Origin Energy Update

Submitted by Craig Strzelecki on 11 May, 2007 - 19:58

Origin Energy have an increasing SA peak capacity: they have announced that it will undertake a 120MW expansion of its 95MW Quarantine power station located on Torrens Island SA. The additional capacity should be online to provide peaking cover for the summer of 2008/2009. Existing site makes for low capital cost: At $80m for the 120MW expansion, the new capacity will be added on for a modest multiple of $667/kW. A typical greenfield OCGT investment would cost in the region of $750/kW. The main driver of the lower cost is the existing gas and electricity infrastructure. Need for further peak coverage: By 2009, we estimate that ORG's demand for electricity in the NEM will total 33TWh. With only 2.9TWh of generation output, ORG's internal coverage is just over 8.5%. AGL's (AGK.AX - A$15.39; 1M) relative position is stronger – Sharemarket analyst Citigroup Investment Research estimates that by 2009 AGL will be able to internally cover 17% of its retail load. Investment will further reduce FY08 FCF — Assuming that the bulk of the $80m is spent in FY08, the analysts estimate that ORG's FCF yield will drop below 2% for the year. On the analysts' current estimates, a large proportion of Origin Energy's FCF in FY08 is consumed by investments in E & P, Darling Downs (500MW) and Contact (CEN.NZ - NZ$8.83; 1M). Recent power price volatility justifies decision — In recent weeks, prices in the NEM have been particularly volatile as hydrology has deteriorated further and the peak market has tightened. In the analyst's view, prices are likely to remain high over the next decade or so, thus Origin Energy's decision is rational in that context.

Origin Energy Limited is listed on the Australian Stock Exchange (ASX) under stock code ORG. You can view their investor website here. ORG was listed on the ASX on 13 July, 1961. Kevin McCann is the chairman of Origin Energy and the managing director is Grant King. Origin Energy is a top 100 ASX listed company involved in gas and oil exploration and production, energy retailing, power generation and utility network management. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ORG. Check your charts and good luck with your share trading!

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