AGL - AGL Energy

[Clansman]

That the company was absorbed by another company doesn't change the fact that it's still physically in operation and still doing business.

Same with anything. Competitors only benefit from the demise of a competitor if they actually cease operating. Simply getting a new owner but carrying on business means effectively nothing no matter what the industry.

It's not an ASX listed company anymore nor is it listed elsewhere. This is ASX forums. ASX stocks are discussed. It isn't one. Not anymore.
The other topic seems to be you having a battle with your own conscience about something irrelevant. I on the other hand am not.
I don't need to assess whether AGL is benefitting from another operators demise. It wouldn't in any case. Poor management will do that to a company. In any case you clearly are putting your foot in it. Iberdrola, which took out Infigen is a larger company than AGL. That isn't a positive in case you don't know that either.

 

[qldfrog]

Infigen are gone, They were taken over after years of underperformance and being riddled with debt. They are out of business. Accept you didn't know about it and deal with it. Nice attempt at the post mistake edit though... but you got caught out.
If you think you know better, go and try buying some Infigen shares on the local bourse. LOL

so how much have you in short so that it is critical for you to shot AGL at every opportunity?If you believe AGL is so bad why do you even care?
Look I can do the same:
Today AGL +0.1; ASX200: -0.4%
amazing outperformance on the last session: a picture of the time to come...

 

[qldfrog]

apologies I used +0.9% initially which was for the week, not day but same same

 

[Clansman]

I see these muppets have placed themselves as a vanity runner in the field for a tilt at Tilt Renewables.
The ladies will put their best dress on and have a nice day out, but ultimately like all vanity runners, it will run down the track.

 

[sptrawler]

AGL to separate into two companies.

‘New path’: AGL splits power plants, retail as green shift accelerates

AGL will split off its emissions-intensive coal- and gas-fired power plants from its wider business as the shift to renewable energy accelerates.

www.smh.com.au

From the article:
The split of AGL, to be detailed at an investor briefing on Tuesday, will create two new businesses: the carbon-neutral “New AGL”, which will include the company’s retailing division, and “PrimeCo”, which will be the nation’s largest electricity generator.

 

[Clansman]

AGL to separate into two companies.

‘New path’: AGL splits power plants, retail as green shift accelerates

AGL will split off its emissions-intensive coal- and gas-fired power plants from its wider business as the shift to renewable energy accelerates.

www.smh.com.au

From the article:
The split of AGL, to be detailed at an investor briefing on Tuesday, will create two new businesses: the carbon-neutral “New AGL”, which will include the company’s retailing division, and “PrimeCo”, which will be the nation’s largest electricity generator.

The smurf will be devastated. But he was told in very simple terms that it was more than likely to happen.
Some people just have to have their suffering long and drawn out.

 

[sptrawler]

The smurf will be devastated. But he was told in very simple terms that it was more than likely to happen.
Some people just have to have their suffering long and drawn out.

I don't hold, but I think it is a good idea, the cross business subsidising would become difficult to manage going forward IMO.
Generation will have the ability to focus on extracting whatever money they can from the coal assets, while retail can focus on the integration of customer storage related value i.e BEV's and house batteries, which are the key to the renewable grid.
Once the major companies have their house in order, I would expect to see the Federal government start and roll out uptake initiatives, which makes sense rather than putting the cart before the horse as normally happens in Australia.

 

[Clansman]

I don't hold, but I think it is a good idea, the cross business subsidising would become difficult to manage going forward IMO.
Generation will have the ability to focus on extracting whatever money they can from the coal assets, while retail can focus on the integration of customer storage related value i.e BEV's and house batteries, which are the key to the renewable grid.
Once the major companies have their house in order, I would expect to see the Federal government start and roll out uptake initiatives, which makes sense rather than putting the cart before the horse as normally happens in Australia.

I wouldn't call it an idea. That would be stretching it because the management haven't had one for years. When option number 1 on the list is the only option on the list, It's not an idea...

 

[sptrawler]

I wouldn't call it an idea. That would be stretching it because the management haven't had one for years. When option number 1 on the list is the only option on the list, It's not an idea...

That could be very true, I haven't followed them, worked my whole life in power generation, no way would I invest in it.
Way too driven by politics.

 

[Clansman]

That could be very true, I haven't followed them, worked my whole life in power generation, no way would I invest in it.
Way too driven by politics.

It would seem that the SP had dropped to such low levels, that (mis)management felt the pressure to be seen to be doing something ( as opposed to actually doing something ). The only option with the highest probability of allowing them to stay gainfully employed was to allow shareholders to have 2 dogs in their kennel, instead of the current 1.

 

[Ferret]

AGL's plan for an LNG import terminal at Crib Point have been knocked back on environmental grounds.

Another set back for AGL.

