INFIGEN ENERGY INFIGEN ENERGY RENEWABLE ENERGY FOR FUTURE GENERATIONS Infigen Energy Annual Report 2016 | ANNUAL REPORT 2016 REPORT | ANNUAL CONTENTS Who We Are 2 Infigen Management 26 Directors' Declaration 110 2016 Highlights 4 Corporate Structure 28 Independent Auditor's Report 111 Chairman's Report 6 Directors' Report 30 Additional Investor Information 113 Managing Director's Report 8 Remuneration Report 35 Glossary 116 Management Discussion and Analysis 10 Auditor's Independence Declaration 48 Corporate Directory 117 Infigen Board 24 Consolidated Financial Statements 49 OUR COMMITMENTS We plan and act to protect the health and wellbeing of our people, ensuring we operate our facilities safely and the environment is not harmed by our activities. We measure our environmental, social and corporate governance performance (ESG) against our sustainability targets.1 SECURITYHOLDERS EMPLOYEES COMMUNITY CUSTOMERS To generate economic To provide a safe, To foster respectful, To provide competitive value whilst acting on enjoyable, rewarding responsive and renewable energy climate change. and inclusive work enduring relationships. products and services. environment. All figures in this report relate to businesses of the Infigen Energy Group (“Infigen” or “the Group”), being Infigen Energy Limited (“IEL”), Infigen Energy Trust (“IET”) and Infigen Energy (Bermuda) Limited (“IEBL”) and the subsidiary entities of IEL and IET, for the year ended 30 June 2016 compared with the year ended 30 June 2015 (“prior year” or “prior corresponding period”) except where otherwise stated. All references to $ are a reference to Australian dollars unless specifically marked otherwise. Individual items and totals are rounded to the nearest appropriate number or decimal. Some totals may not add down the column due to rounding of individual components. Period on period changes on a percentage basis are presented as favourable (positive) or unfavourable (negative). Period on period changes to items measured on a percentage basis are presented as percentage point changes (“ppts”). Period on period changes that are not comparable are marked not meaningful (“n.m.”). No representation, warranty or other assurance is made or given by, or on behalf of, Infigen that any projection, forecast, forward-looking statement, assumption or estimate contained in this report should or will be achieved. 1 Our 2016 ESG Report is available at http://www.infigenenergy.com/esg/ 1 WHO WE ARE Infigen Energy is a leading 250,000+ HOMES POWERED Australian renewable energy BY OUR OPERATING company supplying electricity ASSETS1 that is commercially, socially and Operation of our wind farms emitted less than 2 grams2 environmentally sustainable. of carbon dioxide equivalent greenhouse gases per kilowatt hour Infigen trades on the Australian Securities Exchange (ASX) under the code IFN. ~1,100 MW Infigen is the largest owner of wind farms in Australia. We: LARGE-SCALE RENEWABLE ENERGY − develop large-scale wind and solar projects DEVELOPMENT − own six large-scale wind farms with a combined installed PROJECTS capacity of 557 megawatts − manage the operations of our assets from a 24/7 control centre Our development pipeline comprises over 1,000 megawatts of projects with planning approval3 DEVELOPMENT PROJECTS APPROVED DATE OF APPROVAL COMMUNITY CAPACITY OF PLANNING CONSULTATION PROJECT (MW) APPLICATION COMMITTEE Solar Farm Bogan River 12 Dec 2010 N/A Capital 50 Dec 2010 Sep 2013 Cloncurry 30 N/A N/A Manildra4 50 Mar 2011 N/A 5 1 Average annual household consumption Walkaway 2 45 Jul 2016 N/A in different states and territories is approximately 5–8 megawatt Wind Farm hours (MWh) per household, http://www.energymadeeasy.gov.au/ 6 Bodangora 90-110 Aug 2013 Jun 2012 2 Infigen's scope 1 and 2 emissions in the 2016 financial year were 3,249 tCO2e. Capital 2 90-100 Nov 2011 Sep 2013 3 More information on Infigen’s development pipeline is in the Management Discussion Cherry Tree 45-55 Nov 2013 N/A and Analysis, page 10. 4 In 2015 Infigen entered into a letter of intent Flyers Creek 100-115 Mar 2014 Dec 2012 regarding co-development and potential sale of the Manildra solar development project, Forsayth6 70-80 Feb 2014 N/A with the sale conditional upon that project being successful in the ARENA large-scale Walkaway 25 ~41 Dec 2008 N/A solar PV competitive grant round. If the sale proceeds, Infigen will receive a payment determined by reference to the proposed MW 5 Walkaway 3 ~310 Dec 2008 N/A capacity of the Manildra project. 5 Infigen has a 32% equity interest. Woakwine ~450 Jun 2012 N/A 6 Infigen has a 50% equity interest. 