, it's not like video rentals or anything like that.

 

[Value Collector]

As a bit more information.....

AGL share price peaked in 2017 so I'll use that as the starting point.

For simplicity I'm using calendar years in order to get full years of data and as up to date as possible.

Following is for the entire National Electricity Market (NEM) taken as a whole. That is the main physical power system covering Queensland, NSW, ACT, Victoria, Tasmania and SA.

Note that Mt Isa and surrounds in Qld have a physically separate system not part of the NEM and various small outback towns also have their own diesel generators etc. All other major loads are part of it though - Broken Hill is on the main grid yes.

Total consumption from all sources and produced by all generation owners:

2017: 199,912 GWh at an average market price of $103.09 / MWh ($103,090.00 per GWh) = $20.6 billion

2018: 203,372 GWh at average $85.46 / MWh = $17.38 billion

2019: 204,474 GWh at an average $93.24 / MWh = $19.06 billion

2020: 202,146 GWh at an average $54.81 / MWh = $11.08 billion

So the physical consumption of electricity has dropped slightly, the causes being the La Nina weather phenomenon (a known, definite issue) and most likely some effects due to the pandemic also. Consumption fell in every NEM state except Tasmania which increased slightly.

So electricity generation as an industry has seen revenue fall in a heap, that's the crux of it.

Why?

There's a few factors:

Small solar system owners (households etc) don't respond to prices at all, they run when the sun shines. Output across the NEM by year as follows:

2017 = 6215 GWh
2018 = 8203 GWh
2019 = 10,654 GWh
2020 = 13,040 GWh

Large scale solar farms, once built, have basically zero difference in cost whether operated or not so whilst they're commercial businesses (and AGL does have some involvement here) they do tend to ignore price so long as it stays above zero. Here's their output:

2017 = 631 GWh
2018 = 1871 GWh
2019 = 4953 GWh
2020 = 6479 GWh

Wind farms do have ongoing maintenance costs, since it's a mechanical device, but no fuel cost and thus still a very low marginal cost to operate versus not operating. Their output as follows:

2017 = 11,273 GWh
2018 = 14,298 GWh
2019 = 16,833 GWh
2020 = 19,599 GWh

Now to consolidate those figures into something that gets us closer to the point:

2017 = 18,119 GWh from wind and solar (9.1% of total supply) leaving 181,793 GWh from other sources (coal, gas and hydro mostly).

2018 = 24,372 GWh from wind and solar (12.0% of total) and 179,000 GWh from other sources.

2019 = 32,440 GWh from wind and solar (15.9% of total) and 172,034 GWh from other sources.

2020 = 39,118 GWh from wind and solar (19.4% of total) and 163,028 GWh from other sources.

Meanwhile at the same time:

Energy Australia have overcome previous constraints on the supply of coal to Mt Piper power station. When coal supply was a problem they'd have been holding back supply, bidding higher prices since they simply couldn't run the plant too often. Now that's sorted, they can sensibly run at any price which exceeds the actual marginal cost of operating versus not operating. This facility is located in NSW and in practice is a partial direct competitor to AGL's operations in that state - with EA now active at lower prices than they'd have considered previously due to removal of that volume constraint on their operations.

The pandemic brought about a collapse in oil prices which remain relatively low (though rising) today. Whilst oil is a minor source of generation, well under 1%, a significant capacity does exist to use it with some in all states (including some owned by AGL). That threat, that oil-fired generation is now able to operate at a significantly lower price than previously, keeps a lid on the prices other generators (eg coal, gas, hydro) can bid into the market without losing market share.

Note there that pricing intervals are 30 minutes so when I say losing market share if they price too high that would happen pretty much immediately, we're not talking about some hypothetical scenario that takes a year to unfold here.

Gas prices also have come down very significantly from their highs a few years ago with a roughly 50% drop at the wholesale spot price level.

