AGL Energy steps into solar

Energy utility to build its first solar plants in NSW

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 31, 2013 1:24 pm AEST

AGL Energy (ASX:AGK) has taken its first step into harnessing the energy from the sun, with the approval of two projects in New South Wales.

The two projects, to be built in Nyngan and Broken Hill, are expected to start production from mid-2015 and will cost the energy company $450 million. The solar photovoltaic (PV) projects are part of a government-backed initiative to encourage the use of green, clean energy. AGL will receive $166.7 million in funding support from the federal government, and another $64.9 million from the NSW state government. That almost halves the cost for AGL.

The 102 megawatt (MW) solar plant at Nyngan and the 53MW plant at Broken Hill are expected to create 300 and 150 jobs at each location respectively. Combined, the projects will produce approximately 360,000 megawatt hours of electricity annually, sufficient to meet the needs of around 50,000 average NSW homes.

Construction is set to begin at Nyngan in January next year, with Broken Hill following in July.

Australia still generates a significant amount of energy from coal-fired power plants, which means the country is one of the biggest polluters by population in the world. NSW alone has 14 coal-fired power stations, with another 26 located in other states.

AGL itself owns the Loy Yang A coal-fired power station in Victoria, but has invested over $3 billion in renewable energy generation, including the largest wind farm in the world at Macarthur in Victoria.

AGL competes with Origin Energy (ASX:ORG) for the title of Australia's largest energy supplier, but there the similarity virtually ends. Origin is engaged in gas exploration and production and is a partner in building the massive Australia Pacific LNG plant at Gladstone. Origin operates 8 power stations, across NSW, Queensland, South Australia and Victoria, with most fuelled by natural gas.

Both AGL and Origin have invested significant amounts in renewable energy projects, including wind and hydro. While AGL has gone down the solar trail, Origin is investigating geothermal energy, which uses water heated naturally by the earth.

Foolish takeaway

AGL Energy recently made a takeover offer for Australian Power & Gas (ASX:APK) as it looks to increase customer numbers, and take advantage of economies of scale. With energy a key product for consumers, the acquisition and the solar farms will increase AGL's energy market share.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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