Please find attached ASX Release: Review of Strategic Direction Outcomes & FY23 Guidance [PDF]

AGL targets to complete its exit from coal-fired generation by the end of FY35 and accelerates its transition to an integrated low carbon energy leader

• AGL targets an accelerated exit from all coal fired generation, announcing today a targeted earlier closure date of Loy Yang A Power Station – up to 10 years earlier than previously announced
• AGL’s annual greenhouse gas emissions¹ are expected to reduce from 40 million tonnes to Net Zero on achieving targeted closure, supporting the transition to a lower carbon world aligned with the Paris Agreement goals² and achieving net zero for operated Scope 1 and 2 emissions after coal closures
• AGL aims to progressively decarbonise its asset portfolio with new renewable and firming capacity, with an ambition to supply its customer demand with up to 12 GW of new generation and firming capacity, requiring a total investment of up to $20 billion³, in place before 2036, funded from a combination of assets on AGL’s balance sheet, offtakes and via partnerships.
  • This includes an interim target to have up to 5 GW of new renewables and firming in place by 2030
• Unwavering focus on its customers as a continued major retailer of essential services, supplying affordable energy, supporting electrification and their transition to a low carbon future
• Unchanged commitment to rejuvenate its operating sites into low-carbon Energy Hubs
• Continuing consultation with its employees to understand their needs as AGL explores opportunities for career transition and re-skilling
• Inaugural Climate Transition Action Plan published today

Chair and incoming Interim CEO Commentary

AGL Chair, Patricia McKenzie, said: “Today we have set a new direction for AGL. Our decarbonisation and energy investment strategy sets a clear pathway for the company’s future and its leading role in Australia’s energy transition.

“We have listened to our stakeholders – in particular, our shareholders, as well as government and energy regulatory authorities. Their views were an important consideration as we reviewed the company’s strategic direction after withdrawing the demerger proposal.”

“Our purpose in undertaking the review was to consider options for AGL’s future as a strong integrated entity in a way that enhances long-term shareholder value, and to achieve this in a complex energy environment, with increasing pressure to accelerate the pace of decarbonisation while maintaining energy affordability.”

“AGL is committing to an ambitious but achievable strategy to deliver a responsible and accelerated low carbon future. We are aiming to reshape our energy portfolio into a cleaner and more flexible one, transitioning away from coal and focusing on new renewable and firming capacity.”

“This represents one of the most significant decarbonisation initiatives in Australia. It supports the transition to a lower carbon world aligned with the Paris Agreement goals. AGL will be Net Zero for operated Scope 1 and Scope 2 emissions following the closure of all AGL’s coal-fired power stations.”

“We are excited by what is before us and believe our shareholders will benefit from a stronger and more sustainable business that will be uniquely positioned in the transitioning energy market. Today’s announcement recognises the increasing ESG pressure from investors and consumers that has been affecting our business and we expect to be able access a wider pool of capital and attract new investors, which will ultimately result in a lower cost of capital and a more sustainable business.”

“AGL will work with its broad stakeholder group to deliver these ambitious outcomes. It is particularly important that we support our people who maintain and operate our coal-fired power stations. We will work with our people, their representatives, and government to help develop the skills and capabilities required for new and existing industries as we progress to ensure the transitioning energy sector is supported by a skilled workforce.”

AGL’s incoming Interim CEO, Damien Nicks said: “AGL’s targeted accelerated closure of Loy Yang A power station by the end of FY35 represents a major step forward in Australia’s decarbonisation journey, supporting the transition to a lower carbon world aligned with the Paris Agreement goals. The targeted earlier closure of Loy Yang A Power Station will avoid up to 200 million tonnes of greenhouse gases being emitted compared to the previous Loy Yang A Power Station closure date⁴”

“With the closures of Bayswater and Loy Yang A, we have also announced an ambition to meet projected customer energy demand with up to 12 GW of new firming and renewable assets before 2036. AGL’s future portfolio will be ‘demand driven’, meaning we will focus on capacity that responds to what our customers need - with the majority of new supply anticipated to be from wind and storage, including batteries.”

“As part of this ambition, we’ve set an interim target of 5 GW of new renewables and firming in place by 2030, expanding upon our 3.2 GW⁵ pipeline of high-quality projects to meet our growth ambitions. We will also continue our plans to leverage our existing sites to create low emissions integrated industrial Energy Hubs.”

“AGL’s growth ambition will require significant capital investment, estimated to be up to $20 billion⁶ which will be delivered in the 12 year lead up to our targeted exit from coal-fired generation. This represents a clear long-term investment opportunity for AGL and its shareholders to deliver on its growth ambition. AGL will evaluate various sources of funding, which includes a mix of AGL’s own balance sheet, entering into offtakes, or through partnerships utilising third party capital.”

“We believe that our ambitions to decarbonise and build a low-carbon portfolio represent an attractive opportunity to participate in Australia’s energy transition, and will ultimately provide access to a wider pool of capital sources.”

“Importantly, AGL will continue its relentless focus on delivering for its customers as a leading multi-service energy retailer, and our goal of making the energy transition simple, accessible and affordable for our customers. We will sharpen our focus on digitisation and advanced analytics to further simplify and automate how we operate and serve our customers.”

