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How to Make a Small Fortune

Start with a large one and invest in outdated and socially repugnant technology. Australia’s largest generator and largest emitter, AGL, is finding itself in hot water. It has recently announced a $2 billion loss for the 2021–2022 financial year that was caused by clinging to coal and delaying the switch to renewables. The share price has dropped over 60%. It was forced to write down billions of dollars worth of assets.

The downward trend in electricity prices caused by the rapid deployment of solar power has forced the company to take drastic action. AGL plans a demerger, forming two entities: Accel Energy and AGL. It appears that AGL will retain the profit-making parts of the business, whereas Accel will retain the bulk of the fossil fuel generators. (Similar corporate changes were made in Germany when other major energy players faced a similar crisis.)

AGL says that it cannot commit to the Paris agreement goals. Shareholders are bracing themselves for further losses.

Origin Energy is planning to move into big batteries after posting a $2.3 billion loss. Their flagship Eraring power station was planned for decommissioning in 2030, but with electricity prices facing downward pressure, the plant is looking less than financially viable.

As well as big batteries, Origin plans to invest in more solar and wind and investigate the possibilities of green hydrogen to produce ammonia. The speed of the transition and the attendant lower prices for wholesale electricity have taken the big players by surprise and destroyed shareholder value and the incumbent business model.

ITK reports that annualized renewable energy output in Australia is up to 50 terawatt-hours. This equates to about 23% of demand. Midday prices for electricity in NSW have fallen to $25 MWh, in winter! Prices will fall further as days lengthen and the summer sun hits all those solar panels.

Photo by Loïc Manegarium from Pexels

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David Waterworth is a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He is long on Tesla [NASDAQ:TSLA].


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