Competition in the deregulated energy market is fierce with customers demanding granular control over their energy bills. In addition, the Queensland LNG plants will significantly reshape the medium term energy outlook for gas and AGL's own greenhouse gas policy forecasts the winding back of its coal-fired power business over the next few decades.
The roadmap aims to deliver sustainable earnings growth during the most different environment the company has faced since its establishment in 1837.
“The strategy will increase business productivity, drive retail profit growth and position AGL for success as the energy industry transforms,” the company said this morning.
Organisational reform, which has already happened at an executive level, will continue as the company seeks to build what it calls an “anticipatory culture”
That new culture, which AGL believes is vital to its survival, requires building an “agile business” able to anticipate, adapt and position it to take advantage of new technologies and opportunities as they emerge.
In the long-term, energy markets will be transformed by decentralised products and services including solar PV, battery storage, connected appliances and smart grids.
“AGL understands that it must overcome internal constraints and needs to create an anticipatory culture able to take advantage of opportunities in a changing market environment,” the company said.
As part of that transition, around $1 billion in non-strategic and under-performing asset divestments is planned by the end of 2016-17. Working capital reductions of around $200 million are also targeted.
Gas will continue to be vital to AGL's output.
While an operational review of AGL's upstream gas business is still underway, the company says it is committed to competing in retail gas markets which will likely come via third party gas purchases, such as the recent Gippsland Basin Joint Venture contract, its investment in gas storage in Newcastle and its upstream gas exploration and development.
AGL didn't directly address its poorly performing Galilee Basin CSG ambitions, which are tipped to join its Moranbah CSG holdings in divestment; however, the energy retailer says it will continue to assess the Gloucester gas project.
Once the four Waukivory Pilot wells have been restarted about six months of flow testing will be needed to complete development cost assessments, as well as expected gas recovery costs, before a final development decision is made.
Given the vast short and medium term impact of the Queensland LNG trains on the east coast energy markets, with gas-fired electricity costs to increase as a consequence, possible shortages for industrial users and continued growth in average household demand, AGL predicts the emerging environment will make fuel switching more economic in the residential sector.
Installed solar capacity has already grown from almost nothing in 2009 to five terawatt hours in 2015. By 2030 it could be between 10-20TWh.
AGL says it wants to give its 3.7 million customers a modern energy supply, fuelled by the largest and lowest cost thermal electricity generation portfolio in the National Electricity Market and a large and growing renewable energy portfolio.
The existing centralised energy supply market is expected to provide near-to-mid-term opportunities with an expected increase in wholesale electricity prices, although there are challenges in the long-term from the need to reduce carbon emissions, increase penetration of decentralised generation, digital technologies such as digital metering capability, and the company’s decision to enter the battery storage business ahead of major retail competitors.
AGL’s New Energy business has been established to embrace the major changes transforming the energy industry and to create new business models to meet customers’ needs, with the aim of creating one million smart connections to consumers and businesses by 2020.
The company expects to finish the 2015 fiscal year with an underlying net profit after tax of between $575 and $635 million – a result in the top half of the range despite booking $30 million of restructuring costs.