“This is an ambitious strategy that we will aim to deliver through the 12-year period to the targeted closure of our coal-fired generators. We will work with our stakeholders to make sure this change is responsible, that our customers’ energy needs are met and that our workforce and communities are supported through this change.“

Further details of the strategic review, including risks and uncertainties of achieving AGL’s targets, are included in the attached presentation.

Climate Action Transition Plan

AGL today also published its inaugural Climate Transition Action Plan Link, demonstrating its commitment to transparent communication with its stakeholders about its approach to decarbonisation.

Shareholders will have the opportunity to vote on this through the ‘Say on Climate’ resolution at the 2022 Annual General Meeting on 15 November 2022.

Torrens Island Power Station

As part of normal practice, AGL continually reviews its portfolio against the pace of transition in the energy industry. The current economic environment remains challenging for AGL’s Torrens Island Power Station. The South Australian and New South Wales interconnector is planned to be fully operational in mid-2026 which will further impact gas-fired generation in South Australia, as outlined in the business and regulatory test advocating Project EnergyConnect. AGL is continuing to engage with the South Australian Government and other stakeholders and anticipates providing a further update in relation to the Torrens Island Power Station prior to the end of the year.

Financial implications of targeted FY35 coal closure

Following AGL’s decision to bring forward the targeted closure date of Loy Yang A (by the end of FY35), it intends to recognise a non-cash impairment charge of approximately $700m million (after tax). 

The impairment charge will be recognised against the carrying value of the property, plant and equipment of AGL’s thermal generation assets and reflects the impact of the shortened operating life of Loy Yang A power station and additional ESG costs identified in the review of strategic direction. 

The estimated impairment charge is subject to finalisation and audit of AGL’s financial statements and will be recognised as a Significant Item against Statutory Profit.

AGL anticipates the new targeted closure date will not have a material impact on Underlying Profit after tax (which excludes Significant Items) in the financial year ending 30 June 2023 (FY23).

FY23 financial guidance and outlook

AGL Energy has today provided guidance for its FY23 underlying earnings, as follows:

• Underlying EBITDA of between $1,250 million and $1,450 million; and
• Underlying Profit after Tax of between $200 million and $320 million.

These ranges, with an anticipated increase in Underlying EBITDA of approximately $100 million compared to FY22, reflect the resilience of AGL’s earnings on the back of its largely hedged position for FY23. Other key impacts include the Loy Yang A Unit 2 outage, market volatility and unplanned outages impacting operational performance in July 2022, and the closure of the remaining three Liddell units in April 2023. Additionally, Underlying Earnings in FY23 will be impacted by the onerous contract provision adjustments in FY22. These impacts will be partly offset by AGL’s strong portfolio performance in August and September as other units have returned to service.

Overall, AGL believes FY23 earnings will remain resilient amidst the current challenging energy industry and market conditions and is well positioned from FY24 to benefit from sustained higher wholesale electricity pricing as historical hedge positions progressively roll-off.

Director Nominations for 2022 Annual General Meeting

Further to recent media reports, AGL confirms that entities associated with Grok Ventures have nominated four candidates for election as Directors at the 2022 Annual General Meeting. AGL respects the right of shareholders to nominate candidates for election as directors.  AGL’s Notice of 2022 Annual General Meeting will be published in early October, which will include the Board’s recommendation on each resolution to be considered at the meeting, including relevant candidates.

Conference call

AGL will host a conference call to discuss today’s announcement at 11:00 am Australian Eastern Standard Time. Access to the conference call is via pre-registration through the following website link: agl.com.au/marketupdatewebcast. Upon registration, participants will be provided with a dial-in code to access the conference call facilities. A transcript and archive of the conference call will be made available on AGL’s website in due course.

¹Operated Scope 1 and Scope 2 greenhouse gas emissions as reported under the National Greenhouse and Energy Reporting Act 2007.

²Based on scenario modelling of the National Electricity Market (NEM) undertaken by ACIL utilising a carbon budget for the NEM which is consistent with limiting global temperature increases to well below two degrees Celsius above pre-industrial levels. The ability for AGL to execute on this target will be subject to uncertainties and risks further described on pages 25 and 26 of AGL’s Investor Presentation, including ongoing market and structural developments within Australia’s energy markets. AGL will continue to work with key stakeholders, including State and Federal governments, with a view to ensuring a balanced and responsible transition. For the reasons set out on pages 10 and 11 of AGL’s 2022 Climate Transition Action Plan, this is not aligned with the Paris Agreement’s higher ambition of limiting global warming to 1.5 degrees above pre-industrial levels.

³Based on capital cost estimates from AEMO Inputs, Assumptions and Scenarios Workbook, June 2022, adjusted for AGL views where considered appropriate.

⁴Maximum emissions avoidance estimated based on maximum annual output from Loy Yang A Power Station over the FY36 - FY46 period.

⁵Existing 2.9 GW pipeline as well as 300 MW under construction.

⁶Based on capital cost estimates from AEMO Inputs, Assumptions and Scenarios Workbook, June 2022, adjusted for AGL views where considered appropriate.