AGL Energy steps into solar

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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