Origin Energy: Navigating the Energy Transition with Renewable Winds in its Favor

Origin Energy (ORG.AX) has emerged as a pivotal player in Australia's energy landscape, leveraging strategic shifts toward renewables to offset declining coal reliance and position itself as a leader in the global energy transition. The company's recent FY25 EBITDA guidance revisions and aggressive investments in energy storage and offshore wind underscore a bold pivot—one that could redefine its long-term growth trajectory. For investors, this is a critical moment to assess whether Origin's moves are a harbinger of resilience or a risky gamble in an evolving market.

The EBITDA Guidance: A Tale of Two Divisions

Origin's FY25 guidance narrows its Energy Markets Underlying EBITDA to A$1.30–1.40 billion, reflecting operational improvements and strong wholesale portfolio performance. This upward adjustment contrasts sharply with its Octopus Energy division, which now forecasts a loss of A$0–100 million—a stark reversal from earlier expectations of a positive contribution. The UK's unseasonably warm weather and lingering impacts from the 2022 energy crisis have strained Octopus's retail business, yet its Kraken platform and Australian operations remain robust, with contracted accounts nearing 100 million ahead of a 2027 target.

Meanwhile, the Integrated Gas segment faces headwinds, with Australia Pacific LNG revenue dropping 11% in Q4 FY25 due to lower volumes and prices. However, production guidance remains intact (670–690 PJ), and LNG trading gains are projected to hit the upper end of their range (A$400–450 million). These figures suggest a company navigating short-term volatility while maintaining long-term discipline.

Renewables: The Engine of Future Growth

The real story lies in Origin's renewable ambitions. Its Yanco Delta Wind Farm—securing 1.5 GW of transmission access rights—represents a cornerstone of its 4–5 GW renewable and storage target by 2030. The company's Q4 FY25 investment of A$175 million into Yanco Delta signals confidence in offshore wind's scalability, while battery projects like Eraring and Mortlake (backed by A$1.7 billion in capital) aim to capitalize on Australia's energy storage demand.

These projects align with global trends: energy storage is projected to grow at a 20% CAGR through 2030, while offshore wind capacity could triple by 2030 in key markets like Australia. Origin's early bets here could yield outsized rewards as governments and corporations accelerate decarbonization.

Managing Coal's Decline: Hedging and Strategic Retreat

Origin is proactively reducing coal exposure. FY25 coal requirements are capped at 5–6 million tonnes, with prices A$30/tonne higher than FY24—a prudent hedge against volatility. The Pelican Point contract rolloff and lower gas generation demand reflect a deliberate shift toward renewables. Crucially, 75% of FY26 Eraring coal volumes are hedged at FY25 prices, mitigating risk without stifling flexibility.

The Bottom Line: Risk-Adjusted Rewards

Analysts' mixed ratings—3 Buy, 5 Hold, 3 Sell—highlight divergent views on Origin's execution. However, its A$1.017 billion half-year profit and increased dividend (30 cents vs. 27.5 cents) reveal financial strength. While short-term headwinds (Octopus's UK challenges, LNG price pressures) linger, Origin's balance sheet remains robust, with A$2.7–2.9 billion in capital guidance for Integrated Gas offering stability.

For investors, the calculus is clear: Origin is transitioning from a fossil fuel stalwart to a renewables pioneer. Its renewable investments and disciplined capital allocation position it to thrive as demand for clean energy storage and offshore wind surges. The risks are real, but the long-term upside—driven by structural tailwinds in renewables—makes this a compelling play for portfolios seeking exposure to the energy transition.

Action to Take: Origin Energy presents a compelling entry point for investors willing to look past near-term noise. With a dividend yield of 4.2% and a forward P/E of 9.5x, it offers both income and growth. Monitor closely for execution on renewables targets and Octopus's UK turnaround—success here could unlock multiyear value.

The energy transition is not a sprint but a marathon. Origin Energy is now running with the wind at its back.