Origin and AGL face dual threat of low demand and increased competition

Intelligent Investor

Independent Financial Research

Origin and AGL face dual threat of low demand and increased competition. Since 2008, electricity demand has fallen every year for six straight years. Total demand for electricity is now 15% lower than it was in 2007 but, due to the incentives for power generators to 'gold plate' the system, supply has grown. The influence of solar power means utilities are now operating without their customary high prices, forgoing large chunks of profit, which means peaking plants in Australia should prepare for lower utilisation, lower prices and lower profits. Lower electricity demand is already pinching profits. Origin's operating margins, for example, have fallen from 12% two years ago to 7% today. The threat to vertically-integrated retailers like Origin and AGL isn't just from lower demand but also increased competition. Stable or falling wholesale electricity prices allow competitors to pop up easily and compete effectively without operating a single generator. (VIEW LINK)


Intelligent Investor
Independent Financial Research

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