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Date : 30/03/2021

Why is AGL Energy Ltd splitting into two energy business units?

AGL Energy Limitṣed (ASX: AGL) is arguably one of the most damaged large cap stocks on the ASX. AGL retails electricity to wholesale markets and customer markets. Wholesale electricity prices are plunging, and renewables are surging, and AGL is caught right in the thick of this storm and there looks to be no way out. The debate around climate change is intensifying in political, corporate and investor circles. Many investors have been aligning their portfolio by divesting from commodities that are harmful for the environment solely from an ethical standpoint. Thus, this entire sector is suffering from – a fundamental shift and a cultural shift.

The AGL stock price has shed 50% over the past 1 year. Since the Covid19 crash in March 2020, it looked for a while that AGL was on the road to recovery, however, the stock has consistently posted declines since August 2020. This year alone, AGL share prices have slumped close to 18%.

AGL today announced its plans to create two leading energy businesses focused on executing distinct strategies via a structural separation

  • New AGL – This will be AGL’s energy retailing business that includes its battery pipeline and renewable energy assets.
  • PrimeCo – This will contain all the coal stations where AGL generates its power which will then be retailed.

This demerger means that AGL is looking to separate its coal power plants business from its energy retail business – allowing the retail entity of AGL to be viewed as a zero-carbon electricity company for appearances. Currently, reports suggest that AGL is the top emitter of greenhouse gases in Australia with over 2.5x more emissions than second placed Energy Australia. The demerger will thus enable the company to hide its coal assets in a separate business and alter its reputation.

This announcement however did not renew faith in the market. AGL shares continued to slide and it did so by 3.54% today as the shares closed $9.81.

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