Australia’s AGL Energy plans $780-mn asset sale

Australia's biggest power producer AGL Energy Ltd is looking to sell non-core assets worth A$1 billion ($780 million) and also generate additional A$200 million through cost cuts, aiming to position the company as the energy industry transforms to a carbon-constrained future.

According to the company's chief executive Andy Vesey, AGL would focus more on rooftop solar, battery storage, electric vehicle services as well as new retail technologies.

Assets put on the block include AGL's 50-per cent interest in Macarthur wind farm-Australia largest-, with anticipated net proceeds of A$500 million, and potential sales from upstream gas business.

In a strategy briefing presentation to investors and analysts yesterday, AGL said its Gloucester coal-seam gas project was also being assessed which includes an evaluation of the cost to develop the asset and the expected gas recovery.

AGL said that six months of flow testing would be required after its planned restart of four pilot wells of the project, before a final decision can be arrived at.

According to some analysts, Moranbah gas assets in Queensland that are being developed in conjunction with Arrow Energy may also be put on the block.

The asset sales and cost cuts will generate $1.2 billion of free cash flow, which analysts expect could be used for higher dividends and capital returns.

The divestments as well as the $200 million working capital reduction are expected to be completed by fiscal 2017.

Sydney-based AGL is one of Australia's leading integrated energy companies and is the largest ASX-listed owner, operator and developer of renewable energy generation in the country. With an experience of over 175 years, the company operates retail and merchant energy businesses, power generation assets and an upstream gas portfolio.

AGL has over 13 million energy customers amid increasingly competitive retail market.
 
''The existing centralised energy supply market is expected to provide near-to-mid term opportunities with an expected increase in wholesale electricity prices, although there are challenges in the long-term from the need to reduce carbon emissions, as well as from increasing penetration of decentralised generation and digital technologies,'' AGL said.

Australian rooftop solar market has increased over seven-fold in the past five years to 1.4 million installations with a three-fold average system size increase to 4.5 Kw and an 80 per cent reduction in installation cost on the back of subsidies.

The company expects large headroom for future growth on reduced costs and improved technologies.

In the long-term, energy markets will be transformed by new decentralised products and services, including solar PV, battery storage, connected appliances and smart grids,'' AGL said.

The energy company also aims to create one million ''smart'' connections by 2020 by becoming a leading provider of metering services, rooftop solar, commercial energy, energy storage and electric vehicle services.

The company has reconfirmed its fiscal 2015 net profit guidance at $575-$635 million, saying that result is expected to be in the top half of the range. Nevertheless, $30 million in restructuring costs is also expected to be booked in the financial year.

Vesey has made significant changes since his taking over from Michael Fraser in February including senior management changes, and introduction of a new greenhouse policy last month committing to close its coal-fired power plants by 2050.