 

[Smurf1976]

The smurf will be devastated. But he was told in very simple terms that it was more than likely to happen.
Some people just have to have their suffering long and drawn out.

Not at all.

Unlike some however I choose to focus on the company and its business rather than on making childish comments which, if you were to act that way whilst working for just about any large business, would have seen you escorted off the premises by now.

It remains true that the company owns physical assets of value.

It also remains true that the company has a major presence in energy retail to consumers.

Someone will extract value from those. Whether it's AGL or a competitor remains to be seen but ultimately being at the bottom of the cost curve among fossil fuel based generators, and being the the largest ASX listed owner of hydro generation with its associated stored energy, isn't a situation that brings no value.

Note that it's Energy Australia who've announced a plant closure and it's Delta Electricity who've cancelled plans for major maintenance thus effectively constraining their future. Both of those being publicly announced and both being of benefit to AGL in due course since, as with any business, it's not a bad thing when your competitors simply walk away.

What is a very definite problem for AGL and indeed rather a lot of companies in the sector is the LNG terminal in Victoria not going ahead. That could get interesting to say the least - in the absence of an alternative it'll end up as a political issue of significance indeed it'll be one that receives political attention to some extent that's a given.

Where it gets more interesting is if one considers what alternative projects are now more likely to proceed? Viva Energy and APA Group both have a lot of relevance there as does anyone with known or potential gas resources in south-eastern Australia.

 

[Clansman]

Not at all.

Unlike some however I choose to focus on the company and its business rather than on making childish comments which, if you were to act that way whilst working for just about any large business, would have seen you escorted off the premises by now.

It remains true that the company owns physical assets of value.

It also remains true that the company has a major presence in energy retail to consumers.

Someone will extract value from those. Whether it's AGL or a competitor remains to be seen but ultimately being at the bottom of the cost curve among fossil fuel based generators, and being the the largest ASX listed owner of hydro generation with its associated stored energy, isn't a situation that brings no value.

Note that it's Energy Australia who've announced a plant closure and it's Delta Electricity who've cancelled plans for major maintenance thus effectively constraining their future. Both of those being publicly announced and both being of benefit to AGL in due course since, as with any business, it's not a bad thing when your competitors simply walk away.

What is a very definite problem for AGL and indeed rather a lot of companies in the sector is the LNG terminal in Victoria not going ahead. That could get interesting to say the least - in the absence of an alternative it'll end up as a political issue of significance indeed it'll be one that receives political attention to some extent that's a given.

Where it gets more interesting is if one considers what alternative projects are now more likely to proceed? Viva Energy and APA Group both have a lot of relevance there as does anyone with known or potential gas resources in south-eastern Australia.

It remains true that the company's share price is at historical lows....and dropping

It also remains true that unless your investment window is 20-30 years (break even), then this is a highly speculative non investment grade business with a declining moat and a questionable suite of capital intensive assets.

It also remains true that today's announcement was met with derision by the overall market, again.

 

[Clansman]

The wise men of AGL followed the Star of Bethlehem to bring their gifts to the foot of the baby Jesus. The first wise man brought the gift of gold because he'd heard on the grape vine that it was a finite resource that would always be worth something. Joseph gratefully accepted.

The 2nd wise man had lost the coin flip and was asked to offer a substantial amount of New AGL shares at a discount to the eternal moving average. A tray of scones was face value at the time but the 2nd wise man was happy to hand them over for nothing, given how long he'd had to carry them.

The 3rd wise man, had lost a marathon best of 17 game of rock, paper, scissors, and then an arm wrestle, He wheeled in a donkey in a wheelchair, it's back still fully laden with a large cabinet full of what appeared to be documents with PrimeCo written in bold type.

He removed the large cabinet from the donkeys back. Suddenly the donkey sprang out of the wheelchair, and galloped out of the Inn faster than Winx on her 33 run winning streak.
The 3rd wise man then sheepishly passed the large box over to a stern faced Joseph who put on his reading glasses to look at the name on the documents. Suddenly a huge grin beamed across the face of Joseph.

He called out to Mary who was daytrading in the kitchen " Darling come here quickly, I've got another beauty for you to short"

 

[InsvestoBoy]

@Smurf1976 I plan to go back and re-read your posts in this thread as I have been taking a look at AGL and you are a gold mine of knowledge about energy here in AUS, so valuable and rarer than hens teeth.

Do you have any current thoughts?

I saw some notes from Goldman saying that the main driver of the price of AGL was wholesale energy market and they had some different valuations, with the lowest being $8.80 for $50 wholesale energy price...which I think is about where we are for both values today. I know coal prices have been rising rapidly, do you think wholesale energy is going to bounce?

Some back of the napkin calculations seem to show even if the dividend gets cut to 50c over the long term, that's not a bad yield at todays prices.

