Chaos events make gas more crucial, Origin Energy says

Marion Rae |

Higher gas and electricity costs have seen Origin Energy more than doubling its half year profits.
Higher gas and electricity costs have seen Origin Energy more than doubling its half year profits.

Gas-fired power plants are keeping the national electricity grid stable after catastrophic storms in Victoria, Origin Energy says.

Extreme winds brought down six transmission towers and shuttered the state’s largest coal-powered plant, AGL Energy’s Loy Yang A, with tens of thousands of homes still without power.

The Australian Energy Market Operator ordered Origin to fire up a gas power plant, which remains on to provide stability in the grid, Origin CEO Frank Calabria told an investor webcast on Thursday.

The Mortlake “peaker” plant, which is powered by gas from the Otway Basin, fires up at short notice to cover times of high demand or extreme weather events that cause chaos for energy users.

As well as solar, wind and pumped hydro, Origin has Australia’s largest fleet of fast-start gas plants which are becoming more valuable as flexible generation becomes more crucial, Mr Calabria said.

Origin’s $400 million Mortlake big battery under construction in the state’s southwest renewable energy zone would also be an important asset for providing reliable power for customers, the company said.

Elsewhere, Australia’s largest coal-fired power plant Eraring in NSW could stay open for longer as talks continue between Origin and the state government.

Eraring has a generating capacity of about a quarter of the state’s electricity needs and is slated to close in 2025 without taxpayer funds to cover maintenance costs for keeping the ageing plant open longer. 

“We are continuing to engage with the NSW government on the timing of the closure of Eraring,” Mr Calabria said, but he declined to give a time frame for any deal.

Regulators fear a so-called reliability gap for homes and businesses if Origin sticks with its intended schedule for shutting Eraring, but independent analysts say there is no need to keep the “coal clunker” running.

“Tuesday saw 500,000 people left without power, and as our climate issues worsen, we can only expect to see more blackouts like this occur across the nation,” Smart Energy joint managing director Joel Power said. 

He said self-sufficiency can be achieved from solar and home battery systems that shift Australians away from reliance on the traditional power grid and build energy independence.

Shares in Origin rose 25 cents or 2.9 per cent to $8.82 in morning trade after the power generation and electricity and gas retailer reported a more than doubling in profit for the six months to December 31.

Net profit for the half-year period was $995 million, up from $399 million a year earlier as consumers paid more for electricity and gas and generation assets performed well.

Underlying profit was $747 million, up from $44 million, on higher gas revenue and as government caps on coal costs for electricity generation kicked in.

“It was only 12 months ago that we made no money in that electricity business,” Mr Calabria said, when asked if regulators would take a close look at the surge in profits.

“We’ve got to do a good job by our customers and we’ve also got to be a healthy business to invest in the transition,” he said.

Underlying earnings before interest, taxes, depreciation and amortisation – a measure of core company profitability – was $1.995 billion, almost double $1.059 billion a year earlier.

Origin upped its underlying earnings guidance to $1.6 billion to $1.8 billion for the energy markets division, on lower electricity procurement costs and growth in customer accounts.

Investment bank UBS, which has a “buy” rating on Origin, said it was a “strong” result with a solid cashflow outlook.

Origin expects the strong performance to continue in the second half but warned next year’s energy market earnings would be lower as electricity profits and tariffs decline.

A fully franked interim dividend of 27.5 cents per share was declared ahead of a review of the payouts.