Coal crisis at Eraring Power Station forces Origin Energy to withdraw 2023 earnings guidance

Investors have punished Origin Energy after it withdrew earnings guidance for the next financial year amid what it described as “extreme volatility across commodity markets”.

The Sydney-based electricity generator and gas retailor said in a trading update on Wednesday that global energy supply and security concerns — exacerbated by the impact of Russia’s invasion of Ukraine — and unprecedented increases in global energy prices, including coal, gas and oil, was driving the uncertainty.

It shares where down almost 15 per cent to $5.83 at 8.55am.

“Domestically, coal plant outages and high coal and gas prices have contributed to a steep escalation in wholesale electricity prices,” Origin said.

“Ongoing volatility in market conditions is likely and may adversely impact operations.”

Origin now expects underlying earnings before interest, tax and amortisation to be around the mid-point of original guidance of between $1.95 billion and $2.25b.

Higher earnings from it gas business is benefiting from strong commodity prices and is expected to offset a decline in its energy markets business, with earnings expected to be up to $150 million higher than original forecasts at between $1.7b and $1.8b.

The company said ongoing coal supply challenges at its Eraring Power Station in NSW had deteriorated significantly in recent weeks, with material under-delivery of contracted coal compared to expectations and further production problems from supplier Centennial Coal expected.

“Equipment supply chain delays are also expected to impact coal deliveries in FY2023. The recent material under-delivery of coal to Eraring results in lower output from the plant, additional replacement coal purchases at significantly higher prices, and is being exacerbated by coal delivery constraints via rail,” Origin said.

The company said it now expects underlying EBITDA from its energy markets business to be between $310m and $460m, significantly lower than its original guidance range of $450m and $600m.

Origin had previously provided guidance for underlying EBITDA in its energy markets for 2022-23 of between $600m and $850 million but said the higher cost of supplying Eraring had forced it to pull guidance.

“While Origin has worked closely with coal suppliers to secure additional coal supply by rail, there are limitations to the amount of coal that can be delivered to the plant by this method. Therefore, there is uncertainty regarding the plant’s output in FY2023,” it said.

“The current high commodity price environment is a net benefit for integrated gas, with higher sale prices more than offsetting higher input prices, including power costs.

“There is a very high degree of uncertainty around the range of earnings outcomes for the 2023 financial year. As a result, Origin has withdrawn all guidance for FY2023.”