AGL Energy (ASX:AGK) is Australia's leading energy provider and the only energy producer with a full offering of renewable generation, providing natural gas and electricity to more than six million Australians.

AGK is Australia's largest operator and developer of renewable energy generation, and is among the biggest companies (by market cap) in the stock market.

It has major investments in the supply of gas and electricity, as well as a substantial base of customers across Australia.

In line with one of the world's hot topics, AGK is committed to leading Australia in minimising the effects of climate change by investing in sustainable energy businesses such as wind farms and environmentally friendly projects, including the underground Bogong hydroelectric power station in Victoria.

AGK's organic growth strategy continues to deliver success with 95,959 new NSW electricity customers contracted in the second half of FY11.

Changing environment

The company has been busy since swapping assets with Alinta in 2006, a move that saw it acquire the retail business of both companies.

AGK now has a diverse power generation portfolio including base, peaking and intermediate generation plants, spread across traditional thermal generation (coal and gas) as well as renewable sources, including hydro, wind, landfill gas and biogas.

AGK’s power generation assets are predominantly located within the regions where its retail customers are generally located, and their renewable energy generation assets comprise around 40% of their portfolio.

AGK is well positioned for a low carbon environment with a pipeline of low-emission gas and renewable power development projects.

The company has grown from strength to strength with some key acquisitions made along the way.

It completed the acquisition of Mosaic Oil NL in October 2010 after Mosaic urged its shareholders to accept AGK's $123 million bid.

The move has helped AGK gain access to MOS' gas storage facilities in Queensland.

Earnings full of energy

AGK this week reported a 57% rise in annual net profit to $558.7 million boosted by a gain in the value of derivatives.

Underlying earnings for the period edged 0.5% higher to $431.1 million (from $428.9 million).

The marginal improvement was due to severe weather events and a much lower contribution from Loy Yang A (LYA).

The results were in line with AGK's guidance provided in February. AGK had warned that expected earnings would be around $30 million to $35 million lower than initially thought.

AGK declared a final fully franked dividend of 31 cents bringing the full year dividend to 60 cents.

It has also been one of the hot stocks in recent weeks, having surged more than 20% from this month's low of $12.50.

Looking ahead

Its core business remains strong with a solid FY operational cashflow. For the year, operating cashflow before tax rose more than 7% to $676 million.

Its retail energy division continues to grow with earnings rising 17% to $373 million on year.

AGK expects strong growth from its merchant energy business on the assumption that there will not be a recurrence of the cost incurred in connection with the severe weather events from earlier this year.

The company is looking to further expand its position by exploring a suite of low emission and renewable energy generation development opportunities.

AGK has long been focused on reaching the government's 2020 renewable energy goal.

We find the company's defensive qualities particularly attractive in the current economic climate.

It is likely to make some bolt on acquisitions locally to boost its strong hold on the Australian market.

With a strong balance sheet and defensive earnings, AGK is well equipped to weather current volatile times.