That's a bigger threat than oil since there's a lot of gas-fired generating capacity that, whilst normally run during demand peaks only, most certainly can operate constantly from a technical perspective indeed there's only two that can't (and one of those is due to regulation not an actual technical constraint). That someone can fire up a gas turbine, and have the plant at full load in less than half an hour from cold, at a price circa $60 per MWh, is a very definite gun pointed straight at the heads of coal and hydro operators as to what prices they can bid.

There's also an issue in that some other operators of coal-fired generation have pursued an aggressive volume strategy, running flat out even when prices have gone negative as they have at times. It's not illegal, the market rules do permit negative prices, but it's a strategy which has raised some eyebrows. Not only is this strategy taking volume from rivals, of itself it directly depresses prices.

Then there's the politics of it all and by that I mean politics as such (government) and anything else that could be described in that terms. Heavy industry in particular has been very vocal that the price levels seen during the 2017 - 2019 period are unacceptably high and will not be paid on an ongoing basis - they'll walk away and go offshore rather than pay that much.

Which brings me to another points - government has stepped into the retail (consumer) electricity market with mandated Default Market Offer for consumers in SA, NSW and south-east Queensland meanwhile the same has been done in Victoria by a different legislative means. That's effectively the entire customer base so far as AGL is concerned.

The DMO isn't a price cap but in practice it is - no consumer is likely to sign up to a market offer that's priced higher than the one they must be also offered as per the law. So not technically a price cap but it's a de facto one in practice.

Another issue is Feed-In Tariffs (FIT), that being the price paid to the owners of very small generation systems (in practice, rooftop solar) for what they feed into the network. In most states prices are set by the market but, and here's the problem, are in practice sitting above actual value of that energy versus buying from a large scale generator. Retailers do that to attract customers, it's a loss leader, but nonetheless unprofitable as such.

A bigger issue is Victoria where the law sets a minimum FIT of 10.2 cents per kWh ($102 per MWh) for this financial year. That compares with 2020-21 financial year to date spot market value of this generation of just $26.16 / MWh and of all Victorian supply of $47.16 (the difference being due to the reality that there's enough solar to be flooding the market on mild sunny days, often sending spot prices below zero around midday).

So overall it's a situation of:

Stagnant total volume, the weather and pandemic having turned small growth into small decline year on year.

Continued strong growth in output from price-insensitive generators (wind and solar) who'll mostly run regardless. That means diminishing volume for everyone else as a whole.

Whilst they normally operate only for peak demand and backup, a large drop in fuel costs for oil and gas-fired generation means they're now a far more aggressive competitor on price against other generation sources.

Some coal-fired generation operators have pursued volume aggressively, regardless of price.

Government and big business have both made it extremely clear that prices at the 2017 - 2019 level are unacceptable and shall not continue. That's a "political" aspect and puts pressure on AGL and other companies to reign in pricing or face the longer term consequences (eg regulation) if they don't.

Government has actually stepped in with retail pricing in NSW, SA, Vic and SE Qld and with FIT rates in Vic.

So all that's pretty much the perfect storm for AGL.

So will the situation persist?

In my opinion, no it won't.

*Oil price seems unsustainable at this level since a higher than current level of drilling activity (globally) is required in order to sustain even flat production rates. Higher oil prices raise the price at which oil-fired generation can compete profitably in the market.

*Gas price also seems unsustainably low at this level. Higher gas prices raise the price at which gas-fired generation can profitably operate noting that, other than in SA, AGL isn't a major operator of gas-fired generation but is instead focused on coal and renewables both of which gain from a reduction of the pricing threat posed by oil and gas-fired generation (except SA where AGL is the largest operator of gas-fired plant but suffice to say NSW and Vic are far larger markets for the company than SA).

*Closure of AGL's Liddell (NSW) power station progressively in 2022 and 2023 removes some supply from the market. AGL is also closing the remaining two (of originally four) generating units at Torrens Island A station (SA) in 2021 and 2022 whilst Origin has announced closure of Osborne (SA) at the end of calendar year 2023. That takes some supply out.

*Other operators of coal-fired generation presumably won't pursue volume regardless of price indefinitely. At some point they run out of money or a political storm erupts over it and they back off.

*La Nina weather phenomenon is a cyclic occurrence and won't persist indefinitely.

