AGL Energy, Australia’s largest renewable energy developer, has shelved $2 billion of planned wind farm investment because the federal government subsidy scheme has not worked.
The decision, which was also driven by the lack of a carbon price, puts in doubt the government’s target of having 20 per cent of the nation’s power produced by renewable sources by 2020.
Chief executive Michael Fraser said the government had rectified a problem with the Renewable Energy Certificate trading market, but this produced a huge surplus of certificates that forced prices down to levels that did not justify wind farm investment.
AGL expects the surplus to remain until 2014 or 2015. “Until we see that REC market start to recover and get back to new-entrant levels, or the electricity market – with a price on carbon – send the appropriate price signals, we won’t be committing to future wind farms,” Mr Fraser said yesterday after the release of the company’s first-half profit report.
“Right now there is no clear price signal to build new wind farms.”
The company, which is building the $1bn Macarthur wind farm in Victoria, had plans for future wind farms worth about $2bn.
Yesterday, AGL reported a 4 per cent drop in underlying first-half net profit because of unusual weather on the east coast.
Underlying net profit after tax was $226.2 million, down from $234.8m a year earlier, and slightly off guidance that it would be in line with last year.
Shares in the power and gas company fell 21c, or 1.4 per cent, to $14.46, outpacing a 0.2 per cent decline in the broader market.
The biggest hit to the company came from its stake in the Loy Yang brown coal-fired power station in Victoria, where earnings were down by $22m because of low state wholesale electricity prices spurred by mild temperatures.
The company was also hit by February heatwaves in Sydney, Melbourne and Adelaide that sent airconditioner use and power prices soaring.
This meant AGL paid much more for the power it had to purchase on its customers’ behalf.
Net profit, including significant items, was up 30 per cent to $239.6m because of a gain in the value of the company’s hedging derivatives.
Mr Fraser said there was no sign of improvements to Loy Yang this half, meaning second-half profits will be slightly lower than first-half, and the company will stick to full-year guidance of between $415m and $440m.
He said he would focus on boosting retail customers in NSW following an unsuccessful bid for state power assets just before Christmas. “Retail was another very good result and, as we’ve said, the business is in good shape and we’re expecting a much higher contribution on the business in the second half than the second half last year,” Mr Fraser said.
The retail energy division increased earnings before interest and tax by 5.6 per cent, reflecting an increase in the gas and electricity gross margin.
AGL declared a 29c dividend, in line with last year.
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