Investors are increasingly turning their attention to energy shares in Australia, particularly those involved in renewable energy. Among the prominent companies listed on the Australian Securities Exchange (ASX) are Origin Energy Ltd and AGL Energy Ltd. Both companies are making strides in transitioning to cleaner energy sources, with Origin Energy focusing on renewable energy storage and AGL aiming for net-zero emissions by 2035.
At the market close on Tuesday, Origin Energy shares rose by 0.64%, reaching $12.58 each. Over the past six months, this represents an impressive increase of 18.9% and a growth of 31.73% compared to the same time last year. In contrast, AGL Energy shares experienced a different trend, closing at $8.61 after a 0.23% increase. Over the last six months, the share price has fallen by 18.93% and is down 24.41% year-on-year.
Macquarie’s Analysis of Energy Shares
Both companies have seen contrasting trajectories in their share prices over the past year. Macquarie Group Ltd recently provided insights into their performance and potential outlook. In a note to investors, the brokerage maintained a neutral rating on Origin Energy shares with a target price of $11.34, indicating a potential downside of 9.8% for investors over the next twelve months.
Conversely, Macquarie affirmed its outperform rating for AGL Energy, raising its target price to $11.00, up from $10.91. This adjustment suggests a potential upside of 27.8% for investors in the upcoming year, based on the current share price.
Macquarie’s analysis underscored that while a colder winter increased demand for energy, improved generation performance led to lower overall volatility. The brokerage noted, “The cold winter (August) delivered better demand for the sector, but the broader generation fleet performed better than FY25.” The early months of the fiscal year indicate a moderate earnings start in electricity, although gas volumes in New South Wales, South Australia, and Western Australia have increased by 6-7%, while gas in Victoria saw a modest rise of 1%.
Future Trends in Electricity Pricing
Another critical factor highlighted by Macquarie is the pricing of wind power purchase agreements (PPAs). These long-term contracts allow buyers to purchase electricity at a fixed price, with current pricing hovering around $120 per megawatt-hour (MWh). According to the brokerage, achieving an electricity price of $150 per MWh or higher will be essential by 2030.
As New South Wales wind averages a discount of approximately 20% compared to the New South Wales National Electricity Market (NEM) price, the progression of various wind farm projects toward final investment decisions (FID) signals a shift in electricity pricing in the region. Macquarie anticipates that electricity prices will move towards $130-140 per MWh, exceeding previous expectations by $10-20 per MWh. AGL Energy is particularly well-positioned to capitalize on this scenario, with its coal fleet expected to remain operational for another 2-5 years.
As the energy landscape continues to evolve, the insights from Macquarie shed light on the potential trajectories for both Origin and AGL Energy shares, providing investors with crucial information for their decision-making processes.
