The 3 biggest energy retailers in Australia are Origin Energy, AGL Energy and Energy Australia.
Now Energy Australia sounds pretty Aussie but has actually been sold off to a Hong Kong
energy company back in 2011 so isn’t listed on the ASX.
So today, we’re going to take a look at the two publicly listed companies Origin Energy
and AGL Energy to see the difference between the two in terms of power plants, market share,
company financials and their future plans.
And where possible, I’ll try to include EnergyAustralia as well if they have any company
information that’s available to the public.
Now let’s get started
Origin Energy formed when it de-merged from Boral Limited in 2000.
It owns a total of 13 power plants varying from fossil fuels like coal, gas, to renewables
like hydro-electric and solar.
In total, it can generate 6000 MW of electricity which is 13% of the national power generation
capacity.
Almost half of its energy generation specifically comes from its Eraring Coal Power Station
in Dora Creek NSW which is Australia’s biggest power station, and one of the oldest as well
being commissioned all the way back in 1982.
It's meant to have a life of 50 years so only has a lifespan of another decade before it
is decommissioned in favour of a huge battery plant.
But I’ll go into more detail on this later in the video.
AGL used to stand for Australian Gas Light Co and is one of the oldest companies around.
It also operates coal, gas hydroelectric plants and solar farms, but also has a number of
wind farms as well, making them deeper in renewables than Origin Energy.
They currently own and operate 12 power plants for a total of 8500 MW of power, with most
of that coming from the Bayswater Power Station in the Hunter region of NSW.
This is a coal power plant that burns coal supplied from the Mt Arthur coal mine which
is owned by BHP.
From this same mine, coal is also supplied to the Liddell power plant which is set to
close in 2022.
But again, more on that later in this video.
Energy Australia used to be a state owned company until it and all its assets were bought
out by Hong Kong’s CLP group.
90% of its power generation is from 5 coal and gas plants with the final 10% generated
by 6 separate wind farms.
The biggest power plant is the Yallourn Power Station in Victoria which outputs around half
of either Origin or AGL’s biggest power plant.
Altogether, Energy Australia generates about 5000 MW of electricity.
In terms of market share, Origin Energy leads the big 3 with 28% of the electricity market.
AGL is not far behind at 21% of the market share, and Energy Australia brings up the
rear at 16%.
Together, they account for 65% of the energy supply for Australia, with all the other retailers
comprising the remaining 35% are spread over more than 20 different energy providers.
So the big three are well and truly in front.
This is very similar to how the big 4 banks are positioned over the smaller banks in Australia.
For the gas market share, AGL leads with almost 38% of the market, followed by Origin with
27%.
EnergyAustralia is placed third again at 19% market share.
This is even more of a tri-opoly with the big 3 providers making up 85% of the market.
In terms of actual energy prices for the consumer, at the time of recording this video, all 3
companies have pretty much identical prices.
The only point of differentiation then is each company's marketing budget and the pushiness
of those door knocking people who earn commissions when they encourage you to change providers.
Let’s go through the company financials.
As always, the best thing to look at when you’re short on time is the underlying EBITDA,
which is the earnings before interest tax depreciation and amortisation.
This is the most important metric because a company's value comes from its ability to
earn money.
And EBITDA shows this while excluding all the things that are outside of the company’s
control.
For Origin, their underlying EBITDA has declined by 7% since last year to 1.46 billion dollars
due to the lower demand and therefore lower wholesale electricity prices as a result of
the global pandemic.
The gas performance has also suffered, with EBITDA down 8% since last year to 1.74 billion
dollars as a result of the price of natural gas being down 10%.
This is obviously a disappointing result for Origin but there’s almost nothing they can
do about it.
The cost of energy generation is relatively fixed, so its profit margins are completely
the mercy of market prices which hasn’t been favourable.
For AGL, they’ve had pretty much identical decrease in results as Origin with underlying
EBITDA down 10% since last year to 2 billion dollars.
This again is due to the decline in wholesale profit margins which makes up a significant
portion of their earnings.
Finally, EnergyAustralia is not a public company so we have no visibility of their company
finances.
But I’d imagine they’ll be in a very similar situation as the other two.
The future of utilities companies like Origin and AGL are going to be extremely important
to keep an eye on because they are generally the nation's biggest carbon emitters and there
will always be public pressure to reduce this.
This is obviously bad for their immediate bottom line but a healthy balance in investment
and transition into renewables will still be worth it for them in the long term.
For Origin, this will be a big transition especially at the Eraring Coal Power Station
where they are currently building Australia’s biggest battery at 700 MW to store and support
renewable energy long after the coal burning has stopped.
This is going to be 4 times bigger than the Tesla battery installed in South Australia
and will use all of the existing infrastructure like transformers and power lines.
This will definitely be helping their commitment to halve their emissions by 2032.
Origin has also splashed our half a billion to buy a stake in Octopus energy in the UK
which gives them access to the Kraken platform to interact with their customers to hopefully
give them some cost savings in the immediate future.
Despite all these great plans for the future, Origin will be facing some tough times ahead
with 2021 guidance of a decline in EBITDA of around 10-20% with no fault of their own
and just purely due to the lower demand in this economy.
For Australia's biggest greenhouse emitter, AGL is committing to become fully carbon neutral
by 2050 and this means that the Liddell power plant will definitely be shutting down by
2022.
By laws of supply and demand though, cutting off a chunk of supply will drive energy prices
up, and that’ll probably benefit Origin while it still has its power plants.
On top of that, the government may force the Snowy Hydro group to replace it with a gas
power plant in the same region to try and keep prices down.
So AGL is basically caught between a rock and hard place in the immediate future and
you can see that it's now trying to diversify its business by branching out and offering
internet and mobile services.
Nonetheless, AGL is going to have some tough times ahead that’s probably why its share
price has tumbled even more than Origin.
So that’s my summary of the biggest utility companies in Australia.
You can see that there's going to be some tough times ahead for all of them and they
will be under pressure to support the Paris Climate Agreement of limiting global warming.
Without doubt there’s going to be a lot of money thrown at renewables in the coming
decades, and if utility companies like Origin and AGL can get it right, then they might
finally be able to turn around their share price which has continued to dip since the
pandemic first kicked in.
AGL will be the first to watch as the Liddell power plant is closed, but Eraring will be
next and Origin will have to follow suit, but they do have the advantage of seeing what
works and what doesn’t for AGL and that’s probably why AGL is dipping more Origin recently.
Thanks so much for watching this video, I’ve really enjoyed making the comparison on Miners
and now Utilities.
The next big challenge for me is to compare the big 4 banks.
They are a lot more complicated to analyse their business operations, and I think I’m
going to have a tough time making this video.
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Anyway I’ve rabble on for long enough, thanks for watching and as always I’ll see you
in the next video.