A word from our Chairman and CEO

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Chairman's statement

I am pleased to report Stanwell’s strong performance in 2018/19. Our diversified business model and a commitment to cost reduction measures delivered a Net Profit After Tax of $736.0 million (compared to $490.8 million in 2017/18). This has resulted in a dividend to our owners, the people of Queensland, of $550.2 million ($494.2 million in 2017/18).

Stanwell optimises its financial results through rigorous cost management, and by having a variety of revenue sources, including coal rebate revenue and gas sales.

Over a number of years, we have worked to build a strong contract position; approximately 85 per cent of our electricity revenue comes from contracts. These contracts provide certainty to our customers with electricity being one of the largest operating costs for many and a key driver to their profitability.

There has also been a sustained effort by the business to improve our health and safety culture and performance. We now have a single safe work system at all power stations, which has standardised our safety processes throughout the business. During the year a significant number of health, wellbeing and safety initiatives were implemented and our efforts were recognised through industry awards at a national and state level.

Supporting energy affordability and security

Generation in the energy market of the future will be led by variable renewables, supported by storage, gas and existing coal-fired generation. Having flexible thermal capacity will be important to help meet Queensland’s growing summer peak demand. This will be essential in the late afternoon and early evenings, as generation from solar decreases at the same time as demand increases.

Stanwell has made considerable progress towards understanding the capability of our coal-fired fleet to operate flexibly. Our coal-fired generation units were originally designed to run at a relatively constant high level of output.

During 2018/19, we successfully trialled running them at low load and then ramping them up to meet peak demand requirements. In 2019/20, we will focus on trialling alternative operating modes and plant modifications that may be required to further extend their operating range.

In 2018/19, Stanwell delivered approximately 19,200 GWh of electricity; this was 33 per cent of Queensland’s total energy demand in 2018/19.

Our portfolio achieved average availability and reliability factors of 87.7 per cent and 95.9 per cent, respectively. These levels are considered world class when compared to the performance of other coal-fired assets, both within Australia and internationally.

For the second consecutive year, Queensland’s wholesale electricity prices were, on average, the lowest and most stable in the National Electricity Market. Stanwell’s contribution to this was through our commitment to cost leadership and running our low cost generators at sustained high capacity. While there has been significant growth in renewable generation, coal-fired generation contributed 74 per cent to meeting total energy demand in the National Electricity Market during the year. Stanwell’s relatively young and efficient coal-fired assets, combined with our long–term, competitively priced fuel supplies means that Stanwell will continue to have an important role in providing firming generation to support the orderly transition to a lower carbon energy market.

CleanCo Queensland

In 2018, the Queensland Government announced the establishment of a third Government owned energy generation company – CleanCo Queensland (CleanCo).

CleanCo will own a foundation portfolio of existing assets, including a number of assets currently owned by Stanwell. These include Swanbank E, Barron Gorge, Kareeya and Koombooloomba power stations.

When the power stations are transferred to CleanCo on 31 October 2019, Stanwell will deliver services to CleanCo, including operations, maintenance and corporate support services under a Transitional Services Agreement.

Once CleanCo has developed the capability to operate and support the power stations, power station employees will transfer to CleanCo and the Transitional Services Agreement will end. This is expected to occur before the end of 2020.

With the transfer of these assets to CleanCo, Stanwell’s generation portfolio will consist almost exclusively of coal-fired units (with the exception of the gas-fired Mica Creek Power Station which is not connected to the National Electricity Market).

We are exploring opportunities to evolve and renew our portfolio to include low and no emission generation. This may be through financial arrangements, such as power purchase agreements with renewable energy projects. We are also undertaking a study into a possible hydrogen demonstration plant at Stanwell Power Station.

Acknowledgements

On behalf of the Board I would like to thank our Chief Executive Officer, Richard Van Breda, for the leadership he has provided to Stanwell throughout the year.

I would like to acknowledge our people for their hard work, commitment and expertise. Together with Richard and the Executive Leadership Team, they make Stanwell’s achievements possible.

I thank Karen Smith-Pomeroy, Jacqueline King and Adam Aspinall for their valuable contributions to the Board and for their stewardship of the business.

I also extend appreciation to our stakeholders, customers, suppliers, business partners and local communities for their continued support of Stanwell.

Finally, I acknowledge the work of our shareholding Ministers as they look towards the future of Queensland’s electricity portfolio and the energy needs of our State.

Stanwell’s vision ‘Together we create energy solutions’ guides us in delivering strategy, programs and projects and in working with our customers, shareholders, communities and other stakeholders. The Board remains committed to its long-term strategy of adapting Stanwell to be competitive in the energy market of the future, while continuing to deliver value for the people of Queensland.

Dr Ralph Craven

Non-executive Chairman

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Chief Executive Officer's review

During 2018/19, Stanwell continued to focus on supporting a transition to a low carbon future by helping to balance reliability, affordability and environmental sustainability.

We tested and improved the flexibility of our coal-fired plant so that it can ramp up and down to meet changing daily patterns of demand as an increasing proportion of renewables enter the market, and we achieved levels of reliability which are among the best in Australia and indeed the world.

We ran our low-cost power stations at sustained high capacity to exert downward pressure on prices, and we investigated opportunities to participate in low carbon energy solutions including storage, hydrogen, biofuels and firmed renewable products.

