This statement has been prepared pursuant to section 41 of the Government Business Enterprises Act 1995.
1 The 27 power stations and associated dams, canals and infrastructure at the listed locations have special status pursuant to the Hydro-Electric Corporation Act 1995 and constitute Hydro Tasmania’s main undertakings for the purposes of the Government Business Enterprises Act 1995.
Hydro Tasmania is a Government Business Enterprise. The strategy of the business has been developed to achieve the purpose and objectives required by the Minister for Energy and Resources and the Treasurer, as communicated through the GBE Act and the Corporation’s Ministerial Charter.
The principal purpose of the Corporation as defined in the Ministerial Charter is to undertake the following activities:
Hydro Tasmania’s principal objectives, as prescribed by the Government Business Enterprises Act 1995, are to perform its functions and exercise its powers so as to be a successful business by:
- the generation and trading of electricity
- the provision of consulting services and other services in hydropower, environment and water management, and associated services and technologies
- the conduct of scientific and commercial research in the above disciplines.
- operating in accordance with sound commercial practice and as efficiently as possible
- achieving a sustainable commercial rate of return that maximises value for the State in accordance with the Corporate Plan and having regard to the economic and social objectives of the State.
Hydro Tasmania owns 27 power stations and associated dams, canals and infrastructure on mainland Tasmania, at the following locations1:
The value of Hydro Tasmania’s total power system is realised through trading electricity and energy products as a participant in the National Electricity Market.
In addition, the business owns the Bell Bay Power Station, the King Island Huxley Hill Wind Farm and two diesel power stations on King and Flinders islands in Bass Strait. It has a Community Service Obligation, funded by the Tasmanian Government, to provide concessional arrangements to customers on the Bass Strait islands.
Hydro Tasmania holds further wind farm interests in Tasmania and South Australia as joint owner of Roaring 40s Renewable Energy Pty Ltd with the CLP Group.
The Corporation’s strategy has been greatly impacted by changes to the operating environment which have been significant since the lodgement of the 2008 Corporate Plan. Specifically, the global economic downturn has the potential to have a significant impact on the business, now and well into the future. There has been a seismic shift in the markets in which the business operates. They have moved from where there was financial market liquidity and easy access to debt and equity, to where capital is constrained and debt is difficult to source. Some high profile businesses have disappeared from Australia’s corporate landscape. In this context, Hydro Tasmania’s status as a Government Business Enterprise has provided a degree of insulation from the turmoil in corporate Australia and provided a solid base from which to execute its strategy. Further, the difficult operating circumstances in which the business has traded over the last two years, principally as a result of extremely low hydrology, have improved the resilience of the business and the ability to withstand the challenges that the global economic situation might deliver.
Resource prices have fallen with flow-on implications for our customers and potential demand for our energy, much of this fuelled by the reduction in growth in the Chinese economic powerhouse. The global economic slowdown will continue to impact upon our customers and our competitors and as a result the future operating assumptions of the business have been revised. Understanding the needs of our customers and competitively meeting those needs is paramount for Hydro Tasmania, particularly in what is forecast to be an increasingly competitive market. Scenarios continue to be developed and analysed so the business is better equipped to handle “the unexpected” that may arise. Indeed it is unlikely the economy will return to the leveraged growth model of the past few years and the future direction of the market must be better understood so the business can adapt accordingly.
There has also been a shift in the Tasmanian electricity market, with the purchase by Aurora Energy and imminent commissioning of the Aurora Energy Tamar Valley Power Station. This has reshaped the Tasmanian competitive setting and Hydro Tasmania’s role regarding energy security in Tasmania. The business continues to engage with its shareholders and to learn and adapt to this revised operating situation, particularly as the business can no longer be responsible for security of supply2. The business does, however, continue to manage its water storages consistently with its prudent water management obligations. The shift in the competitive landscape and the Corporation’s role in the Tasmanian energy market also provide Hydro Tasmania an opportunity to diversify its revenue base and increase its mainland activities.
Statistical analysis undertaken by Hydro Tasmania indicates that inflows into our dams have been significantly lower over the past 12 years than for any other period for which records exist. As a result, the expected inflows into our system have been further de-rated to 8 700 GWh per annum. The de-rating has had flow-on impacts on our revenue projections and the underlying financial strength of the business. However, careful management of our storages has seen our storage position significantly improve since 2008 and there has been a substantial reduction in the Corporation’s risk profile.
The energy market has also seen the federal government announce the Carbon Pollution Reduction Scheme (CPRS) and the revised Renewable Energy Target (RET). The CPRS and RET will increase the value of Hydro Tasmania’s existing renewable energy, facilitate investment in new Australian renewable energy opportunities and generate opportunities for the provision of energy services, for example, demand side management solutions.
While these announcements can only be seen as a positive for a renewable energy business such as Hydro Tasmania, continued uncertainty over the commencement and operation of these key pieces of legislation puts some of the Corporation’s strategic initiatives at risk.