AGL Energy Limited (ASX: AGL) shares are on the move on Wednesday morning.
At the time of writing, the energy giant's shares are up 1% to $9.98.
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Why are AGL shares rising today?
The catalyst for today's move appears to be the release of an announcement confirming a major investment decision by the energy company.
According to the release, AGL has reached a final investment decision (FID) to proceed with the Kwinana Gas Power Generation 2 (K2) project in Western Australia.
This project will involve the development of a 220MW open-cycle, dual-fuel gas turbine power station, which will be located alongside the existing Kwinana Swift facility.
Major investment in firming capacity
AGL revealed that the total cost of the project is expected to be approximately $490 million, including previously announced gas turbine purchases.
Construction is scheduled to begin in mid-2026, with operations targeted to commence in the fourth quarter of 2027. The asset is expected to have a 25-year operating life.
Importantly, a significant portion of the project's revenues has already been secured.
AGL notes that it has been assigned 176MW of Peak Certified Reserve Capacity by the Australian Energy Market Operator, providing contracted revenue for 10 years at a price of $360,700 per MW. This will also escalate with inflation over the years.
Management is targeting a post-tax, ungeared return of above 8% for the project, which sits within its previously stated return range of 7% to 11% for firming investments.
Strengthening Western Australia presence
The K2 project is expected to strengthen AGL's position in Western Australia and support the growth of its Perth Energy business.
The company noted that it has a flexible gas portfolio in the region, including short, medium, and long-term supply and storage contracts, which positions it well to support the project.
Capital expenditure will be staged over several years, with around one-third of the investment expected in FY 2026, approximately half in FY 2027, and the remainder in FY 2028. As a result, AGL now expects growth capital expenditure of approximately $750 million in FY 2026.
AGL's managing director and CEO, Damien Nicks, believes the investment represents another step forward in the company's strategy. He 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.
