What's put the wind up AGL shares on Friday?

AGL has outlined where it expects to invest for the energy transition.

| More on:
light bulb surrounded by green hydrogen and renewable energy icons

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The AGL Energy Ltd (ASX: AGL) share price is down 0.6% right now while the S&P/ASX 200 Index (ASX: XJO) is down 0.3%. Competitor Origin Energy Ltd (ASX: ORG)'s share price is also down by 0.3%, so AGL is underperforming. Investors are digesting AGL's comments about its energy investment plans.

As one of the largest energy generators and retailers, AGL is important in Australia's efforts to achieve net zero emissions by 2050.

While AGL and Origin have long-term plans to exit coal, questions remain about where to invest to enable the energy transition.

AGL's energy investment plans

According to reporting by the Australian Financial Review, AGL's chief operating officer Markus Brokhof has revealed AGL is going to focus on hydro, gas and batteries, as well as renewable energy purchase contracts and rooftop solar.

Brokhof believes the investment case for new wind and solar generation is "tricky", so the business will focus on a strategy that minimises solar and wind asset ownership. The solar peak generation time during the day coincides with the lowest demand, while wind generation's revenue is "relatively low".

Brokhof said to the AFR:

Everything from a battery, from a pumped hydro facility, or even a gas-fired power station, we will put on our balance sheet. We want to invest in this.

[In] renewables, we will partly invest but also underwrite power purchase agreements. We don't need to be the owner of a wind farm.

Hydro is underappreciated

Hydropower is undervalued in AGL's eyes because it opens up deep storage and firming capabilities for the energy market, which can help during times when renewable energy isn't able to perform.

However, Brokhof also warned that the cost of building hydro facilities was "huge" and suggested support from the government is possible. He commented on the prospect of government funding:

I think that's partly foreseen, but the terms and conditions are not clear.

AGL hopes the federal government's Capacity Investment Scheme includes pumped hydro projects, which may prioritise batteries according to the AFR's reporting.

As reported by the AFR, hydropower can work by pumping water uphill using low-cost (renewable) energy and then releasing it when demand increases after the sun has set (and wholesale electricity prices are higher). The water is then released and goes downhill, which powers a turbine to produce electricity.

AGL is looking at upgrading three of its hydro power plants to operate as pumped hydro facilities.

Brokhof said:

Firming capacity is key for us. It will allow us to use our trading capability. Being the largest private owner of hydro assets in Australia is a differentiator for us.

AGL share price snapshot

As shown on the chart below, the AGL share price has gone up 5% since the start of 2024, compared to a 1% rise for the ASX 200.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

A kid stretches up to reach the top of the ruler drawn on the wall behind.
Energy Shares

This ASX 200 share is down 40% in 2 months, an expert says it has significant potential

This fund manager has outlined why this stock has a positive future.

Read more »

oil and gas worker checks phone on site in front of oil and gas equipment
Energy Shares

Why ASX 200 energy shares are facing a plunging oil price in 2025

Just how low will the oil price go in 2025? Let’s find out.

Read more »

Man with a hand on his head looks at a red stock market chart showing a falling share price.
Share Market News

Why did the ASX 200 hit a six-month low last week?

There was turmoil on the share market with ASX 200 energy stocks the worst affected.

Read more »

Woman refuelling the gas tank at fuel pump, symbolising the Ampol share price.
Energy Shares

This ASX 200 share just hit a 52-week low, one expert thinks it's a great buy

UBS believes this stock could significantly drive returns.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Energy Shares

Why are Woodside shares sinking like stones today?

What is causing investors to hit the sell button today? Let's find out.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

'Material discount': Broker says this ASX 200 uranium stock can rise 100%!

Bell Potter thinks this stock is trading at a material discount and sees scope for it to double in value.

Read more »

Oil price going down.
Energy Shares

ASX 200 energy shares in retreat as oil price plunges on unexpected developments

ASX 200 energy stocks are catching headwinds on some unexpected fronts today.

Read more »

An oil worker assesses productivity at an oil rig as ASX 200 energy shares continue to rise.
Energy Shares

What happened with these ASX 200 energy shares in February?

For those keeping an eye on energy stocks this year, these ASX 200 shares moved in opposite directions in February. 

Read more »