Goldman reaffirms its conviction buy on this ASX share on Yallourn shutdown

The decision to close the Yallourn power station years ahead of schedule is getting Goldman Sachs more excited about this ASX share on its conviction buy list.

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published March 12, 2021 3:43 pm AEDT

The decision to close the Yallourn power station years ahead of schedule is getting Goldman Sachs more excited about this ASX share on its conviction buy list.

EnergyAustralia sent shockwaves through the energy market and the Morrison government when it said it will close the coal-fired power station four years ahead of forecast.

The move is backed by the Victorian state government but has riled up the federal government who warned of higher power bills.

IAG share price broker upgrade buy — Image source: Getty Images

Origin share price to benefit from Yallourn

But as the debate rages, Goldman believes the Origin Energy Ltd (ASX: ORG) share price will be a winner from the earlier Yallourn shutdown in 2028.

"In our view, the risk of accelerating coal generation closures is increasing, as the market makes room for the rapid addition of renewable generation," said the broker.

"We expect withdrawal of Yallourn, Liddell and potentially other plants to drive upside to the current wholesale electricity price outlook."

Yallourn could be shut before 2028

This isn't the only noteworthy prediction made by Goldman. It also believes that Yallourn could be closed even earlier than EnergyAustralia is predicting due to the "very weak" wholesale electricity forward curve.

"Yallourn's eventual exit requires new capacity, Origin is best placed to leverage its Mortlake peaker for increased utilitisation," explained Goldman.

"Yallourn accounts for ~12% of peak demand requirements but more importantly the plant accounts for ~15% of FIRM Victorian generation capacity."

ASX shares charging up from shutdown

Of course, the early retirement of Yallourn will also benefit other coal-fired power station operators. This includes AGL Energy Limited's (ASX: AGL) Loy Yang and Baywater power plants. Origin owns the Eraring plant in New South Wales.

But the upside for the Origin share price doesn't only come from higher wholesale electricity prices. It's APLNG joint venture is another reason why some brokers consider this ASX share a buy.

Goldman's 12-month price target on the Origin share price is $6.85 a share.

Foolish takeaway

The Yallourn power station employs 500 permanent staff and hundreds of contractors. EnergyAustralia plans to build a 350-megawatt utility-scale battery in the Latrobe Valley by the end of 2026, reported the Australian Broadcasting Corporation.

Given the growing number of batteries and renewable power projects in the pipeline, lithium miners like the Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE) share price could join Origin in the winner's circle.

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