Origin Energy: Power utility hit by narrower margins on east coast

Origin Energy boss Frank Calabria says the national energy grid rules need to be rewritten to keep power reliable as more renewable projects come online.

Mr Calabria said the power grid would need a mechanism to incentivise back-up gas capacity to generate electricity when solar and wind output is low.

He spoke as the Sydney-based utility posted flat profit of $1 billion for the six months to December.

It comes with energy expected to be a major battleground in the upcoming Federal election.

The coalition has a long-term ambition to bring nuclear power into Australia, while Labor has been running tenders for a capacity investment scheme to encourage investment into back-up generators.

Western Australia’s grid has an established reserve capacity system but the east coast has been behind the eight ball.

But the exclusion of gas from the east coast scheme in a deal reported overnight has sparked backlash.

Mr Calabria said the importance of dispatchable generation — which can be turned on and off when needed — will grow as intermittent renewables enter the grid.

“Through this transition it is imperative that the policies focus on energy security,” he said.

“(NEM) design will need to change to be fit for purpose in a world of a high penetration of variable renewable energy.

“That very strongly requires a capacity mechanism design that does include gas.”

He said coal plants would likely be replaced by short duration storage, mostly batteries, on the east coast.

That would leave a gap for long duration energy during cold snaps, heat waves and shortages of wind and solar.

The gas industry lobby also wants the fuel included in the capacity scheme.

“Instead of encouraging this investment, the Federal Government has again capitulated to the Greens’ anti-gas agenda and ignored the repeated warnings from experts about the critical role of gas in our power mix,” Australian Energy Producers chief Samantha McCulloch said.

Origin’s $1 billion profit followed gas exports offsetting lower earnings in east coast power markets for the first half of the financial year.

The Sydney-based company upped its dividend from 27.5¢ a share to 30¢.

Mr Calabria told investors it was a “strong first-half result”.

Origin operates Australia Pacific LNG in Queensland, a major gas export facility. The company said it had benefited from LNG trading gains, strong sales volumes and high commodity prices.

But in power markets, earnings were lower amid falling prices for generators on the east coast.

Mr Calabria said the company was “making meaningful progress” towards a target of adding 4 to 5 gigawatts of green energy and storage by 2030.

“We are progressing a portfolio of wind projects including our priority development, Yanco Delta (NSW), and have committed approximately $1.7 billion to owned battery storage projects, as well as contracting the offtake from (two batteries).

“Origin’s largest battery development, the Eraring battery, was recently approved for stage 3, resulting in the largest total dispatch duration of a battery project under construction in the Southern Hemisphere.”

Shares were down 1.2 per cent to $10.14.

Moody’s Ratings senior analyst Nicholas Chapman said margins for electricity suppliers were “retreating” and the company would be borrowing to fund the energy transition.

“Some of these adverse factors should abate over the next 12-18 months, with earnings momentum likely to resume as investment projects are completed,” he said.