*Pandemic presumably won't persist indefinitely.

*There's growing momentum in society to transfer energy load at the point of use to electricity. That is particularly the case for cars and for every EV sold, that's a change from petrol / diesel (which companies like AGL don't sell) to electricity which either AGL or a direct competitor will be selling - even if a competitor sells it AGL may still gain generation volume or at least higher generation price (supply and demand economics there).

*The various battery storage projects proposed by several companies (including AGL) will provide a buy low / sell high trading opportunity and tend to eliminate short duration periods of very low, even negative, spot pricing currently being experienced.

*The bulk storage hydro projects being built by Snowy Hydro (Australian Government owned) and proposed by Hydro Tasmania (Tasmanian state government owned) will even out pricing over longer periods. Whilst to some extent they're a competitor, in the main they work with batteries, wind and solar owned by others (including AGL) not against them. So long as AGL and others approach it the right way, government-owned companies storing electricity generated by others (including that generated by AGL) is a change in business but not something that puts them out of business.

*AGL has a major (in both company terms and overall whole of industry terms) proposal for an LNG import terminal located in Victoria. If it goes ahead then that's a significant business change and growth opportunity for AGL. I'll caution however that the proposal is controversial so approval isn't a given.

I'll add to that an observation that AGL is physically hoarding energy resources at present. The company's gas (LNG) storage in NSW is presently 64% full and currently being filled at maximum filling rate - if that continues then it's about 50 days away from being 100% full.

For AGL's hydro storages, Rocky Valley Dam (headwater storage for the Mackay, Bogong, Clover and West Kiewa stations in Victoria) is close to full at present.

AGL has less direct control over storages other than Rocky Valley, due to a requirement to release some water for irrigation use (a requirement that stands by law whether or not it suits AGL to do so) but storage is nonetheless building up at Dartmouth (62% full) and Lake Eildon (64%).

Others are doing much the same too. It's no secret in the industry that Hydro Tasmania has been enthusiastically buying from the market, thus holding back its own hydro-electric generation for future use, over the past 6 months or so. A classic "buy low, sell high" strategy albeit one involving physical delivery.

Others are also storing physical energy commodities. Not all, some companies aren't, but certainly some are - the Iona gas storage (non-AGL owned) has been filled to 90% now and there's more gas being put into it daily.

So there's quite a few who are betting on higher prices ahead by means of storing resources while they're cheap. Either buying fuel and storing it, or holding back that which falls naturally from the sky but either way it's a case of physical hoarding of the raw materials for power generation.

Hi smurf,

When it comes to small scale solar, do your figures include the electricity that is used within the households where they are produced, or is that figure just what is exported to the grid.

Also, when it comes to feed in tariffs, is it possible that it makes sense for retailers to pay a bit more than market price for the electricity because it is being produced nearby where it is being consumed, so there may be less transmission losses and less transmission costs than if they purchased the power from a generator much further away.

what I mean by that is when my solar I feed in enters the grid, it would often be consumed by the houses and businesses nearby, in fact some of it is actually consumed by my own hot water system which is on the off peak circuit producing a 2 cent profit for agl on my production that didn’t even leave my building.

 

[Clansman]

Excuse my ignorance but how was AGL a huge capital killer - what metric are you basing that on? It's expenditures look fine. Cashflow fine. Reasonable debt levels. Around 10% margin on capital and on revenue.

I'm not seeing the metric for AGL that screams distress.

Understand the whole industry is in the gutters at the moment. But as is usual, things that go down will come up again. Especially as AGL has a moat in the Australian market, and is not being threatened by other companies using newer technology.

You obviously don't understand investing. A capital killer is a company that takes your capital and kills it.
Regarding a moat in the Australian market, a company with a moat doesn't go from nearly $27 to $11 in 4 years.

 

[Clansman]

Excuse my ignorance but how was AGL a huge capital killer - what metric are you basing that on? It's expenditures look fine. Cashflow fine. Reasonable debt levels. Around 10% margin on capital and on revenue.

I'm not seeing the metric for AGL that screams distress.

