Energy company AGL now expecting higher net profit after tax

AGL Energy has declared the transition to renewables and the AI revolution will help it deliver a stronger profit this financial year but has warned of more electricity market volatility from unreliable solar and wind power as the Federal Government props up an aluminium smelter.

The coal and gas generation firm, branching out into green power, says it would be a major beneficiary of the move to renewable energy, less than eight months after Labor announced a stronger 62-70 per cent emissions reduction target for 2035.

Chief executive Damien Nicks announced AGL was now expecting an underlying net profit after tax of $610 million to $680 million, up from a previous estimate of $580 million to $680 million, crediting renewables and artificial intelligence.

“I’ll start with the longer-term market outlook which continues to see positive and durable electricity demand tailwinds, underpinned by electrification and material data centre expansion, and how our high-quality energy portfolio is strongly positioned to capture value,” he told the Macquarie Australia Conference in Sydney on Wednesday in details posted to the ASX.

AI-led data centre development opportunities were expected in NSW, Victoria and the ACT.

On the renewable energy front, construction of a 500-megawatt battery at Tomago, near Newcastle, is also “progressing well”, Mr Nicks said.

This is despite Rio Tinto last year threatening the closure of its Tomago Aluminium smelter after its contract with AGL Energy expired in December 2028, prompting the Federal Government to last year flag the possibility of a power-purchase agreement to guarantee electricity supply at a stable price.

With industry warning of unaffordable power, Mr Nicks warned market volatility could still affect electricity prices.

“The market is currently experiencing lower volatility and lower average spot pricing which has been reflected in forward curves, however, the market is finely balanced and susceptible to market events which can drive significant volatility,” he said.

He also admitted renewable energy had its limitations during winter.

“Winter is also becoming the key risk period with elevated demand peaks and the season where solar typically contributes the least,” Mr Nicks said.

“Added to this, east coast wind generation has historically been at its weakest during cold-high pressure systems.

“Overall, the current picture is one of a system that is functioning, but with limited margin for error during peak periods.

“Demand is growing, peaks are rising, and volatility remains a feature under stressed conditions.”

Natural gas was also expected to continue playing a big role as a transition fuel to renewable energy as coal-fired power stations were decommissioned.

“Coal exits are only partially offset by new renewables and storage, leaving gas and other firming technologies to play a critical role, underlining the requirement for new investment to maintain system stability,” Mr Nicks said.

AGL’s former coal-fired Liddell power station in the NSW Hunter Valley, decommissioned in 2023, is being converted into a battery.

The first 250 megawatts has been commissioned with AGL expecting the full 500 megawatts to be operational by the end of this financial year.

AGL is expecting significant growth in electricity demand during the coming three decades “underpinned by population growth, the continued electrification of homes, transportation and broader industry”, with Mr Nicks citing the Australian Energy Market Operator’s electricity statement of opportunities.

AGL’s share price on Wednesday rose 0.4 per cent to $9.47 as the broader S&P/ASX200 gained 1.3 per cent.