Talking Point: Hydro's year of living dangerously

3 November 2016

Hydro Tasmania will rebound strongly from the energy supply challenge by rebuilding storages, restoring profitability and reducing debt.
 
This past year was not a routine one for Hydro Tasmania. By any measure, it was extremely challenging.
 
Tasmania has endured drought, fires and floods, as well as a threat to the state’s energy supply. These have all had an impact on our business.
 
The driest spring on record and a six-month Basslink cable outage was an unprecedented combination of events. They were both well outside the range of credible scenarios, based on the best evidence at the time.
 
The energy supply challenge required skill, creativity and determination to overcome. But we did overcome. Our people, along with TasNetworks, suppliers and Government, responded decisively and worked hard to deliver a secure outcome.
 
While Hydro Tasmania’s bottom line has taken a major hit from recent challenges, Tasmanian homes and businesses were protected from losing energy supply.
 
The lights stayed on and Tasmania’s reputation as a good place to live, work, visit and do business remains.
 
The cost of the Energy Supply Plan was substantial, but worth every dollar for the sake of protecting Tasmania’s energy supply.
 
Communities everywhere, including energy providers, are grappling with a more extreme, unpredictable climate. As for the financial cost, we tabled our annual report on Thursday, and it is available on our website.
 
Hydro Tasmania’s underlying result for the 2015-16 financial year was a loss of $65.4 million. That result was mostly driven by the energy supply challenge, which required us to invest $47 million in supplementary gas generation and $64 million in diesel generation.
 
As promised, Hydro Tasmania has borne the cost of the energy supply challenge, and avoided any extra pressure on Tasmanian power prices in the process.
 
While 2015-16 was a significant financial blow, we are already transitioning to more stable and secure times ahead. In 2016-17, we expect to break even or return a small underlying profit, while also reducing net debt by more than $50 million, from $827 million to $772 million.
 
While conditional on receiving average inflows to our hydro storages, which are currently forecast, those improving financial forecasts will not be achieved by accident. They will owe much to the quality of our people. They will be achieved through the same care, creativity and commitment that guided Tasmania through the unique challenges of the past year.
 
The State Budget projects no dividends from Hydro Tasmania until financial year 2019-20. That does not mean Hydro Tasmania will be unprofitable in that period. The company will work closely with the Government to increase Hydro Tasmania’s financial strength for the benefit of all Tasmanians.
 
The energy supply challenge has uncovered new evidence about just how dry spring and summer in Tasmania can now be, and how long Basslink can potentially be out of action.
 
There are lessons to be learned, and it is crucial that the Energy Supply Taskforce has time and space to consider the evidence and make appropriate recommendations to Government. Frequently discussed issues about storages, Basslink and Tasmania’s future energy mix are among matters for the Taskforce to explore.
 
At the same time, overreacting to the extremely rare events of 2015-16 could be very expensive for Tasmanians, and we welcome the evidence-based approach taken by the expert taskforce.
 
While the taskforce deliberates, Hydro Tasmania is applying additional conservatism to storage management. We are approaching summer with storages recovering at almost 45 per cent, and we are aiming to finish the 2016-17 financial year above 30 per cent.
 
We have always managed our storages responsibly and conservatively, based on scientific analysis. But while the taskforce considers important new evidence from the events of 2015-16, and given the community anxiety created by recent events, we recognise the importance of applying greater caution and conservatism in the interim.
 
Tasmania is well placed to manage the extremely unlikely event of another prolonged Basslink cable repair coinciding with very low inflows. Given that record dry weather was a joint cause of the energy supply challenge, we are also taking interim steps to enhance our climate modelling and planning.
 
This includes obtaining climate advice from the Antarctic Climate Ecosystem Co-operative Research Centre, the Institute of Marine and Antarctic Science, the University of Tasmania, CSIRO Oceans and Atmosphere, and CSIRO Land and Water.
 
Extreme weather is testing Australia’s power systems, not just here but more recently in South Australia and Victoria. South Australia experienced severe disruptions.
 
There must and will be significant effort spent on understanding how future weather and climatic factors will put pressure on power systems, and how to mitigate or avoid that pressure.
 
Risk management for power systems must keep pace with humanity’s improved understanding of climate change. That also applies to the extremely wet weather that has caused flooding here and in other states.
 
I thank the almost 900 people who visited Gordon, John Butters or Trevallyn power stations over the past month, as part of our annual tour program. The station tours are Hydro Tasmania’s flagship opportunity to connect directly with Tasmanians, and give a close-up look at what we do.
 
As an iconic Tasmanian business recovering from a uniquely challenging year, we were delighted to show our community what we do best, generating the clean, reliable energy that Tasmania’s past and future are built on.
 
As a government-owned business with a role in supporting Tasmania’s social and economic wellbeing, Hydro Tasmania will always be subject to heightened scrutiny and the observations of commentators — some fair and some not. But above all, Hydro Tasmania is a company striving to achieve the best culture of professionalism, initiative and accountability among its people.
 
Hydro Tasmania is a company of people who care deeply about Tasmania’s future being as secure and successful as possible.
 
There will be no complacency. However, we have weathered an unprecedented and extremely rare storm, and are now focused on a secure and strong future for our business, and for Tasmania.
 

Steve Davy, Chief Executive Officer of Hydro Tasmania.

This opinion piece ran in the Saturday Mercury newspaper on 29 October, 2016.

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