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Infigen Energy Annual Report 2016 RENEWABLE ENERGY FOR FUTURE GENERATIONS IN F IG E N E N E R G Y | A N N U A L R E P O R T 20 16 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 CONTENTS Who We Are 2 2016 Highlights 4 Chairman's Report 6 Managing Director's Report 8 Management Discussion and Analysis 10 Infigen Board 24 Infigen Management 26 Corporate Structure 28 Directors' Report 30 Remuneration Report 35 Auditor's Independence Declaration 48 Consolidated Financial Statements 49 Directors' Declaration 110 Independent Auditor's Report 111 Additional Investor Information 113 Glossary 116 Corporate Directory 117 To generate economic value whilst acting on climate change. SECURITYHOLDERS To provide a safe, enjoyable, rewarding and inclusive work environment. EMPLOYEES To foster respectful, responsive and enduring relationships. COMMUNITY To provide competitive renewable energy products and services. CUSTOMERS 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 Infigen trades on the Australian Securities Exchange (ASX) under the code IFN. Infigen is the largest owner of wind farms in Australia. We: − develop large-scale wind and solar projects − own six large-scale wind farms with a combined installed capacity of 557 megawatts − manage the operations of our assets from a 24/7 control centre 1 Average annual household consumption in different states and territories is approximately 5–8 megawatt hours (MWh) per household, http://www.energymadeeasy.gov.au/ 2 Infigen's scope 1 and 2 emissions in the 2016 financial year were 3,249 tCO2e. 3 More information on Infigen’s development pipeline is in the Management Discussion and Analysis, page 10. 4 In 2015 Infigen entered into a letter of intent regarding co-development and potential sale of the Manildra solar development project, with the sale conditional upon that project being successful in the ARENA large-scale solar PV competitive grant round. If the sale proceeds, Infigen will receive a payment determined by reference to the proposed MW capacity of the Manildra project. 5 Infigen has a 32% equity interest. 6 Infigen has a 50% equity interest. DEVELOPMENT PROJECTS PROJECT APPROVED CAPACITY (MW) DATE OF APPROVAL OF PLANNING APPLICATION COMMUNITY CONSULTATION 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 Walkaway 25 45 Jul 2016 N/A Wind Farm Bodangora6 90-110 Aug 2013 Jun 2012 Capital 2 90-100 Nov 2011 Sep 2013 Cherry Tree 45-55 Nov 2013 N/A Flyers Creek 100-115 Mar 2014 Dec 2012 Forsayth6 70-80 Feb 2014 N/A Walkaway 25 ~41 Dec 2008 N/A Walkaway 35 ~310 Dec 2008 N/A Woakwine ~450 Jun 2012 N/A Infigen Energy is a leading Australian renewable energy company supplying electricity that is commercially, socially and environmentally sustainable. 250,000+ HOMES POWERED BY OUR OPERATING ASSETS1 Operation of our wind farms emitted less than 2 grams2 of carbon dioxide equivalent greenhouse gases per kilowatt hour ~1,100 MW LARGE-SCALE RENEWABLE ENERGY DEVELOPMENT PROJECTS Our development pipeline comprises over 1,000 megawatts of projects with planning approval3 WHO WE ARE 2 INFIGEN ENERGY ANNUAL REPORT 2016 Solar farm development project Wind farm development project Operating solar farm Operating wind farm OPERATIONAL ASSETS ASSET STATE COMMERCIAL OPERATION DATE NAMEPLATE CAPACITY (MW) O&M SERVICES AGREEMENT END DATE SALE OF PRODUCTION: POWER AND LARGE-SCALE GENERATION CERTIFICATES (LGCs) Alinta wind farm WA Jul 2006 89.1 Post-warranty: Dec 2017 100% of power to Alinta Energy until Dec 2026 100% of LGCs to Alinta Energy and AGL until Jan 2021 Capital wind farm NSW Jan 2010 140.7 Post-warranty: Dec 20177 90-100% of power and 50-100% of LGCs to Sydney Desalination Plant8 until Dec 2030 Capital East solar farm NSW Oct 2013 0.1 N/A 100% of power and LGCs merchant Lake Bonney 1 wind farm SA Mar 2005 80.5 Post-warranty: Dec 2017 100% of power and LGCs merchant Lake Bonney 2 wind farm SA Sep 2008 159.0 Post-warranty: Dec 2017 100% of power and LGCs merchant Lake Bonney 3 wind farm SA Jul 2010 39.0 Post-warranty: Dec 2017 100% of power and LGCs merchant Woodlawn wind farm NSW Oct 2011 48.3 OEM9 