The AGL Energy Ltd (ASX: AGL) share price is moving lower on a major investment decision this morning.
It's a sombre start to trading for Australia's $6 billion energy provider, which is failing to keep up with the S&P/ASX 200 Index (ASX: XJO). While the gas and electricity retailer shares are slipping 0.7% to $9.03, the benchmark is 0.25% better off than yesterday at 7,445.2 points.
The country's oldest energy provider has decided to adopt battery technology in a large way starting in 2024.
Future-proofing energy portfolio
In 2022, AGL outlined its aim to phase out coal in its business by 2035. Today, the energy powerhouse has put a stake in the ground to build a 500-megawatt (MW), 'grid-scale' battery in the Hunter Energy Hub of New South Wales.
In light of the final investment decision, AGL will now move to begin construction early next year. The two-hour-long energy storage system could be up and running by as soon as mid-2026, according to the company.
The project, headed by global energy storage leader Fluence, will take a considerable $750 million to construct. A grant of $35 million will be provided by the Australian Renewable Energy Agency (ARENA) to support the cost of building.
For context, the projected construction cost is equivalent to approximately 26% of AGL's FY2023 gross profit or 82% of its cash flow from operations.
Discussing the significance of the decision, AGL managing director and CEO Damien Nicks said:
The Final Investment Decision on the Liddell battery project makes another significant milestone in AGL's decarbonisation pathway and the transition of its energy portfolio.
Nicks added:
Importantly, the Liddell battery will be a key component of achieving our interim target of approximately 5GW [5 gigawatts] of new renewables and firming capacity in place by 2030.
AGL shut down its Liddell coal-fired power station after 52 years in April. Meanwhile, the larger Loy Yang A station is slated to operate until 2035, giving AGL a further 12 years to shift to an alternative.
Outside of the AGL share price
The utility sector has found itself at the heart of immense takeover interest lately. Alongside AGL's major announcement, Origin Energy Ltd (ASX: ORG) has revealed an increased investment in UK-based renewable energy firm Octopus Energy.
Upping its stake from 3% to 23%, Origin is investing roughly A$530 million into what is now the UK's second-largest energy retailer, touting 11 million customer accounts.
Ironically, it seems Origin has had more success at acquiring shares in other businesses than its own suitor, Brookfield. The Canadian asset management firm also failed to gobble up AGL yet is rumoured to have other Aussie assets in its sights — with a managing partner lamenting, "This is a sector we're very bullish on."
The AGL share price is up 12% on a year-to-date basis.
