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AGL retails gas and electricity to residential, small business and commercial and industrial customers. Our cost of supply fluctuates with movements in energy prices.
AGL’s integrated strategy balances risk between upstream supply of energy and our customers’ demand for energy. Vertical integration provides AGL with a natural hedge against energy price movements, whilst providing access to multiple profit pools. Horizontal integration through operating across the National Electricity Market provides further diversification of our earnings streams. Benefits flow through to our customers in the form of lower energy costs and to our Shareholders in the form of diversified sources of income and improved quality of earnings. This approach is known as the AGL integrated business strategy.
The introduction of the Carbon Pollution Reduction Scheme and expanded Renewable Energy Target will affect future investment in the energy sector. The chart below shows how these two policies alone transform the new investment required across the Australian electricity sector. As a result of the introduction of the expanded Renewable Energy Target, industry-wide investment in new renewable generation is likely to increase from 1,200 MW to 9,500 MW over the next decade. The investment in new generation across the National Electricity Market is likely to double from $17 billion to $32 billion, most of which will be renewable energy.
AGL has Australia’s largest privately owned, operated and controlled portfolio of renewable generation assets and a pipeline of renewable development opportunities. AGL’s integrated strategy is consistent with a carbon-constrained future.
We are also developing options so that we do not become stranded in an environment of rapid change. These options include investment in new technologies such as geothermal electricity generation, the deployment of electric vehicles and new energy efficiency offerings to provide additional services for our major industrial and commercial customers.
We achieved the following in 2008/09:
At 30 June 2009, AGL had 353 MW of new renewable generation capacity under construction. In 2007/08, AGL completed construction of the 95 MW Hallett 1 Wind Farm. Construction work is continuing on a second wind farm near Hallett known as the Hallett 2 Wind Farm with the 71 MW wind farm due to be completed in 2009/10.
In March 2009, AGL announced construction of the 132 MW Hallett 4 Wind Farm. The Hallett 4 Wind Farm will consist of 63 x 2.1MW turbines to be purchased from Suzlon Energy Australia Pty Ltd. The Hallett 4 site is located 220km north of Adelaide and immediately north of the Hallett 1 Wind Farm. The long-term average wind speed at Hallett 4 is estimated to be greater than 8.5 metres per second (m/s), similar to the wind conditions prevailing at the Hallett 1 and Hallett 2 wind farm sites.
Construction of the Bogong hydroelectric power station is also continuing. The project allows for 140 MW of additional renewable generation capacity.
Tables outlining AGL’s renewable and gas fired generation projects under development are available in the About AGL section of this report.
During 2008/09, the operational performance of our gas and hydro generation assets has been strong, although the drought has reduced available generation capacity. Dartmouth (180 MW) is not anticipated to be operational within the next three years. Eildon (135 MW) is operational but with restricted generation output capacity.
AGL continues to retail electricity and gas to 3.2 million customer accounts across New South Wales, Queensland, South Australia and Victoria. The markets in which AGL competes are among the most competitive retail energy markets in the world.
Relatively high levels of competitor activity persisted throughout 2008/09. AGL’s overall customer numbers have remained relatively stable throughout the year. AGL’s average national customer churn for 2008/09 was 14% compared to an average market churn of 19%.
AGL continued to build its direct interests in upstream gas reserves. AGL has a target of acquiring 2,000 PJ of 2P gas reserves in the medium term to manage security of supply.
In 2008/09, AGL:
We anticipate that with these investments and our existing wholesale contracts in place, AGL will be able to satisfy our supply requirements for our customers beyond 2017. This represents the longest ‘reserves to consumption’ ratio in the Company’s history and demonstrates the growing sustainability of our business.
Australia’s gas markets have undergone significant change in recent years with the discoveries of large volumes of coal seam gas in Queensland. In 2008/09, a number of large international energy companies announced various plans for the export of liquefied natural gas (LNG) derived from coal seam gas around the middle of next decade.
With such large change in Australia’s south-east gas markets underway, AGL has acted to promote gas market security through two strategic investments in pipeline infrastructure.
AGL provided the foundation contracts to allow construction of the final link in south-east Australian gas markets – the Queensland – South Australia – New South Wales Link (QSN). This pipeline, which became operational in 2008/09, connects Queensland gas markets with those of New South Wales, Victoria and South Australia.
In addition, AGL developed and constructed the Berwyndale to Wallumbilla gas pipeline in south-east Queensland. This pipeline links QGC’s gas operations to the Wallumbilla ‘gas hub’. The pipeline became operational in 2008/09 and has provided further interconnection within the south-east Australian gas market.