Understand the whole industry is in the gutters at the moment. But as is usual, things that go down will come up again. Especially as AGL has a moat in the Australian market, and is not being threatened by other companies using newer technology.

BTW it wasn't me that used the term huge, but you are right, it is a huge capital killer.

 

[joeno]

You obviously don't understand investing. A capital killer is a company that takes your capital and kills it.
Regarding a moat in the Australian market, a company with a moat doesn't go from nearly $27 to $11 in 4 years.

Oh so AGL's reported huge losses. I didn't know that.

Oh so declining value of share price means there's no moat. I didn't know that.

Thanks for the lesson in investing

 

[Clansman]

Oh so AGL's reported huge losses. I didn't know that.

Oh so declining value of share price means there's no moat. I didn't know that.

Thanks for the lesson in investing

Let me know when you're ready for lesson number 2.

 

[Clansman]

Oh so AGL's reported huge losses. I didn't know that.

Oh so declining value of share price means there's no moat. I didn't know that.

Thanks for the lesson in investing

We get that you want people to buy it so you can get your money back but the investment world doesn't work like that.
You could always change tack and try and talk people into buying it for +8% dividend yield but even that is a bit questionable and sadly its' unfranked until 2023. It still might be a hard ask considering anybody who purchased at any time in the past 12 years would be down on their investment.
The -42% 12 month return on the SP might be hard to get over the line though. Failing that you could always tell them it has a moat but say it louder.

 

[Smurf1976]

When it comes to small scale solar, do your figures include the electricity that is used within the households where they are produced, or is that figure just what is exported to the grid.

The figures are based on sample data from real systems and scaled up to the total installed base of systems. What's being measured is system output regardless of whether it's used in the house or exported to the grid.

Total installed capacity is known with a reasonable degree of accuracy since every state mandated that such data be collected right from the start and it's easy to identify non-working systems - just flag all the properties with zero exports to the grid over the past 12 months (some retailers are now sending out notices to such properties to advise the owner that their system is faulty, others ignore it).

So it's not a direct measurement but it's considered to be accurate enough in practice. It's done that way since there's no direct measurement installed in the majority of cases.

Sites such as the OpenNEM and NEM Watch do have that data publicly available in real time - "Small Solar" is the term used to refer to it with "Large Solar" meaning commercially operated solar farms.

Also, when it comes to feed in tariffs, is it possible that it makes sense for retailers to pay a bit more than market price for the electricity because it is being produced nearby where it is being consumed, so there may be less transmission losses and less transmission costs than if they purchased the power from a generator much further away.

A bit more yes but not to the extent they're actually paying.

How much is lost between a large power station and consumers is very much an "it depends" situation. It'll differ for each customer, eg city versus middle of nowhere with the latter being higher, and will also change with system load and even temperature (that comes down to physics....).

As a generic answer though, for small (residential) users the average is in the order of 10% loss from power station to your home but that will vary. Generally lower in densely populated urban areas, can go seriously high in % terms if you really are at the end of the line in the middle of nowhere.

That the retailers are paying far more than 10% above the "real" value of that electricity is basically just marketing (except in Victoria where government mandates it and all retailers have the same situation).

It's no different to Coles selling a few products in the shop at a loss so as to bring customers in most of whom will then buy a lot of other things at full price. In the case of the electricity retailers, they're still getting the daily supply charge and they're still in most cases selling some electricity to the consumer - and if you look closely then the price charged on any "high FIT" plan will almost always involve the price for electricity supplied from the grid also being jacked up.

It's the kind of thing that leaves engineers and others on the technical side of the industry slightly perplexed but those on the marketing side say "leave this part to us" and they seem to be right. Even though the customer would pay the exact same bill with a lower FIT and a lower price for electricity supplied by the company from the grid, the approach that tends to occur to engineers and so on as being logical, the marketing people are correct that the high FIT seems to work pretty well to get customers signed up. A nice big number there gets customers to sign up with whoever's offering it rather than signing up with someone else which from a business perspective is the aim.

