Synergy Annual Report 2020 Annual Report ABN 58 673 830 106 ANNUAL 2020 REPORT In accordance with the Electricity Corporations Act 2005 (the Act), I have the pleasure in submitting the 2020 Annual Report of the Electricity Generation and Retail Corporation, trading as Synergy. Consistent with the provisions of the Act, Synergy will publish this document upon advice from the Minister. Yours sincerely, Robert Cole Chairman Synergy ABN 58 673 830 106 Manager public affairs and corporate communications, GPO Box F366, Perth WA 6841 email: [email protected] | website: synergy.net.au About Synergy 2 Chairman’s report 3 Chief Executive Officer’s report 4 Executive team 5 Operating and financial summary 7 Our customers and community 10 Our operations 16 Our people 22 Directors’ report 28 Financial report 41 Directors' declaration 87 Independent Auditor’s report 88 2020 Annual Report 1 Coral Bay Western Australia Denham Legend Kalbarri South West Interconnected System (SWIS) Mungarra Thermal power station West Kalgoorlie Wind farm Pinjar PERTH Gas turbine Cockburn Solar farm Collie Muja Hopetoun Esperance Bremer Bay Albany Synergy is proud to be Synergy owns and operates both Australia. These include the 180MW traditional and renewable electricity Warradarge Wind Farm, the Stage two Western Australia’s generating assets, including thermal 30MW expansion of the Greenough largest integrated power stations, spanning from River Solar Farm in the State’s Mid electricity generator Kalbarri in the north, out to Kalgoorlie West and the refurbishment of the in the east and down to Albany in the Albany Grasmere Wind Farm. and energy retailer. south – an electricity network known Synergy continues to develop Our objective is to as the South West Interconnected innovative and affordable energy System (SWIS). Established under the utilise our diverse solutions for its customers and plays Electricity Corporations Act 2005 and an active role in the communities in energy generation owned by the State Government of which it operates. Our people are portfolio to supply Western Australia, Synergy reports to committed to ensuring our business the Minister for Energy, the Hon Bill is responsive and adaptive in a rapidly reliable and affordable Johnston MLA. evolving energy landscape. energy to more than Through its interest in Bright Energy one million residential Investments (BEI), Synergy along Synergy’s purpose is clear – to with its joint venture partners Dutch lead Western Australians to their and business Infrastructure Fund (DIF) and Cbus intelligent energy future. customers. have overseen the development and construction of large-scale renewables projects in Western 2 Synergy In a year when we have been Customers are installing rooftop solar in ever now in place and commissioning activities growing numbers and increasingly, wanting to underway. The stage two expansion of the hit by an unimaginable crisis, trial new energy technologies, such as battery Greenough River Solar Farm near Geraldton Synergy and its people have storage to reduce their energy bills, thus faced some significant hurdles as a result of resulting in a decreasing net demand for our the administration of RCR Tomlinson, but it is responded effectively to the generation. Despite this change, Synergy still pleasing to see that this is also now nearing far-reaching impacts of the bears the burden of very large fixed network completion. On top of these achievements, costs and maintaining critical coal plant to successful refurbishment works at the Albany COVID-19 pandemic. underpin the reliable supply of electricity in Grasmere Wind Farm will extend the life of the SWIS. that asset well into the next decade. These We have maintained the safe delivery of large-scale renewables projects not only have reliable energy for Western Australia and In the face of these continuing headwinds, an environmental benefit in lowering carbon supported our customers in the face of Synergy incurred a net loss of $27.2 million in emissions, but also demonstrate Synergy’s radical economic change. Despite extremely FY2019-20. Despite the impact of COVID-19, transformation that includes responding challenging circumstances, we are proud of electricity demand remained relatively flat, to the impacts of climate change and the our performance and business management with revenue from electricity sales growing subsequent effects on our operations. throughout the 2019-20 financial year. modestly year-on-year. Unlike last financial year, no impairment or onerous contract Turning to the future, I am very encouraged The COVID-19 crisis hit in the first quarter provisions were booked. However, total by the Distributed Energy Resources (DER) of 2020, resulting in severe and protracted expenses once again exceeded revenue, Roadmap released by the Minister for Energy health, social and economic impacts to and were higher than planned, due to a earlier this year, and the body of work our people and customers, as well as an number of