warranty: Oct 2016 100% of power merchant 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<1.5̊ c emissions reduction target adopted based on global warming limits 74% products and services for our operations were procured within australia zero maintained our zero lost time injury frequency rate 4.8 reduced our total recordable injury frequency rate from 9.7 0.002 tco2e/mwh emissions intensity of our operations remained steady $0.3m contributed in community investments 4 infigen energy annual report 2016 key financial outcomes (continuing operations) fy16 37.4 fy15 34.8 fy14 36.1 fy16 595 fy15 742 fy14 994 fy16 120 fy15 84 fy14 93 ($m) ($m)($m) 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. $173m revenue increased by 29% $148m cash balance increased by 300% $7m net profit increased by $25.4 million $57m net operating cash flow increased by 71% $57m $51 million of global facility and $6 million of woodlawn facility borrowings repaid 1,469 gwh production increased by 1% $37.4m achieved operating costs below the $37.5-39.5 million guidance range $595m net debt reduced $147 million $120m ebitda increased by 44% 5 “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. we are progressing negotiations with our service and maintenance providers with a view to maintaining our long-term service and maintenance costs at levels that reflect efficient service provision and mitigate the risk of major component failures. we are pleased to see improved value recognition for infigen’s business with the security price increasing approximately 250% over the financial year with some improved level of institutional investment emerging. the inclusion of infigen in the asx200 index following the september 2016 quarterly rebalance is also a welcome consequence. c="" emissions="" reduction="" target="" adopted="" based="" on="" global="" warming="" limits="" 74%="" products="" and="" services="" for="" our="" operations="" were="" procured="" within="" australia="" zero="" maintained="" our="" zero="" lost="" time="" injury="" frequency="" rate="" 4.8="" reduced="" our="" total="" recordable="" injury="" frequency="" rate="" from="" 9.7="" 0.002="" tco2e/mwh="" emissions="" intensity="" of="" our="" operations="" remained="" steady="" $0.3m="" contributed="" in="" community="" investments="" 4="" infigen="" energy="" annual="" report="" 2016="" key="" financial="" outcomes="" (continuing="" operations)="" fy16="" 37.4="" fy15="" 34.8="" fy14="" 36.1="" fy16="" 595="" fy15="" 742="" fy14="" 994="" fy16="" 120="" fy15="" 84="" fy14="" 93="" ($m)="" ($m)($m)="" 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.="" $173m="" revenue="" increased="" by="" 29%="" $148m="" cash="" balance="" increased="" by="" 300%="" $7m="" net="" profit="" increased="" by="" $25.4="" million="" $57m="" net="" operating="" cash="" flow="" increased="" by="" 71%="" $57m="" $51="" million="" of="" global="" facility="" and="" $6="" million="" of="" woodlawn="" facility="" borrowings="" repaid="" 1,469="" gwh="" production="" increased="" by="" 1%="" $37.4m="" achieved="" operating="" costs="" below="" the="" $37.5-39.5="" million="" guidance="" range="" $595m="" net="" debt="" reduced="" $147="" million="" $120m="" ebitda="" increased="" by="" 44%="" 5="" “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.="" we="" are="" progressing="" negotiations="" with="" our="" service="" and="" maintenance="" providers="" with="" a="" view="" to="" maintaining="" our="" long-term="" service="" and="" maintenance="" costs="" at="" levels="" that="" reflect="" efficient="" service="" provision="" and="" mitigate="" the="" risk="" of="" major="" component="" failures.="" we="" are="" pleased="" to="" see="" improved="" value="" recognition="" for="" infigen’s="" business="" with="" the="" security="" price="" increasing="" approximately="" 250%="" over="" the="" financial="" year="" with="" some="" improved="" level="" of="" institutional="" investment="" emerging.="" the="" inclusion="" of="" infigen="" in="" the="" asx200="" index="" following="" the="" september="" 2016="" quarterly="" rebalance="" is="" also="" a="" welcome="">