It's also good public relations for the company - "look see, we're supporting solar and paying big $". In the context of the politics surrounding the industry there's a value in that aspect of it that's hard to quantify but it's definitely there. Senior management will tend to see it as a wise move for that reason - the actual $ cost isn't huge in overall terms and there's that intangible but definitely real aspect to it.

 

[Smurf1976]

In an effort to explain the volatility of the wholesale electricity market into which AGL is a net supplier, here's a price and volume chart for Victoria:

Source = Australian Energy Market Operator.

Green is volume with scale on the right, purple is price with scale on the left.

Note that volume includes all large scale supply sources only. That is, it does not include rooftop solar but does include solar farms and wind farms, coal, gas, hydro etc. It's volume as seen by the industry, ignoring that generated by consumers.

Price is currently negative yes.

Note the vertical line which separates past from forecast.

Much the same does occur in all states but Victoria's a very good example of how low prices can go - a combination of strong wind generation, being a weekend (demand's always lower on a weekend) and that the temperature's mild (basically no heating or cooling use) is the "perfect storm" hence the negative prices. Same can and does occur elsewhere from time to time, Victoria's just a good example right now.

Short term, AGL won't be much exposed to that immediately due to contract arrangements but ultimately contracts for anything are influenced by spot prices over the longer term. Nobody's going to contract something at a price radically different to spot, there's some linkage.

That it is so volatile does of course bring benefits to the likes of AGL. Small, independent owners of wind farms, solar farms and on would much prefer to contract a fixed price with AGL, Origin etc than to be directly in the market themselves. The key for AGL etc there is negotiating a price that does indeed end up reflecting future market value - as per their recent announcement that hasn't worked out too well with some of the past deals.

 

[sptrawler]

Much the same does occur in all states but Victoria's a very good example of how low prices can go - a combination of strong wind generation, being a weekend (demand's always lower on a weekend) and that the temperature's mild (basically no heating or cooling use) is the "perfect storm" hence the negative prices. Same can and does occur elsewhere from time to time, Victoria's just a good example right now.

Digressing slightly, but that is the perfect time for mega capacity pumped storage, which most private companies don't have the ability to install due to cost and available land. Therefore the taxpayer will have to fund it.
Which goes back to the other thread " The future of energy generation and storage thread", where we have discussed this.
The 'grid' is a hugely complex and interconnected system, that is going through it's biggest change since its inception, the problems are huge the consequences of stuffing up are huge and it is something that can't be rushed.
Unfortunately I don't think many understand the ramifications.

AGL, Origin and all the others IMO are going to have to accept that their will be a lot of pain, before there is a lot of gain, there are a lot of fringe dwellers in the BEV sector wanting taxpayer incentives as well.
The problem is the tax payer can only afford to be taxed so much, they can't subsidies everyone, because in the end it just means more job losses due to higher wages.
Just my opinion.

 

[qldfrog]

A lot of good information, pressure on the market etc but just want to bring everything back to:
At current price, is it a buy.?

Just remember that Philip Morris post gfc went from $37 to $120 8 years later, while paying dividends..
cigarette making businesses, fewer and fewer smokers, lawsuits, vape competing tech etc etc
I find this very similar to dirty emitting power stations and relevant to agl,adding economic cycle in the mix

But overall it ends up to: what is the current price. Invest or not
Yes EV are future but tesla sp is lunacy.can it tripple from now and stay there in 10y.no way.a black tulip episode.
agl is the opposite in my view. similarly except for their pension fund liability, i would prefer investing in GM or Ford than Tesla, even to make EV...at the current SP

I nevertheless respect the narrative power as in zoom tesla etc i own BTC but that is another part of my portfolio.
IN a more generic way,in boom bubble peak, isn't it the oerfect time to invest in the black ducks.

Agl is just BTW one among many in this situation,ORG,WHC maybe,GM, meat producers,big pharma etc etc a narrative contrarian approach

 

[Dark1975]

AGL - 7.22 p/e ,Dividends - 8.15 (80 % franked)
With well over 4 million customers, Strong R.O.I !
Whats' s not to like here ?

