The AGL Energy Ltd (ASX: AGL) share price is down 0.6% right now while the S&P/ASX 200 Index (ASX: XJO) is down 0.3%. Competitor Origin Energy Ltd (ASX: ORG)'s share price is also down by 0.3%, so AGL is underperforming. Investors are digesting AGL's comments about its energy investment plans.
As one of the largest energy generators and retailers, AGL is important in Australia's efforts to achieve net zero emissions by 2050.
While AGL and Origin have long-term plans to exit coal, questions remain about where to invest to enable the energy transition.
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AGL's energy investment plans
According to reporting by the Australian Financial Review, AGL's chief operating officer Markus Brokhof has revealed AGL is going to focus on hydro, gas and batteries, as well as renewable energy purchase contracts and rooftop solar.
Brokhof believes the investment case for new wind and solar generation is "tricky", so the business will focus on a strategy that minimises solar and wind asset ownership. The solar peak generation time during the day coincides with the lowest demand, while wind generation's revenue is "relatively low".
Brokhof said to the AFR:
Everything from a battery, from a pumped hydro facility, or even a gas-fired power station, we will put on our balance sheet. We want to invest in this.
[In] renewables, we will partly invest but also underwrite power purchase agreements. We don't need to be the owner of a wind farm.
Hydro is underappreciated
Hydropower is undervalued in AGL's eyes because it opens up deep storage and firming capabilities for the energy market, which can help during times when renewable energy isn't able to perform.
However, Brokhof also warned that the cost of building hydro facilities was "huge" and suggested support from the government is possible. He commented on the prospect of government funding:
I think that's partly foreseen, but the terms and conditions are not clear.
AGL hopes the federal government's Capacity Investment Scheme includes pumped hydro projects, which may prioritise batteries according to the AFR's reporting.
As reported by the AFR, hydropower can work by pumping water uphill using low-cost (renewable) energy and then releasing it when demand increases after the sun has set (and wholesale electricity prices are higher). The water is then released and goes downhill, which powers a turbine to produce electricity.
AGL is looking at upgrading three of its hydro power plants to operate as pumped hydro facilities.
Brokhof said:
Firming capacity is key for us. It will allow us to use our trading capability. Being the largest private owner of hydro assets in Australia is a differentiator for us.
AGL share price snapshot
As shown on the chart below, the AGL share price has gone up 5% since the start of 2024, compared to a 1% rise for the ASX 200.