factors, including continuing surrounding it, which paves a way forward unprecedented level of uncertainty about the high fixed costs, the changing load profile in for system stability. The direction set by the future. Synergy, like businesses around the the SWIS, forced outages, lower generation DER Roadmap will also set the foundations country, has had to rapidly adapt and evolve from coal, and increased supply from more for Synergy to reposition ourselves as a its way of working to ensure the interests of expensive sources including power purchase business, and in parallel to this work Synergy our customers and our people are protected. I agreements, purchases from the Wholesale commenced a comprehensive review of want to acknowledge the amazing leadership, Electricity Market and gas generation assets. its strategy late last year, with a view to sacrifices and efforts of all of Synergy’s people becoming a new and different organisation and thank them for working so closely with The financial result for the year was also with a sustainable future in the evolving and the State Government and other stakeholders adversely affected by an incremental provision complex new energy market. Informed by to ensure we maintained a safe, secure and for bad debts of $21.5 million to allow for the DER Roadmap, we see opportunities now reliable energy system, despite extremely increased financial distress expected to arise and in the long-term, to be able to deliver difficult circumstances. from COVID-19, which I foreshadowed earlier. affordable, secure and greener energy to While these factors weighed down Synergy’s I also want to acknowledge the rapid and Western Australians through harnessing the financial performance, the net result for decisive work done by the State Government immense power of DER. As this report is the year was boosted by payments made by and Synergy’s team to quickly deliver a written, we are in the process of finalising a Government to keep Synergy whole for costs series of relief packages during the COVID-19 proposed new strategy and expect to make incurred supporting certain Government pandemic. In April 2020, Synergy received a final decision in the near future. In the initiatives, including the Tariff Equalisation $310.8 million from the Government in meantime, Synergy already has momentum Contribution (TEC), Feed in Tariff rebates (FiT), COVID-19 stimulus payments to be applied on a number of DER projects, including: a and under-recovery of subsidies to certain towards customers’ accounts. Along with virtual power plant (VPP) to transform a customers. In total, these payments from the freezing of disconnections for residential cross-section of schools across the State into Government improved Synergy’s net result by customers, Synergy has delivered support to a smart, green aggregated power plant; a $135.9 million. small businesses and charities within the SWIS. smart energy for social housing project; and Turning to achievements in the business, a DER Orchestration pilot in partnership with However, the number of Synergy’s customers there were several significant milestones in Western Power and AEMO. now facing financial hardship as a result of FY2019-2020. Early in the financial year, the this health crisis is concerning on many levels. Finally, on behalf of the board, I would like State Government and Synergy announced Many customers will experience even tougher to thank the Minister for Energy, the Hon Bill the staged retirement in 2022 and 2024 of times due to the prolonged uncertainty of Johnston MLA for his support and leadership two units in Muja Power Station Stage C. This COVID-19. In addition, these circumstances throughout the year. To my fellow board was a major decision, which was only taken will have a major impact on Synergy’s bad members, thank you for your dedication and after a thorough, complex and extensive study debt situation in the coming period. However, commitment in these particularly trying times. of the adverse impact on our coal fleet of the we will continue to work with Government I welcome the appointment of Peter Clough transformational forces underway in the SWIS. in a process that is collaborative and caring, to the board and thank Samantha Tough for To support this decision, Synergy committed to ensure the continued good management her counsel for more than five years. Peter’s to, and has implemented, a range of measures of Synergy’s business and our customers’ experience in energy and resources and to make this transition as seamless as possible individual circumstances. corporate communications are a valuable for our operations and especially our people. addition to our board. Samantha’s leadership Turning to our core business, this year has While a decision has been made to retire and exceptional service has helped grow reinforced Synergy’s position as a critical these units, it is also clear that generation Synergy during her tenure and we wish her service provider to Western Australians.