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Why ASX energy shares are under pressure right now

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ASX energy shares have been under a lot of pressure in recent months. The AGL Energy Limited (ASX: AGL) share price slumped to a new 52-week low on Wednesday morning and remains down 41.1% in the last 12 months.

And AGL is far from alone. Origin Energy Ltd (ASX: ORG) shares have slumped 40.2% lower in the past year. So, what’s putting ASX energy shares under pressure and what’s ahead for 2021?

Why ASX energy shares are slumping lower

The coronavirus pandemic hit energy producers hard in 2020. Key industries like manufacturing effectively shut down which caused demand for energy to plummet.

Other key industries such as office real estate also had reduced energy needs in 2020.

A reliance on coal-fired power stations, which are struggling to turn a profit at current electricity prices, is also impacting on profits.

The flow on effects have been felt by shareholders with ASX energy shares falling lower in the past year.

While AGL shares hit a 52-week low in yesterday’s trade, both AGL and Origin ended the day in the black.

That’s despite an article in the Australian Financial Review (AFR) discussing potential overinvestment in Aussie energy.

Snowy Hydro is pushing ahead with a 750 megawatt (MW) gas power plant despite a number of large-scale projects on the horizon. 

Origin has also confirmed a 4-hour 700 MW battery at its Eraring power station on the NSW Central Coast.

The Federal Government is hoping further NSW dispatchable capacity will support any private sector shortfall.

But the Grattan Institute is suggesting that the case for further investment may not stack up. Grattan Institute energy program director Tony Wood said the case for building 1000MW of capacity has “never been substantiated”.

Foolish takeaway

All of this sets up an interesting period for ASX energy shares to start the year with a race to increase energy generation and storage capacity.

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Motley Fool contributor Ken Hall 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 Bruce Jackson.

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