July 30 (Reuters) – Australia’s Origin Energy (ORG.AX) warned on Friday of a A$2.25 billion ($1.67 billion) charge in fiscal 2021 and a steep fall in next year’s earnings for its energy markets business, which is struggling from a collapse in wholesale electricity prices.
Shares of the company plunged 7.9%, their most since April, as Origin flagged “significant headwinds” in fiscal 2022 with a flood of wind and solar power into Australia’s grid hurting prices and squeezing margins.
The bulk of the expected charge, Origin said, would be a A$1.58 billion post-tax impairment in its power generation business, including a A$583 million write-down in the value of Australia’s biggest coal-fired power station, Eraring.
Core earnings at the unit are expected between A$450 million and A$600 million in fiscal 2022, a sharp drop from the A$940 million to A$1.02 billion forecast for 2021 to be delivered in August.
“This is at least the third downgrade this year,” Macquarie said in a note, adding that earnings appeared to be rebasing in the medium term to between A$750 million and A$800 million.
The company, however, said the unit’s earnings should start to show some recovery in fiscal 2023, to between A$600 million and A$850 million.
Origin’s impairment warning comes as Australia weighs recommendations from the Energy Security Board on reforms to the national electricity market, which aims to prolong the life of coal- and gas-fired plants to ensure reliable supply at a time of rapid growth in renewable power.
The reforms would create a “capacity mechanism” that would pay generators for flexible power capacity, crucial for backing up weather-dependent wind and solar.
Shares of AGL, Origin’s peer and Australia’s biggest power producer with the most coal-fired generation, fell 3%. AGL plans to split into a bulk power generator and energy retailer. read more
($1 = 1.3510 Australian dollars)
Reporting by Shashwat Awasthi and Savyata Mishra in Bengaluru and Sonali Paul in Melbourne, additional reporting by Nikhil Kurian Nainan; Editing by Maju Samuel, Subhranshu Sahu, and Sherry Jacob-Phillips
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