Yesterday afternoon, AGL Energy Ltd (ASX: AGL) announced it has made the Final Investment Decision (FID) to proceed with the Kwinana Gas Power Generation 2 Project (K2), a major 220 MW dual-fuel gas power station in Western Australia. The $490 million project is expected to support AGL's growth in the WA energy market and diversify earnings.
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What did AGL Energy report?
- Final Investment Decision to proceed with $490 million Kwinana Gas Power Generation 2 Project
- K2 will be a 220 MW open-cycle, dual-fuel gas turbine plant, co-located with AGL's existing Kwinana facility
- Construction to start mid-2026, with operations targeted for Q4 2027
- Ten years of revenue secured at $360,700 per MW, escalating with CPI
- Expected asset life of 25 years; targeted project return above 8% post-tax, ungeared
- Growth capex forecast for FY26 now approximately $750 million
What else do investors need to know?
AGL reached this FID just months after agreeing to purchase four gas turbines from Siemens AB, illustrating strong momentum in its portfolio revamp. The company has also secured 176 MW of Peak Certified Reserve Capacity credits from the Australian Energy Market Operator, which begin from October 2027.
Funding for the project will come from AGL's existing balance sheet, and about one-third of the K2 expenditure will occur in FY26, with the rest spread across the following two years. The deal strengthens AGL's position in WA, where it has a flexible gas supply portfolio to support the new facility.
What did AGL Energy management say?
AGL Managing Director and CEO Damien Nicks, said:
The Final Investment Decision on the K2 Project, on the back of our recently signed 15-year PPA with Waddi Wind Farm for 105 MW, bolsters AGL's portfolio in Western Australia and provides further opportunity to continue to scale our Perth Energy business and further diversify our earnings outside the NEM. It marks another important milestone in AGL's strategy to develop new firming capacity to support the build out of renewables, and further expands the breadth and capacity of the company's flexible asset portfolio.
What's next for AGL Energy?
AGL expects construction of the K2 project to commence in mid-2026, with plant operations targeted for late 2027. This investment is part of AGL's broader strategy to add new firming capacity and support Australia's renewable transition, especially outside the National Electricity Market.
With a diversified generation and gas portfolio, AGL continues to focus on its Climate Transition Action Plan, positioning itself to be a leader in Australia's shift toward lower emissions and a smarter energy future.
AGL Energy share price snapshot
Over the past 12 months, AGL shares have declined 6%, trailing the S&P/ASX 200 Index (ASX: XJO) which has risen 8% over the same period.
