News & Analysis

Origin brings forward the closure of Australia’s largest coal plant

24 February 2022 By Anthony Nguyen

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Origin Energy is a major integrated electricity generator, and electricity and natural gas retailer. It operates Australia’s largest coal-fired power station at Eraring, Lake Macquarie, New South Wales, with their headquarters in Sydney.

Origin originally had plans to close down its only coal-fired power plant in 2032. However, they have recently made an announcement to bring forward the closure by seven years to 2025, in an effort to reduce carbon emissions. It has also caused concerns about the security of supply and rising energy prices.

The NSW government responded to Origin’s plans with an announcement; that they are planning to install a super ‘battery’ to help replace the 2880 megawatt Eraring generator and to also act as a shock absorber in the grid. This plant closure will occur roughly two years after the closure of AGL Energy’s Liddell plant.

Origin’s decision highlighted the energy sectors’ current plans to move away from coal power energy and move towards cheaper renewable energy. This is despite the fact that coal power is still meeting the majority of demand for electricity throughout the year.

Origin intends to repurpose the Eraring site by installing a large-scale battery which would support the energy sector’s transition to low-carbon energy, such as wind, solar, hydro or nuclear power.

NSW state government is going to work with industry partners to help install a separate battery, called the Waratah Super Battery. This is done to help ensure the grid remains reliable. The unit would have a capacity of 700 megawatts and 1400 megawatt-hours, meaning it could provide two hours of power at full output.

The closure announcement was made as Origin posted an increase in underlying profit for the first half of the financial year. This increase, coinciding with the rising gas prices, is an indicator that Origin is on track to have a strong performance for the full year.

Origin’s Half Year report shows a loss for the first half at $131 million. This figure was reduced by impairments which Origin had already flagged. The impairment charge, an accounting term that describes a reduction in the recoverable value of the asset, was estimated to be in the range of $190 million to $200 million and would be taken in the first half of the 2022 financial year.

Underlying profit, which excludes one-off items, increased by 18% to $268 million, compared to $227 million in the December half of 2020.

Origin declared a dividend for the first half of 12.5¢ a share, which is the same payout for 2021.

Origin in August 2021 guided to underlying EBITDA for the full year of between $1.85 billion and $2.15 billion based on an assumption. It has now raised that to between $1.95 billion and $2.25 billion. This is an increase of roughly 5%.

All in all, Origin, like many other companies in the energy sector, is experiencing a strong performance for the first half of the year. As strong results keep being announced, shareholders will most likely be rewarded with either an increase in dividends or share buybacks.

If you would like to take this opportunity to invest in Origin Energy and don’t already have a trading account, you can register for a Shares or Shares CFD account at GO Markets.

Sources: GO Markets MT5, ASX, Wikipedia, AFR.

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