 

[Smurf1976]

On the generation side AGL's costs are largely locked in. That is, their main sources are:

Coal purchased under contract from external parties (that is, other coal mining companies) in NSW. In 2019-20 this accounted for 54.9% of AGL's generation.

Coal from the company's own mine in Victoria. AGL owns and operates the mine and uses about two thirds of the production itself, selling the other third to rival electricity generation company Alinta. In 2019-20 this accounted for 29.6% of AGL's generation.

Renewable energy for which the cost is incurred with having built it (or contracted someone else to build it) in the first place but the wind, sun or water itself costs nothing. In 2019-20 this accounted for 10.0% of AGL's generation.

Only a relatively minor portion of the company's generation is from fuels the price of which is highly variable in the short term, that being gas or oil. In 2019-20 this accounted for 5.4% of AGL's generation.

Figures rounded to the nearest 0.1% and taken from www.2020datacentre.agl.com.au

So 39.6% of generation is immune to fuel cost variation completely and a further 54.9% is using thermal coal which is at least more price stable than oil or gas.

Note however that AGL's generation from coal in NSW will decline somewhat with closure of the Liddell plant although the nearby Bayswater station, which is to continue operating, is will pick up a bit of that volume.

AGL's operations do include other states but are primarily NSW, Vic, SA so that's where I'll focus on.

Note these are spot market prices.

Average monthly pricing for NSW:
January 2020 = $204.84
February = $62.19
March = $47.30
April = $41.31
May = $43.42
June = $50.62
July = $50.18
August = $52.18
September = $41.96
October = $59.56
November = $69.19
December = $84.19
January 2021 = $40.34
February = $35.48
March = $39.42
April = $58.13
May = $130.53

Average monthly pricing Victoria:
January 2020 = $226.99
February = $57.14
March = $48.78
April = $38.40
May = $43.08
June = $56.11
July = $66.70
August = $58.92
September = $39.13
October = $49.85
November = $50.03
December = $30.67
January 2021 = $31.06
February = $30.38
March = $39.87
April = $55.55
May = $85.78

Average monthly pricing for SA:
January 2020 = $118.92
February = $67.07
March = $51.93
April = $36.72
May = $42.29
June = $56.84
July = $69.84
August = $54.60
September = $13.92
October = $33.76
November = $42.20
December = $13.97
January 2021 = $30.37
February = $22.87
March = $69.75
April = $55.34
May = $85.62

Electricity is an inherently volatile market due to weather influencing both demand and supply but looking at Autumn, there does seem to be an upward trend year on year.

Looking ahead, a key point is that while gas only accounts for a relatively small portion of electricity generated (by all companies in total) for the grid, and oil-based fuels are of even less consequence, they are often the marginal source of supply.

Due to that, electricity prices are significantly exposed to movements in the gas price even though most electricity isn't supplied from gas. That isn't always the case, at times of very low demand gas is usually not being used at all, but overall it does set the price much of the time.

Another factor in the short to medium term is the recent incident at Callide power station in Queensland. AGL does not own or operate this facility but, since it's a substantial supplier into the National Electricity Market, the incident does have implications.

I've posted details about what happened so far as is known at this stage in the thread linked below but in brief there are 4 generating units at Callide all presently out of service due to a major incident on 25 May. Three units are expected to return to operation progressively during June but the other is, for practical purposes, effectively destroyed and will not operate unless rebuilt. The destroyed unit's steam turbine is smashed to bits, the shaft has snapped, there's been a fire and parts ended up outside the building with holes blown through the walls and roof. It's a very major incident.

The future of energy generation and storage

CS Energy has now officially released to the public, media and anyone else who wants it a photo from Callide C showing the damage. Note the holes in the roof where bits went flying through and the end of the snapped shaft sitting where it landed complete with a dent in the floor. Photo...

www.aussiestockforums.com

I emphasise that AGL does not own or operate Callide, my point being the market impact. 4 generating units out has spiked prices across the National Electricity Market and whilst that should settle down in due course, the long term outage of one unit at Callide is still ultimately a reduction in supply capacity. AGL may gain a bit of volume, mostly at the company's Bayswater power station in NSW, but also the pricing impact which is just standard supply and demand economics. Less supply, same demand = higher prices.

So on the power generation side of the business, I'd be reasonably optimistic about AGL's situation so long as, of course, AGL itself doesn't have any kind of major equipment failure etc.

On the other hand there's the gas business, since AGL also retails gas to consumers (as distinct from using gas to generate electricity) and to do that it needs a gas supply.

Relevant point there is the Victorian state government denied approval of AGL's proposed LNG import terminal in that state which raises an obvious question as to AGL's gas sourcing going forward. I don't know what gas supply contracts AGL has but that is a definite red flag of concern that they would likely have assumed the import facility would be up and running in due course but, with that dead, will now need to arrange supply contracts from others and are doing so from a position of relative weakness given their own project is dead.

