AGL Energy Ltd (ASX: AGL) has just announced plans to separate its business into two divisions. Will the AGL share price power up?
Well, it’s currently up more than 1% right now, so the market seems to be moderately positive about the situation.
What’s the plan?
The idea is to create two leading energy businesses focused on executing distinct strategies through a structural separation.
“New AGL” will be Australia’s largest multi-product energy retailer, leading to the transition to a low carbon future.
“PrimeCo” will be Australia’s largest electricity generator, supporting the economy as the energy market evolves.
New AGL
The aim for New AGL is for it to be carbon neutral for scope one and two emissions on day one, with a clear pathway to full carbon neutrality.
New AGL would have a strong, stable and growing customer base connected to 30% of Australian households. It would continue AGL’s heritage as a leading energy trader, backed by a portfolio of 2.1 GW of flexible generation and storage assets.
PrimeCo
PrimeCo will generate approximately 20% of the total electricity demand across the National Electricity Market (NEM). PrimeCo would be Australia’s largest electricity generator, supplying major wholesale, industrial and retail electricity users.
It will retain the low-cost thermal generation and fuel supply position.
PrimeCo will also play its part in the energy transition by developing existing sites as energy hubs, operating Australia’s largest wind portfolio and developing future wind projects.
Management comments
AGL Managing Director and CEO, Brett Redman, said: “For more than 180 years, AGL has led Australia’s energy sector, evolving and innovating to better serve our customers and communities, and to return value to shareholders.
“The accelerating market forces of customer, community and technology are driving the imperative to create this new path and separate AGL into two distinct organisations.
“The proposed structural separation would give each business the freedom, focus and clarity to execute their own respective strategies and growth agendas, while playing an equally important, but different, role in Australia’s energy transition.”
Summary thoughts on AGL
There is an unstoppable shift towards renewable and greener energy, it’s just a matter of how long the shift takes.
When Australia’s largest energy business is making this type of move, I think it’s going to happen sooner than originally expected.
It’s good for the country that energy prices are dropping right now, but it hurts AGL profits. For that reason, I don’t think I’d want to buy AGL shares for my portfolio at the moment.
