Why the AGL Energy share price could sink lower today

The AGL Energy Limited (ASX:AGL) share price could come under pressure today after revealing that an outage could have a material impact on its earnings in FY 2020…

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The AGL Energy Limited (ASX: AGL) share price could come under pressure this morning after the release of an announcement on Friday evening.

What was announced?

AGL Energy provided the market with an update on the extent and impact of an outage at Unit 2 at the Loy Yang A power station in the Latrobe Valley.

According to the release, following the completion of its assessment, AGL now believes the outage could extend seven months and have a material impact on its financial results in FY 2020.

The release explains that the unit has been out of service since May 18 following an electrical short internal to the generator. This then caused consequential damage to the stator and rotor components.

Originally, management expected it to take between two and four months to return the unit to service pending results of internal generator inspections.

However, following rotor removal and cleaning, further technical assessments revealed a more extensive level of damage than was previously assessed. The full impact has now been determined and the company believes it could take until December 2019 to return the unit to service and ensure its ongoing reliability.

It advised that this duration of repair reflects the unique original technical design specifications of the unit and the extent of damage.

What impact will this have?

AGL doesn't expect the outage to have a material impact on its results for FY 2019 and advised that it continues to expect underlying profit after tax to be towards the mid-point of its guidance range of $970 million to $1,070 million.

However, it could be a very different story in FY 2020. Management advised that it is seeking to mitigate impacts to portfolio availability and cost of the outage, but currently expects FY 2020 underlying profit after tax to be impacted by between $60 million and $100 million.

Furthermore, any material recoupment of these impacts via insurance claims is not likely to occur until FY 2021.

Elsewhere in the energy sector, the Woodside Petroleum Limited (ASX: WPL) share price will be on watch today after reporting issues with its Pluto LNG turnaround and the Santos Ltd (ASX: STO) share price could come under pressure after oil prices tumbled lower overnight.

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