Will the Aussie Government Treat AGL to a New Power Plant?

It is not a bit of a mess,’ Sanjeev Gupta said, owner of Liberty House Group, ‘it is a major mess.’ Gupta is, of course, talking about Australia’s liquefied natural gas situation.

Gupta knows firsthand what power blackouts can do to manufacturers. If the lights go out, it costs hundreds of thousands of dollars, sometimes millions.

So even if energy becomes very expensive, Aussie businesses will just have to toughen up. A prospect very few of them are pleased about. One such business is Brickworks Ltd [ASX:BKW].

The company consumes a lot of gas in order to manufacture bricks and other building-related products. And like many manufacturers, Brickworks has recently been paying more than ever just to keep the lights on.

Brickworks managing director, Lindsay Partridge has said:

While the company [Brickworks] has taken a proactive approach to address its challenges, the same cannot be said about governments across the country.

Due to a decade of ineffective or non-existent policy and leadership, Australian manufacturers continue to experience rapidly increasing energy prices and unreliable supply.

Brickworks said they could see gas prices rise by more than 40% in the next 15 months due to the east coast gas shortage. In dollar terms, this could add an extra $20 million to Brickworks’ annual energy bill by 2019.

World’s Highest Energy Prices

Among the highest energy prices in the world, South Australia ranks as number one, as shown below.

energy prices

Source: Bloomberg

 

You can also see NSW, Queensland and Victoria are all in the top 10 for electricity prices. And with gas in short supply, run down Aussie coal-fired power plants are being pushed to their limit.

The Liddell Power Station

One key power station is the Liddell power station, owned by utility giant AGL Ltd [ASX:AGL].  The plant, which supplies Australia’s largest energy consumers, the Tomago aluminium smelter, is on its last legs.

Liddell was commissioned in the early 1970s. Now plagued by failures from rusty and leaky equipment, the plant is on a ‘sliding scale to oblivion,’ according to its managers.

The plan was to repurpose the site. AGL wanted to use the site for gas-fired power stations or to store battery energy. The government, however, have other plans.

Turnbull is trying his hardest to keep the plant open, extending its already long life. But keeping it running beyond its scheduled closure in 2022 would cost as much as $900 million.

Will the Aussie government help AGL fit the bill? This energy crisis is already a black mark on Turnbull’s resume as prime minister. Surely they won’t let matters get even worse.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

PS: Not only are Aussie households struggling with higher energy prices. Businesses have it far worse. If energy prices continue to climb, eating into corporate profits, we could have a real problem on our hands.

To make sure you’re protected from the flow on effect, click here.


Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money