Origin Energy: Navigating Australia's Energy Transition with Profit and Purpose

In the heart of Australia's energy transition, Origin Energy (ASX: ORG) stands at a crossroads of profitability and sustainability. The company's 2025 financial results and FY26 guidance reveal a business adept at balancing shareholder returns with aggressive renewable investments, all while navigating the complexities of a decarbonizing world. For investors, the question is whether Origin's dual focus on gas and renewables can deliver long-term value in an era where climate resilience is no longer optional but existential.

2025 Results: A Tale of Two Sectors

Origin's FY25 statutory profit of $1.48 billion and underlying EBITDA of $3.41 billion underscore its ability to generate cash flow from its Integrated Gas segment. The Australia Pacific LNG division, despite a 2% production decline, delivered $2.2 billion in EBITDA, driven by $441 million in LNG trading gains. These figures highlight the enduring strength of gas as a transitional fuel, particularly in a market where coal-fired power plants are being phased out and renewable intermittency demands flexible backup.

However, the Energy Markets segment tells a different story. Underlying EBITDA fell to $1.4 billion, pressured by lower retail tariffs and coal costs. Yet, Origin added 104,000 customers in FY25, bringing its total to 4.7 million, while reducing churn to 13.4%—well below the market average. This customer-centric approach, coupled with a $100–$150 million cost-to-serve reduction by FY26, signals a shift toward operational efficiency. The Virtual Power Plant (VPP), Loop, now at 1.5 GW across 393,000 assets, further illustrates Origin's pivot to decentralized energy solutions.

Renewables: Betting on the Future

Origin's renewable investments are no longer aspirational—they're operational. The Eraring and Mortlake battery projects, set to become the Southern Hemisphere's largest storage facilities, are progressing on schedule. These projects, along with the Yanco Delta wind farm (1.5 GW with 800 MWh battery), align with the company's 4–5 GW renewable target by 2030.

The Climate Transition Action Plan, including the accelerated closure of the Eraring coal plant by 2025, demonstrates a commitment to net-zero by 2050. Yet, the temporary extension of the plant until 2027 under a government agreement introduces operational and carbon budget uncertainty. This duality—advancing renewables while maintaining gas exposure—raises questions about the pace of decarbonization.

Octopus Energy: A Global Play

Origin's UK-based subsidiary, Octopus Energy, remains a mixed bag. While it added 800,000 UK customers and 2.7 million international accounts, the segment reported an $88 million EBITDA loss in FY25. Unseasonably warm weather and one-off costs, such as the acquisition of Climatech Zero, weighed on performance. However, Kraken Technologies' 74 million contracted accounts and expansion into the U.S. with National Grid suggest long-term potential.

The Octopus investment is a high-risk, high-reward bet. If Kraken's digital energy platform scales successfully, it could become a recurring revenue engine. But for now, it's a drag on profitability.

Strategic Integration: Gas as a Bridge, Renewables as a Future

Origin's FY26 guidance—$1.4–$1.7 billion in Energy Markets EBITDA and $800–$1.1 billion in capex—reflects a disciplined approach to capital allocation. The company is prioritizing battery projects and sustaining spend while maintaining gas production. This balance is critical: gas provides near-term cash flow to fund renewables, while renewables reduce long-term carbon exposure.

The CEO's emphasis on “security, reliability, and affordability” resonates in a market where energy prices are volatile and policy risks are high. Origin's ability to hedge against these risks through LNG trading and diversified generation assets gives it an edge over peers.

Investment Outlook: A Calculated Transition

For investors, Origin's strategy offers both upside and caution. The 60-cent dividend in FY25 (86% of adjusted free cash flow) and a forward yield of ~4% are attractive, especially in a high-interest-rate environment. However, the company's gas exploration in the Canning and Cooper-Eromanga basins—projects that could clash with climate goals—introduce regulatory and reputational risks.

The key to Origin's long-term value lies in its ability to execute its renewable roadmap without sacrificing profitability. If the Eraring and Mortlake batteries come online as planned and the VPP scales further, the company could become a leader in distributed energy. Conversely, delays or cost overruns in these projects could strain its balance sheet.

Conclusion: A Transition in Motion

Origin Energy is not a perfect transition story, but it's a realistic one. Its 2025 results demonstrate that gas can still generate strong returns, while its renewable investments show a clear commitment to the future. For investors willing to tolerate short-term volatility in Octopus Energy and gas exploration, Origin offers a compelling blend of near-term dividends and long-term growth.

The energy transition is no longer a distant horizon—it's here. And companies like Origin, with the financial strength to fund both gas and renewables, may be best positioned to thrive in this new era.

Investment Advice: Origin's shares are a buy for those seeking exposure to Australia's energy transition, with a focus on dividend yield and strategic diversification. However, monitor gas exploration risks and renewable project execution closely. A long-term hold is appropriate for investors aligned with Origin's dual mandate of profit and sustainability.