The AGL Energy Limited (ASX: AGL) share price has enjoyed a reversal in fortunes recently as it outperformed the market and its key rival.
The AGL share price added 2.3% over the past month and has gained around 18% since the start of 2022.
In contrast, the Origin Energy Ltd (ASX: ORG) share price slumped around 3.5% in the past month. That takes its gains since January to a modest 2.4%.
Even the S&P/ASX 200 Index (ASX: XJO) couldn't keep pace with the AGL share price. It's barely in the black in February and has dropped 6.5% this year.
Why the AGL share price is rebounding
The turnaround in AGL's fortunes will be a welcome relief for shareholders who have seen its shares plunge over 20% in the past year.
The recent change in sentiment is largely thanks to a takeover offer by Atlassian Co-CEO Mike Cannon-Brookes and Brookfield Asset Management.
AGL has rejected the unsolicited offer, claiming it undervalues the whole business. But some believe the company is still in play as it attempts a messy demerger.
No credible transition plan out of coal
AGL's ownership of fossil-fuel-burning power plants is one of the big reasons why the AGL share price has fallen out of favour.
There isn't a clear plan on how the power plant and energy retailer can transition to a net-zero future.
Its plan to spin off the problematic coal-fired power assets into a new listed ASX entity isn't much of a solution. Many current AGL shareholders who will get shares in "Dirty Co" through the spinoff don't want to own dying assets.
AGL share price still a hostage to low carbon future
There is also no guarantee that AGL can pull off the demerger as some shareholders think it is "value destructive".
Selling Dirty Co to a group with the resources and means to more quickly replace the coal power plants with renewables is a simpler solution for shareholders – if all parties can agree on a price.
How management navigates the transition will be a more important determiner of the longer-term performance of the AGL share price.
Origin vs AGL
Being stuck with assets is the key reason why the Origin share price has delivered superior returns over the past year or more.
Like AGL, Origin has a retail business. But unlike AGL, Origin owns LNG assets. While some might say LNG contributes to climate change, gas is still regarded as a better alternative to coal.
