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CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S MESSAGE

It is a very exciting time in the Company’s proud 70 year history. With the National Electricity Market (NEM) undergoing a rapid transformation, Snowy Hydro’s role in keeping the lights on is more important now than ever before.

Over the past two years, we have witnessed profound changes in the NEM, with variable intermittent wind and solar developments, ‘firmed’ by gas, hydro and storage, displacing coal-fired generation as the lowest cost source of energy. As the nation rapidly transitions to a renewable energy future, Snowy Hydro’s core foundations of on-demand generation and large-scale energy storage capability, currently being increased by the Snowy 2.0 expansion, are critical to prevent persistent blackouts and high energy costs to consumers and businesses for future generations.

In the short term, the Company faces significant headwinds with a forecast third consecutive year of drought conditions and ongoing intense regulatory intervention particularly affecting our retail business. Despite these challenges, this year the Company delivered a number of significant milestones.

When reflecting on our achievements, the safety and wellbeing of our people remains our first priority and we are committed to continually improving our safety performance and practices. We continue to invest in maintaining best practice safety standards and a strong safety culture across the Company. Our safety performance is, and will always be, our first measure of success and achievement.

In March this year, we broke ground on Snowy 2.0, following planning approvals for the exploratory works. Site access roadworks and construction for the workers’ accommodation are in full swing, and we expect to have the first tunnel underway by the end of this year. After almost two years of planning, rigorous economic analysis, market modelling, a comprehensive geotechnical investigation program, procurement and environmental studies, seeing the project kick off was a standout moment for the Company.

Last November, we signed 888MW of long-term contracts with eight new wind and solar projects through our Renewable Energy Procurement Program. The Program was an outstanding success. It provides the Company with access to competitively priced energy that will resolve Snowy Hydro’s long standing short energy position by removing our dependence on the larger players for our energy needs, increase competition for energy supply in the NEM, and enable passing on lower wholesale prices to our customers. It also provides us with an ideal platform to launch further wind and solar tenders and is a key contributor to realising the Company's growth ambitions.

While new renewables will lower prices for households and businesses, these projects need better and immediate access to the shared transmission network so they can deliver power to major load centres and access large-scale storage. The growth of renewables also means there is a greater need for firm, on-demand generation. The rapid increase in renewable energy developments and the ageing coal fleet in the NEM are putting immense pressure on the grid, with prolonged high price events and sub-zero spot market pricing a regular feature of the market. An extreme example of this increased variability and lack of firm generation was experienced on the 24th and 25th of January, when severe load-shedding occurred in Victoria. The Australian Energy Market Operator has forecast that over 1 million Victorian households are at further risk of blackouts over the upcoming summer.

The most effective way to address these issues is through increased transmission capacity and improved interconnection. This is the single most critical initiative to prevent blackouts, lower costs for consumers, increase competition and maximise efficiency. The Snowy Scheme currently has 1500MW of constrained capacity that could be available to Melbourne and 1200MW to Sydney if the augmented transmission infrastructure was in place today. Given the lead time to upgrade transmission capability, decisive action is required now. We continue to advocate for these developments.

On the retail front, both Red Energy and Lumo Energy maintained market leading positions in industry customer satisfaction awards and Net Promoter Score performance amongst their peers, demonstrating incredible resilience amidst a fiercely competitive and turbulent regulatory environment. Despite extremely tight margins and high customer churn, we achieved a new record of 1.09 million customers, supported by a fourth year of strong customer growth in NSW. Our continued growth in these difficult conditions is underpinned by our commitment to putting customers first and doing the right thing by them. The strategic partnership with Qantas also exceeded all expectations. We will continue to build on our track record of outstanding customer service and leverage the outstanding reputation of our retail brands and the mighty Snowy to maintain growth in our retail markets.

Snowy Hydro’s Standard & Poor's (S&P) credit rating was upgraded in June 2019 to A- (from BBB+), reflecting our capacity for future investments. The strength of Snowy Hydro’s balance sheet and its focus on earnings and value-accretive investments place the Company on a solid foundation to pursue further growth in all of its business segments.

Our people and assets also performed exceptionally well, with our entire fleet of reliable plant available to deliver energy when most needed by the NEM, in particular Victoria which experienced extreme volatility in late January 2019 and early March 2019.

Snowy Hydro is committed to investing in our people and the communities where we live and work. We provide health and wellbeing initiatives across the business and development opportunities for staff by creating a pipeline of technical and trade skills, with almost 10% of the workforce in the Generation business in development programs like apprenticeships, traineeships and cadetships. We also continue our support and sponsorship of community activities and initiatives, and maintain significant partnerships with organisations focused on delivering better employment and health outcomes including the Clontarf Foundation, the Police Citizens Youth Clubs, the Country Universities Centre, Breast Cancer Network Australia and NSW Swifts Netball.

As we celebrate and reflect on our 70 year footprint, Snowy Hydro’s visionary thinking, foresight and diligence mean it is yet again embarking on an iconic project that will secure Australia’s energy future for generations to come. It's a privilege to lead this organisation as we take on the immense challenges and opportunities ahead of us.

Noel H Cornish AM, Chairman

Paul A Broad, Managing Director