The $HK8.68 billion loss at EnergyAustralia compared with a net profit of $HK837 million in the first half of 2021. It sent the whole CLP group to a loss of $HK4.86 billion for the six months, down from a profit of $HK4.62 billion a year earlier.
CLP still maintained its dividend, and Mr Lancaster said the first six months in Australia involved an unusual combination of events that led to very high spot prices. The half also included the unprecedented nine-day suspension of the National Electricity Market in June and the failure of several small electricity retailers,
Both of EnergyAustralia’s key rivals, AGL Energy and Origin Energy, were also badly impacted, with both revising profit guidance amid issues such as coal power outages and coal supply problems at some plants.
“I wouldn’t look at the last six months as being representative of the market in general, however volatility is something we must expect in Australia,” Mr Lancaster said.
“As economies go through an energy transition we do see the need for firm capacity and more storage capacity, which is essentially where we see good investments in Australia.”
The problems at EnergyAustralia, the country’s third-biggest electricity and gas supplier, contributed to Standard & Poor’s last month cutting the credit rating at the company to the lowest investment grade, BBB-, with a negative outlook. It said the company could be at risk of breaching one of its debt covenants, and suggested it may need financial assistance from its parent.
In the half-year report released in Hong Kong, CLP said EnergyAustralia would “continue to strengthen its capital structure to fund its current and future investment needs, providing the reliable supply needed to support customer demand and the transition to a lower-carbon power market ”.
Open to partnerships
Mr Lancaster said all options were open for partnerships at Energy Australia, and pointed to the example of India, where CLP linked with Canadian investment giant CDPQ to form Apraava Energy.
“We are open to partnerships for parts of the business, for projects and even for the whole business,” he told The Australian Financial Review.
“We do see a need to invest in the energy infrastructure in Australia in order to go through an energy transition.”
He pointed to firming power supply and energy storage as areas that CLP regards as good investments in Australia.
“This will require considerable and sustained capital investment, so by working with partners on projects, or in segments of our business or in the business as a whole such as we’ve done in India with CDPQ, we remain open to all of those options .”
EnergyAustralia also incurred high costs in the first half to settle forward contracts that could not be covered because of reduced generation at its biggest power stations, Yallourn in Victoria and Mount Piper in NSW.
Output at Yallourn was hit by unplanned outages, including a fire at a coal conveyor system, as well as “recurring maintenance issues”, CLP said.
At Mount Piper, output fell because of a major planned outage and constraints in the delivery of coal from the site’s major supplier.
CLP said EnergyAustralia had contracted its generation in advance, ahead of the spike in wholesale prices, and then had to cover the contracts in the market at the higher spot rates because of the shortfalls in output at the two plants.
Earnings in the retailing arm improved, thanks to gains from hedging and reduced bad debt expenses. Customer accounts rose to 2.45 million, boosted by customers transferred through the “retailer of last resort” scheme when their own retailer failed. EnergyAustralia joined other retailers in lifting tariffs for household and business customers, although analysts say that for some retailers, costs have risen even more steeply.
But CLP said that despite “challenging” operating conditions in Australia, rising wholesale power prices should benefit EnergyAustralia in the longer term. It said the company was planning maintenance work at Yallourn to tackle the reliability issues, while coal supply to Mount Piper should improve.
“Additional short-term coal and gas purchases have been made to enable EnergyAustralia’s power stations to support customers and the broader energy market in the second half,” CLP said.
The group also voiced support for the proposed “capacity mechanism” that would transform the National Electricity Market and said it should promote investments in new dispatchable capacity, and enable more renewable energy to enter the grid reliably and affordably.