At the same time, we worked to ensure the strength of our business for our owners, the people of Queensland. To this end, Stanwell achieved a strong financial result, returning a Net Profit After Tax (NPAT) of $736.0 million (a further improvement on the $490.8 million achieved in 2017/18) and paying a dividend of $550.2 million (compared with $494.2 million in 2017/18).

Importantly, more than 49 per cent of our NPAT came from sources other than the sale of electricity. Coal rebate revenue accounted for 25 per cent ($260.7 million) of NPAT. During the year we signed a new agreement with Coronado Curragh Pty Ltd, locking in a long-term, low-cost fuel supply for Stanwell Power Station through to 2038. More than 20 per cent of NPAT in 2018/19 related to this deal.

Strategic achievements

Everything we do at Stanwell aligns with and supports the four elements of our strategy. These are:

In 2018/19, we achieved a number of important milestones in relation to our strategy.

Flexible and competitive

Peak electricity demand continues to increase in Queensland with another record (9,988 MW) set on 13 February 2019. Combined with new demand lows in the middle of the day which are being driven by the ongoing installation of rooftop solar panels, our coal-fired plant is being called on to operate far more flexibly than it was designed to do. Through the year, we continued trials to ensure our power stations can ramp down after morning peak demand, run at record low loads (or even shut down) during the middle of the day, and then ramp up again quickly so Queenslanders have the energy they need when demand increases each evening.

The availability and reliability of Queensland’s dispatchable generators is also key to a smooth transition to renewables. In 2018/19, Stanwell’s generation portfolio achieved an average availability of 87.7 per cent, and a reliability factor of 95.9 per cent. This compares favourably to an average market availability factor of 75.1 per cent and an average market reliability of 95.0 per cent.

We also maintained a strict focus on cost leadership to ensure the energy we dispatched was as affordable as possible. Our fuel supplies were a key element of this effort in 2018/19. We began a market process to select the organisation which will operate our Meandu Mine over coming years, and we negotiated new agreements for the long-term supply of coal to Stanwell Power Station and for the transport of gas for Swanbank E Power Station.

Innovative energy products

Stanwell Energy – Stanwell’s retail energy business – tailors contracts to meet the needs of large commercial and industrial customers in Queensland, New South Wales, Victoria and the Australian Capital Territory.

In 2018/19 we commissioned an independent survey of Stanwell Energy customers to understand what they value about the service we provide and what elements of our offering they would like us to change.

We have used the results of this survey to refine our retail strategy, offering new energy products and, in the future, energy monitoring and analysis services. As renewable energy projects come on stream throughout the State, we are working with project proponents to provide network services which enable them to generate intermittent energy into the grid while also safeguarding security of supply for Queenslanders.

Back a low carbon future

Our large, diverse portfolio of dispatchable generation allows us to facilitate the introduction of renewables in the grid while also providing reliability and security. During the year we continued to provide our customers with commercially attractive green energy through power purchase agreements with renewable projects. We also recently commenced a $5 million feasibility study into a hydrogen electrolysis plant at Stanwell Power Station near Rockhampton. By deploying hydrogen electrolysis at large scale, the demonstration plant could help support the development of new domestic and export markets for hydrogen. The proposed plant would support electricity security and reliability, and help underpin renewable energy integration and investment in Central Queensland. It would also enhance the flexibility of Stanwell Power Station and enable Stanwell to play an important role in facilitating Queensland’s transition to a lower carbon future.

Enablers

The fourth element of our strategy, enablers, is about simplifying the way we do business; attracting, developing and retaining great people in our workplace; keeping our people safe; and operating in ways which benefit our customers, neighbours, host communities, owners and suppliers as well as our business.

Our priority is the safety of our people. This year the total number of injuries recorded at our sites increased from 88 in 2017/18 to 114 in 2018/19. While this represents our second safest year on record, any injury is unacceptable to us. The increase in the number of incidents was mainly due to hand and finger injuries and we are addressing this trend through a business-wide hand safety campaign. To further secure the safety of anyone who works at or visits our sites, we also implemented a single standardised safe work system.

Every day, in every part of our business, our people make decisions which have potential social, environmental and commercial implications. One of our key areas of focus throughout the year was encouraging our people to consider and balance those implications, regardless of whether the decision they are making is of strategic importance to the business or a day-to-day decision related to our fuel, plant, systems, budgets or people.

Our transition to continuous emissions monitoring systems at our Tarong and Stanwell power stations is part of this commitment. The systems will increase the transparency of our emissions reporting and enable us to further optimise our operations and improve coal ignition efficiencies. During the year we used this new real-time monitoring system for the first time to publicly report Stanwell Power Station’s emissions. We also installed the system at our Tarong power stations and will commence reporting this data from 2019/20.

Acknowledgements

My thanks to our Chairman, Dr Ralph Craven, and to our directors for their leadership, advice and focus throughout the year. I would also like to acknowledge the important role our shareholding Ministers have played as they look to the future of the Queensland energy market. Throughout the year our people have continued to display dedication, energy, professionalism and true ownership in the work they do, in all parts of our business.

Queensland’s energy landscape will continue to evolve over the years to come and I look forward to continuing to work with our people, our customers, communities, partners and shareholders as we overcome new challenges and create solutions together.

Richard Van Breda

Chief Executive Officer

Watch Stanwell’s 2018/19 Annual Report overview video here.

A word from our Chairman and CEO

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Chairman's statement

Title of accordion item

Chief Executive Officer's review

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