This year showed how a little more rain can benefit both Hydro Tasmania and the State of Tasmania in general.
After three years of drought and low inflows into hydro storages that were among the worst on record, the business performed strongly as a result of improved trading opportunities and sporadic good rains throughout the year.
This improvement on last year comes despite below average inflows of 8400 GWh of energy and a strategic business decision to focus on rebuilding hydro storages for long-term sustainable use. The end result was a net import by Tasmania for the year across Basslink of around 2600 GWh with storages at 30 June reaching 27.7 per cent of full energy, almost nine per cent greater than in June 2008.
This year we have included with this report a paper, Electricity in Tasmania 2009: a Hydro Tasmania perspective.
It sources publicly available material on key electricity issues in Tasmania. In line with our commitment to transparency, we have distributed it as a useful reference to help facilitate greater knowledge and understanding of the Tasmanian electricity industry.
Hydro Tasmania recorded a net profit after tax for the year of $291 million, a significant proportion of which is due to an increase in the value of our assets and to changes in the fair value of our financial instruments. Our result before these gains was $38 million and is a better reflection of the trading result for the year.
This represents a turnaround of nearly $100 million from last year’s loss of some $58 million before fair value gains and is a welcome result considering the ongoing hydrological challenges and the wider impact of the global economic downturn on the markets in which we operate.
Cash flow has also improved with net cash from operations being $43.8 million, well up on the result for last year. This has contributed towards an improvement in Hydro Tasmania’s debt position, finishing at $904.4 million or $54.6 million better than budget. The positive financial result was the culmination of a significant year for the business during which the groundwork was laid for further growth.
The sale of Roaring 40s’ Asian assets in April and June 2009 brought to an end a significant chapter in the 50-50 joint venture between Hydro Tasmania and the CLP Group. Changing circumstances in Asia and in Australia convinced Hydro Tasmania of the strategic opportunities of refocusing the joint venture on renewable energy opportunities closer to home.
Proceeds from Roaring 40s’ sale of its Chinese and Indian assets to CLP were approximately $163 million. The proceeds have been committed to the joint venture’s renewable energy projects in Australia with the wind farms at Waterloo in South Australia and Musselroe in Tasmania being the priority projects.
The purchase in August 2008 of a 51 per cent share of Momentum Energy was a significant event for the business as it looked for opportunities to diversify its revenue and customer base and National Electricity Market-related activities outside the Tasmanian market.
Momentum is the only independent electricity retailer in Victoria to specialise in servicing small to medium business customers. It sells accredited GreenPower sourced from renewable wind generation. Hydro Tasmania will purchase the remaining 49 per cent of Momentum. This was scheduled for 2010 but is now expected to occur in October 2009.
National policy direction
As Australia’s leading renewable energy business and the largest manager of water in the nation, we continue to focus significant attention on working with the federal government to develop the appropriate legislative framework to enable further growth in renewable energy development across Australia.
While we remain concerned with the pace of change in the creation of a national carbon emissions market in Australia, Hydro Tasmania is hopeful of a positive outcome for future business opportunities.
The business continues to implement its Climate Change Response Strategy with the aim of being Australia’s first carbon neutral generator by 2012.
We have a role to play in the global and national effort to reduce carbon emissions while looking to develop new renewable energy projects and products and services to help our customers meet their climate change mitigation obligations and reduce our own carbon footprint.
We estimate that our greenhouse emissions for 2008/09 will be almost halved from the previous year, largely as a result of the closure of the Bell Bay Power Station.
Hydro Tasmania Consulting
Hydro Tasmania Consulting continues to grow its business around climate change opportunities, as well as in the electricity supply, renewable energy and water markets. The business exceeded its revenue targets for the year and saw an increase in job numbers nationally with a new office opened in Brisbane and further growth in its Melbourne office. The business was also involved in a number of Asian projects in countries such as Malaysia and India, with the New Delhi office recording steady growth in business since it opened in 2007.
A significant part of the continued success of the Consulting business is due to the ongoing focus on better understanding the needs of its customers and providing services and products that they require.
During the year the wider Hydro Tasmania business has been progressing a broader customer-focused strategy to ensure we remain competitive in an increasingly tough market, particularly with the imminent commissioning of the Aurora Energy Tamar Valley Power Station that will reshape the Tasmanian electricity market. This seismic change in the local market will change the role of Hydro Tasmania, where we will no longer bear responsibility for security of electricity supply in the State.
Our future strategic direction is focused on being a profitable business generating sustainable returns to our owners – the people of Tasmania - through the strengthening of our balance sheet and recognition that our customers have a choice in a competitive market. We need to better understand customer demands and opportunities and position the business to access markets where our renewable energy and the experience and skills of our people are highly valued.
While Tasmania will always be our primary market, we also must diversify our revenue base and look to the mainland for further growth opportunities. This strategic approach to the future direction of Hydro Tasmania is driven by our commitment to sustainability as a core business value.
During the year we took a more strategic approach to embedding the Sustainability Code by using our principles as the foundation for the strategy planning process for 2009/10. Sustainability principles are fundamental to our brand as a world-renowned renewable energy business and open up business opportunities as other companies seek to adopt similar principles. Hydro Tasmania aims to align its vision, mission, sustainability and strategy to fully integrate sustainability into business planning. This will be a step-by-step journey as we refine our approach.
Last year I highlighted that despite all the challenges thrown at us, it was our capacity to adapt and change that enabled Hydro Tasmania to remain a vibrant business with tremendous potential for growth. These words remain true 12 months later and are a reflection of the professionalism and ingenuity of our staff. To them I say thank you for all their hard work and support.
Finally, I would like to thank my fellow directors for their dedication and diligence in undertaking the governance, prudential and strategic roles of the Board.