AGL will split its business into two so it can better deal with the accelerating clean energy transition.
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The company has also announced plans to sell its Newcastle gas storage facility at Tomago as part of a multi-million divestment process.
AGL chief executive Brett Redman told an investor briefing on Tuesday that accelerating market forces of customer, community and technology were driving the imperative to create a new path and separate AGL into two distinct organisations.
The split will create a carbon-neutral business called New AGL, which will include the company's retailing division.
The other business, PrimeCo, will hold the company's biggest generation assets, such as Liddell and Bayswater coal-fired power stations, its gas-fired power stations and wind generators.
These energy hubs will help to facilitate an ongoing transition to renewables as the energy market evolves.
AGL plans to close Liddell power station in 2023.
The company announced plans to build the 250-megawatt peaking plant at Tomago in 2017 as part of a plan of its energy transition plan.It has also announced plans to build a 500 megawatt battery at Liddell power station, the first phase of which is the installation of a 150 megawatt battery.
The move to split the company follows an influx of renewable energy into the grid in recent times.
The surge of renewables has caused wholesale power prices to crash to multi-year lows, resulting in significant losses for traditional generators.
AGL also said it had identified $400 million worth of assets to divest and had started the sales process for two - its Newcastle gas storage facility and its Silver Springs gas project.
Several European energy companies have already split their businesses in two in an effort to achieve zero emissions.
Mr Redman on Tuesday said "New AGL" would be Australia's largest multi-product energy retailer, delivering power, gas internet and mobile services to more than 30 per cent of Australian households with a net-zero carbon footprint.
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