AGL, the largest Australian power generator, will accelerate plans to invest in big batteries as it seeks to blunt the impact of higher costs caused by outages at unreliable coal-fired power stations and increasingly expensive coal and natural gas supply contracts.
The electricity and gas giant was hit by a sharp investor sell-off on Wednesday, sending its share price sliding as much as 13 per cent, after posting earnings that missed market expectations and signalling its profit could fall further next year amid the rising cost of sourcing the fossil fuels it needs to keep producing power.
AGL’s Loy Yang Power Station in Victoria’s Latrobe Valley.Credit: Bloomberg
While AGL attributed the past year’s earnings slump mainly to lower wholesale electricity prices and its decision not to fully pass on cost increases to its 4 million-plus customers, a series of planned and unplanned outages across its fleet of power stations had left the business unable to benefit from periods of higher wholesale prices, analysts said.
AGL chief executive Damien Nicks pointed to the stronger performance and financial contribution of the company’s rapidly growing fleet of grid-scale batteries, which along with hydropower and gas-powered generators were increasing the “flexibility” of its portfolio and mitigating the impact of coal plant outages.
“We saw the performance of our flexible asset fleet really coming into its own,” Nicks said.
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“Those flexible assets are doing exactly what we intend for them to be doing – the response of the batteries was fantastic.”
With response times measured in split seconds, grid-scale batteries are seen as essential to Australia’s green energy shift because of their ability to soak up surplus renewable output in daylight hours and use it to plug gaps at later times or provide other services to stabilise the system during unexpected outages.
AGL has two batteries operating at Torrens in South Australia and Broken Hill in NSW, with another at the site of its decommissioned Liddell coal plant due to come online next year. Nicks said earnings from AGL’s battery fleet would “more than offset” the added costs it expected from negotiating coal and gas agreements at higher prices in the next three years.