On the other hand, the lack of AGL importing LNG to Victoria should put upward pressure on the gas price at least until someone else actually builds an equivalent facility. Higher gas price > higher electricity price > AGL gains from electricity despite possibly losing on the gas side.

Adding to all that I'll note recent comments early in 2021 from rival Origin Energy's CEO regarding unsustainably low electricity prices and the announcement by another rival company Energy Australia that closure of their Yallourn power station (Victoria, coal) will be brought forward to a single shutdown in 2028 versus the previous plan of a staged closure 2029 - 2032.

Putting all that together, my opinion is that we've seen the lows for electricity prices at the wholesale level so long as the gas price doesn't crash and we don't go back to economy wide lockdowns due to COVID. With a note of caution as to AGL's sourcing of gas for its gas retail business (and its gas-fired power stations) now that the LNG import project has been scrapped.

 

[Smurf1976]

Further to my previous post, a clarification about location and gas prices.

Gas is a commodity where the price varies locally such that the price of gas in overseas markets which you may see quoted in the context of financial markets is irrelevant to AGL. What matters to AGL is the price of gas in Australia, in particular the eastern states (including SA), not the price in the US which is typically quoted in a financial market context.

Australian gas prices do have an international linkage but that's more to the JKM price (Japan / Korea) than to the US.

Other point is about wholesale versus retail.

AGL generates electricity and also retails it to consumers, and arrangement referred to in the industry as a gentailer.

That being so, whilst the company does have exposure to wholesale prices, retail prices are also important so far as revenue is concerned.

In the longer term as with anything, if the wholesale price goes up then retail will tend to follow in due course but in the context of electricity that's not an immediate thing. Wholesale electricity prices vary constantly whereas retail consumers are typically on contracts of fixed duration such that changes in price will take time to filter through.

So there's some definite lags there in terms of prices flowing through to consumers and thus company revenue. It's not a quick thing as it is with oil where a rise in the oil price pretty quickly results in a rise in petrol prices, with electricity it takes somewhat longer in practice to flow through.

 

[InsvestoBoy]

@Smurf1976 just wanted to thank you and apologise for not thanking you for your prompt/valuable input earlier. I completely forgot about this (due to starting a new job) and seems missed my entry point on AGL and a few other energy names I was looking at.

 

[qldfrog]

well the split plan was hammered bythe market, deserves it:
a woke full plan, and details released today so too late for shareholders holding to offload in the FY20-21 financial year.
That's bastardy to say the least
Painful to admit it,after the previous exchanges but the naysayers were right, so my apologies, I should indeed have bought the Zoom and Tesla style craps. and get advice from reddit...
From a company with strong vertical integration and a leverage position in the coming years,
To a pure generator with no leverage, and a new company which will try to compete with startups to offering phone, nbn and power plan..the new dodo with same fate :-(
What a piece of sxxt, definitively the new AMP

 

[Smurf1976]

@Smurf1976 just wanted to thank you and apologise for not thanking you for your prompt/valuable input earlier. I completely forgot about this (due to starting a new job) and seems missed my entry point on AGL and a few other energy names I was looking at.

Don't thank me and my apologies if you invested......

I maintain my view that the generation assets have real value, noting that wholesale electricity prices continue to trend upward, but it would seem that the company's management doesn't grasp how to turn that value into one that benefits shareholders.

Average wholesale price across the National Electricity Market (all states except WA and NT):

February 2020 = $55.63
March 2020 = $43.88
April 2020 = $36.61
May 2020 = $37.90
June 2020 = $35.48

...

February 2021 = $35.32
March = $40.48
April = $52.48
May = $107.33
June to date = $157.45

So year on year a pretty decent price rise there and as a low cost generation company with generation physical volumes exceeding retail sales, AGL ought to be doing nicely from that.

It seems however that management isn't managing to turn that into value for shareholders. Whilst I got it right about prices moving up, I very clearly didn't foresee what management would do....

The only other companies in the sector I'm aware of having done anything remotely similar was an unlisted one that contemplated exiting its relatively small retail operation, selling that as a going concern, in order to free up capital to further invest into the ongoing generation business. That was only a thought however, something they looked at as part of considering how to raise capital for the new investment, and they haven't gone through with it and are instead looking at other options to fund their planned investments.

Looking at the physical assets being split, it's pretty much straight down the divide from a technical perspective.

Hydro generation, open cycle (peaking) gas turbines, internal combustion generating plant and wholesale gas contracts stay with AGL.

Coal mining, coal-fired generation, base load gas-fired generation, physical gas production and storage infrastructure and contracts regarding purchase of energy from the SA and Victorian wind farms plus operation of the Dalrymple battery (SA) go into the new company Accel Energy.