 

[Austwide]

As it stands the fall from $16.50 to $11.50 over the last 6 months.

If the hammer on the 4th feb signals the start of a reversal and gets confirmed, then the SMSF would be in.

 

[Clansman]

AGL - 7.22 p/e ,Dividends - 8.15 (80 % franked)
With well over 4 million customers, Strong R.O.I !
Whats' s not to like here .

AGL has fallen through a long term support level at $13. Investors aren't convinced at all. A company with a narrow moat that is getting narrower. The increasing probability of requiring restructuring in order to survive .
What's not to like here? Plenty

 

[joeno]

AGL, Origin and all the others IMO are going to have to accept that their will be a lot of pain, before there is a lot of gain, there are a lot of fringe dwellers in the BEV sector wanting taxpayer incentives as well.

Buy cheap when there's pain. Reap rewards when there's gain.

Usually it works better than waiting until stocks have recovered from any short term hiccups and realised a higher growth forecast.

 

[Dark1975]

My response would be the same @ 2.25 sec on this clip, explained by a better man ?

 

[qldfrog]

The figures are based on sample data from real systems and scaled up to the total installed base of systems. What's being measured is system output regardless of whether it's used in the house or exported to the grid.

Total installed capacity is known with a reasonable degree of accuracy since every state mandated that such data be collected right from the start and it's easy to identify non-working systems - just flag all the properties with zero exports to the grid over the past 12 months (some retailers are now sending out notices to such properties to advise the owner that their system is faulty, others ignore it).

So it's not a direct measurement but it's considered to be accurate enough in practice. It's done that way since there's no direct measurement installed in the majority of cases.

Sites such as the OpenNEM and NEM Watch do have that data publicly available in real time - "Small Solar" is the term used to refer to it with "Large Solar" meaning commercially operated solar farms.

A bit more yes but not to the extent they're actually paying.

How much is lost between a large power station and consumers is very much an "it depends" situation. It'll differ for each customer, eg city versus middle of nowhere with the latter being higher, and will also change with system load and even temperature (that comes down to physics....).

As a generic answer though, for small (residential) users the average is in the order of 10% loss from power station to your home but that will vary. Generally lower in densely populated urban areas, can go seriously high in % terms if you really are at the end of the line in the middle of nowhere.

That the retailers are paying far more than 10% above the "real" value of that electricity is basically just marketing (except in Victoria where government mandates it and all retailers have the same situation).

It's no different to Coles selling a few products in the shop at a loss so as to bring customers in most of whom will then buy a lot of other things at full price. In the case of the electricity retailers, they're still getting the daily supply charge and they're still in most cases selling some electricity to the consumer - and if you look closely then the price charged on any "high FIT" plan will almost always involve the price for electricity supplied from the grid also being jacked up.

It's the kind of thing that leaves engineers and others on the technical side of the industry slightly perplexed but those on the marketing side say "leave this part to us" and they seem to be right. Even though the customer would pay the exact same bill with a lower FIT and a lower price for electricity supplied by the company from the grid, the approach that tends to occur to engineers and so on as being logical, the marketing people are correct that the high FIT seems to work pretty well to get customers signed up. A nice big number there gets customers to sign up with whoever's offering it rather than signing up with someone else which from a business perspective is the aim.

It's also good public relations for the company - "look see, we're supporting solar and paying big $". In the context of the politics surrounding the industry there's a value in that aspect of it that's hard to quantify but it's definitely there. Senior management will tend to see it as a wise move for that reason - the actual $ cost isn't huge in overall terms and there's that intangible but definitely real aspect to it.

Sorry mr @Smurf1976 , this was stuck and not posted You miss one point in the equation i think: a fixed sunshine or rain FIT daily fee.never talked much about,
which ensure that exporting roughly 3x what i consume from the grid, i still pay $100 or so dollars a quarter.
Pure profit for the retailers.

 

[qldfrog]

My response would be the same @ 2.25 sec on this clip, explained by a better man ?

Mr @Dark1975 , i am afraid i just see the screen shot with no link to the interview.
what is the YouTube link if you could?