Investors who own AGL Energy Limited (ASX: AGL) shares, or are interested in buying them, should get to grips with how much electricity demand might change in the coming decades.
While 2050 is a while away, being aware of electricity demand forecasts could certainly be beneficial for long-term investors.
AGL is both an energy generator and a retailer of energy. The company's chief financial officer Gary Brown was talking at the Australian Financial Review's CFO Live event, now underway.
Changing energy environment for AGL shares
According to reporting by the Australian Financial Review, AGL's strategy wasn't positioned to cut fossil fuels in line with the Paris climate agreement, struck in 2016.
Brown noted AGL needed to shut its coal-fired power plants by the late 2020s to meet the Paris Agreement's bid to limit global heating by 1.5C. He said this was tricky because AGL is Australia's largest coal plant owner.
According to AGL, the uptake of electric vehicles will be a large driver of increasing electricity demand, leading to a 30% increase in home electricity consumption. Perhaps this will be a tailwind for AGL shares.
It was pretty clear that [closing the coal plants] was going to be very, very difficult to achieve.
So we pretty quickly came to the point that 1.5 degrees was going to be very, very difficult to achieve.
We worked our way back from that. We started off with what ultimately our customers are going to want access to in the future. We're expecting there will be a doubling of demand in electricity between now and 2050.
Forecasts for the ASX energy share
The broker UBS is expecting the ASX energy share to deliver earnings per share (EPS) and dividend per share growth each year to FY27. Of course, FY27 is only a few years away, whereas FY50 is decades away, but broker analysts only forecast so far into the future.
By FY27, UBS is expecting AGL EPS to reach $1.35 and the dividend per share to hit 84 cents per share. At the current AGL share price, that would put the company at seven times FY27's estimated earnings with a dividend yield of 8.5%, excluding the effect of any franking credits.