Higher wholesale electricity and gas prices have put AGL Energy on track to deliver a full-year underlying profit of almost $1 billion despite challenges on the retail side of its business.

The energy producer and retailer reported half-year profit soared 91 per cent to $622 million, boosted by stronger wholesale electricity margins and gains on the value of its hedging contracts.

Underlying profit, which strips out significant items, was up 27 per cent at $493 million in the six months to December 31, while revenue rose seven per cent to $6.45 billion.

Chief executive Andy Vesey said he expected the strength in the wholesale markets business to continue, given the policy uncertainty for new generation.

“We continue to see the current wholesale price set by the market as sustainable in the current environment, given the cost of bringing on new supply,” he told an analyst call.

AGL, like other power producers, has benefited from a spike in wholesale prices over the last year due to tight supply in the national electricity market, which has led the federal government to step in over affordability concerns.

AGL last year rejected a federal government demand to keep its ageing Liddell coal-fired power plant in NSW running beyond 2022 in an effort to cap the increase in wholesale electricity prices.

The company has, instead, committed to replace the power station’s current output with a mixture of gas, wind and solar plants.

Wholesale prices make up nearly 45 per cent of the total cost for electricity retailers, although prices are regulated at the retail level.

Mr Vesey reaffirmed full-year guidance for underlying profit to be between $940 million and $1.04 billion, but disappointed some investors by saying that based on current expectations, AGL would hit the middle of this range – a slightly lag market estimates.

By 1513 AEDT, AGL shares were down 2.2 per cent to $21.97.

The company said underlying earnings from its wholesale markets business jumped 25 per cent to $1.23 billion, but earnings at the smaller customer markets segment declined 33 per cent to $154 million.

AGL has, however, continued to see challenges in the consumer markets part of its business, where it is facing rising competition and higher costs.

“Cost pressure is evident in customer markets with significant pressure from increased market activity,” RBC Capital markets analyst Paul Johnston said in a note.

“Customer numbers were flat. Centrally managed expenses also grew notably,” he said.

Mr Vesey told analysts on Thursday he expected competition and discounting in the segment to intensify in the second half, which would require AGL to look at improving its cost base.

The company declared a partially-franked interim dividend of 54 cents per share, up 13 cents from a year ago.


* Net profit up 91pct to $622m

* Revenue up 7.0pct to $6.45b

* Interim dividend up 13 cents to 54 cents per share, partially franked