To account for the expected long-term lower returns,the company booked a $1.9 billion impairment against contracts related primarily to old wind farm offtake deals,while increasing environmental restoration provisions by $1.1 billion. AGL made further impairments of $532 million on its generation fleet and natural gas assets.
AGL’s writedowns came as rival Origin Energy also lowered its profit forecasts on Thursday,telling investors it now expects earnings of between $1 billion and $1.14 billion for the 2021 financial year,down from a previous estimate of up to $1.3 billion,due to reduced energy demand in the pandemic and this summer’s mild temperatures.
Both energy giants’ shares were sold off on the news. AGL shares closed 3.6 per cent lower to $11.42,while Origin ended Thursday’s session down 6.9 per cent,to $4.62.
AGL’s $1.9 billion impairment for “onerous” contracts relates to wind farm offtake agreements that AGL had signed with renewable energy providers between 2006 and 2012,when prices for electricity and renewable energy contracts were much higher than today’s spot and forecast prices.
Wholesale electricity prices are about 48 per cent lower than the same time last year at about $50 a megawatt hour.
Chief executive Brett Redman said the company still continues to see “material opportunities” to participate in Australia’s energy transition. “Notwithstanding these charges,our broad and diverse portfolio of electricity generation assets will continue to have a vital role to play in enabling the transition of the energy system,” he said.
Morningstar senior equities analyst Adrian Atkins said the writedowns spoke to tough conditions as wholesale prices fall. “These are basically non-cash writedowns - but on the other hand,it does reflect how difficult the situation is for AGL and they expect it to continue,” he said.