Faults and financials: Why is the AGL share price getting zapped 6% today?

A fault at Victoria’s largest power station has been followed by selling pressure on AGL shares…

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The lights are low on the AGL Energy Limited (ASX: AGL) share price today after news of an outage at the Loy Yang power station.

Following the announcement this morning, shares are down the most of any company in the S&P/ASX 200 Index (ASX: XJO). In specific terms, the AGL share price is down 6.2% to $8.25 as we head into the afternoon.

Outage creates a headache for more than just shareholders

Prior to the market opening this morning, one of Australia’s largest energy retailers announced that a problem had occurred at the Loy Yang A power station in Victoria. This is a coal-fired power station responsible for supplying around 30% of the south-eastern state’s electricity.

According to the release, one of the generators at Loy Yang has been taken out of service due to an electrical fault. The details surrounding the cause of the fault are currently under investigation by the company.

At this stage, AGL is uncertain of how long the generator may be out of action. However, the utility giant has made the Australian Energy Market Operator aware that it could be until 1 August 2022. Although, a caveat was given that this estimate is subject to change as the situation develops.

While the immediate pain is being felt by shareholders, with the AGL share price falling today, the fault could create an issue for Victoria’s electricity supply.

Losing the generator means the Loy Yang power station is down a quarter of its typical capacity. With the winter peak period just around the corner, mitigating the shortfall in electricity supply could present its own challenge.

What else could be hurting the AGL share price?

Recently, AGL Energy completed a seven-year-long endeavour to upgrade the systems at Loy Yang A. This undertaking required $60 million to ensure the power station is equipped to see out the rest of its tenure.

In February, the company made its intentions clear that it wants to close Loy Yang A earlier than previously guided. In turn, the coal-powered plant is now slated for shutdown no later than 2045. Yet, that date remains more than 20 years into the future.

Ultimately, today’s electrical fault could have shareholders nervous about the capital needed to keep Loy Yang A operational in future years. As such, market participants are going cold on the AGL share price today.

Lastly, the company stated it will provide an update with any financial impact once more is known.

Motley Fool contributor Mitchell Lawler 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 Bruce Jackson.

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