2 INFIGEN ENERGY ANNUAL REPORT 2016 Solar farm development project Wind farm development project Operating solar farm Operating wind farm OPERATIONAL ASSETS COMMERCIAL NAMEPLATE O&M SERVICES SALE OF PRODUCTION: OPERATION CAPACITY AGREEMENT POWER AND LARGE-SCALE GENERATION ASSET STATE DATE (MW) END DATE CERTIFICATES (LGCs) Alinta WA Jul 2006 89.1 Post-warranty: 100% of power to Alinta Energy until Dec 2026 wind farm Dec 2017 100% of LGCs to Alinta Energy and AGL until Jan 2021 Capital NSW Jan 2010 140.7 Post-warranty: 90-100% of power and 50-100% of LGCs to wind farm Dec 20177 Sydney Desalination Plant8 until Dec 2030 Capital East NSW Oct 2013 0.1 N/A 100% of power and LGCs merchant solar farm Lake Bonney 1 SA Mar 2005 80.5 Post-warranty: 100% of power and LGCs merchant wind farm Dec 2017 Lake Bonney 2 SA Sep 2008 159.0 Post-warranty: 100% of power and LGCs merchant wind farm Dec 2017 Lake Bonney 3 SA Jul 2010 39.0 Post-warranty: 100% of power and LGCs merchant wind farm Dec 2017 Woodlawn NSW Oct 2011 48.3 OEM9 warranty: 100% of power merchant wind farm Oct 2016 100% of LGCs to Origin Energy until Sep 2020 Total 556.7 7 Infigen has option to extend to December 2022. 8 Effectively all output is contracted when Sydney Desalination Plant (SDP) is operating. Approximately 50% of LGCs are sold on a merchant basis when the plant is not operating. 9 Original equipment manufacturer. 3 2016 HIGHLIGHTS SAFETY ENVIRONMENT COMMUNITIES 0.002 $ ZERO 0.3m tCO2e/MWh MAINTAINED OUR ZERO EMISSIONS INTENSITY CONTRIBUTED IN LOST TIME INJURY OF OUR OPERATIONS COMMUNITY INVESTMENTS FREQUENCY RATE REMAINED STEADY 4.8 <1.5˚C 74% REDUCED OUR TOTAL EMISSIONS REDUCTION PRODUCTS AND SERVICES RECORDABLE INJURY TARGET ADOPTED FOR OUR OPERATIONS FREQUENCY RATE BASED ON GLOBAL WERE PROCURED WITHIN FROM 9.7 WARMING LIMITS AUSTRALIA 4 INFIGEN ENERGY ANNUAL REPORT 2016 Infigen’s extensive experience as a developer, owner, operator and acquirer of assets has created a disciplined investment appraisal culture where we will only pursue opportunities with acceptable risk adjusted returns. Approximately $100 million of cash is available for investment in growth opportunities. KEY FINANCIAL OUTCOMES (CONTINUING OPERATIONS) $173m $148m $7m REVENUE INCREASED CASH BALANCE NET PROFIT INCREASED BY 29% INCREASED BY 300% BY $25.4 MILLION $57m $57m 1,469 GWh NET OPERATING $51 MILLION OF GLOBAL PRODUCTION CASH FLOW INCREASED FACILITY AND $6 MILLION INCREASED BY 1% BY 71% OF WOODLAWN FACILITY BORROWINGS REPAID $37.4m $595m $120m ACHIEVED OPERATING NET DEBT REDUCED EBITDA INCREASED COSTS BELOW THE $147 MILLION BY 44% $37.5-39.5 MILLION GUIDANCE RANGE FY16 37.4 FY16 595 FY16 120 FY15 34.8 FY15 742 FY15 84 FY14 36.1 FY14 994 FY14 93 ($M) ($M) ($M) 5 CHAIRMAN’S REPORT “Infigen is now a simplified business that has a better capital structure and is positioned for profitable growth.” Dear Securityholders, On behalf of the Infigen Boards it is my pleasure to present your 2016 annual report. I am pleased to report that the Group’s position has improved markedly over the last 12 months. Safety remains our first priority. Our ongoing initiatives to keep our people safe at work resulted in us achieving our goal of zero harm. We must however always avoid complacency. We continue to challenge management, staff and contractors in adopting further safety improvements throughout the business. Infigen is now a simplified business that has a better capital structure and is positioned for profitable growth. We have moved into a supportive policy environment where renewable energy is acknowledged as a significant contributor to delivering reliable, affordable and sustainable electricity. Two key events in the 2016 financial year (FY16) helped to restore market confidence in the Large-scale Renewable Energy Target (LRET) legislation. Firstly, the change in Federal Government leadership in September 2015 and the subsequent combination of energy and environment portfolios signalled a positive change in the Government’s approach to integrating energy and climate change policies. Secondly, Australia’s active participation in the Paris Climate Conference in December 2015 demonstrated our renewed commitment to supporting global efforts to limit the worst effects and risks of climate change. Another pivotal event for Infigen has been positioning the business for profitable growth in the Australian market. During the financial year we completed the sale of our US assets. We also completed an organisation restructure to reduce our corporate overhead costs and position the Australian business for profitable growth. As a result, our corporate costs are expected to be 25% lower in the 2017 financial year. Market conditions now support increased development activities and expenditure. We substantially reduced our debt during the year and now have improved prospects for refinancing of our corporate debt facility. This would reduce our cost of debt and free up cash flow that could be directed towards further growth and distributions in the medium term. Turning to FY16 performance, your company achieved a net operating cash flow from continuing operations of $56.9 million. This was 71% or $23.7 million higher than the prior year. Operating costs of $37.4 million were below our guidance range of $37.5 million to $39.5 million.