Hydro Tasmania’s revenue comes from selling electricity in the NEM, electricity contracts, environmental energy products and Hydro Tasmania Consulting’s services and products. Technical product teams develop new products through research projects and analysing market and customer needs.

Electricity

A focus on relationships has resulted in a substantial improvement in our understanding of the needs of customers and counterparties. We are also in regular dialogue with regulators to ensure we are not disadvantaged by changes to the market environment. Similarly, we endeavour to maintain good relationships with our network service providers given the important role they play in the operation of the market.

Influences on the NEM environment this year were the drought and related increases in spot and contract market prices, new market products and the start of the retail contestability rollout for the Tasmanian market.

Our first full year in the NEM was a time of learning. We encountered difficulties achieving optimum revenue outcomes during periods of market stress (high prices). This was due to a range of factors, including constraints, to be addressed through strategies during the 2007/08 year to improve our capability to capture value from market opportunities.

Inflows over the period were 30.5 per cent below expectation and storage levels dropped 10 per cent. Tasmania’s electricity demand was partially met by importing over Basslink (13 per cent of electricity consumed) and by running Bell Bay Power Station and the gas turbines. Without both Basslink and gas, Tasmania faced the prospect of power rationing.

Total cash flow from operations was $37.4 million, which was $45 million below the budget figure of $82.4 million. This was partially as a result of the cost of purchasing electricity over Basslink and running the Bell Bay power site.

Over its first full year of operation, Basslink proved its value as a drought mitigation strategy. This was one of the main drivers for the Basslink project in 1998. Subsequent assessment showed that a trading surplus could be achieved in normal climate conditions. However, 2006/07 conditions were well below normal.
Basslink is a 25-year investment and an integral part of Hydro Tasmania’s system management over the long-term. When inflows are high, additional hydropower will be exported to Victoria. In high and typical inflow periods, export will help avoid wasting fuel (water) due to spill over dam walls.

The Bell Bay gas-fired power site generated 936 GWh during the reporting period. In April, the gas supply to Tasmania was disrupted due to a maintenance outage by Esso at Longford, Victoria. The result of this was that Tasmanian power prices rose significantly for a period while energy supply was met by an increased demand on both imported energy and hydropower generation, putting further pressure on managing water storages.

Market prices
The drought along Australia’s eastern seaboard impacted on electricity supply and caused the average spot price of electricity in Victoria to rise 68.8 per cent compared to the previous year. This additional cost in the Tasmanian market from the higher cost of imports is borne by Hydro Tasmania because most retail consumers remain protected from fluctuating energy prices while regulated tariffs remain in place.
The three-yearly review of regulated electricity prices was under way at the end of the reporting period. A draft decision announced on 31 July means an average retail tariff increase of 15 per cent from 1 January 2008.

Retail contestability began in Tasmania in July 2006 as a result of Tasmania entering the NEM. Consumers using more than 20 GWh per year became contestable, providing an opportunity for new retailers to enter the Tasmanian market. On 1 July 2007, users of more than 4 GWh per year became contestable. Three additional electricity retailers have received retail licences for Tasmania.

Electricity products

Electricity contracts are generally financial derivatives settled on the spot price of electricity.
The Renewable Energy Certificates (RECs) market rallied during the year as the supply/demand balance tightened.

Hydro Tasmania commenced trading a number of electricity and environmental energy products.
These included settlement residue auction units, NSW Greenhouse Abatement Credits and environmental energy product options.

State-based emissions trading schemes are encouraging the development of environmental energy products. The New South Wales Greenhouse Abatement Credits (NGACs) and the Victorian Renewable Energy Target credits provide opportunities for Hydro Tasmania and its subsidiary generation companies to enhance the value of our low emission electricity portfolio. More state-based schemes may emerge, and further opportunities will arise from the Federal Government’s proposed carbon emissions trading scheme and possible enhancements to the Commonwealth mandated renewable energy target.

Consulting

Hydro Tasmania Consulting is focused on becoming the leading consultant in sustainable water and energy solutions in its chosen markets of Tasmania, the eastern seaboard of Australia, India and the Pacific Basin, and to be recognised by clients for its expertise, being easy to do business with and offering attractive products that reflect its commitment to being planet friendly.

Hydro Tasmania Consulting continues its aim to increase client diversification, measured by the revenue from external clients. The result in 2006/07 was 42.8 per cent of total revenue, short of the ambitious target of 49 per cent. However, overall sales increased.

Hydro Tasmania Consulting continues to expand and diversify its client base within Australia, particularly in Queensland and Victoria. The Victorian regional office exceeded sales targets for the year. It provides a hub for servicing interstate clients.

Hydro Tasmania Consulting India Pvt Ltd’s office was officially opened in New Delhi in February 2007 with the aim to service the growing Indian renewable energy development market and surrounding Asia-based clients. Local expertise has been engaged to fast-track the learnings of the different business and cultural requirements involved in operating an Indian-based company. A guide for Australian-based staff visiting India is being developed to provide support and education on business and cultural issues.