27 AGL Energy Limited 2012 Annual Report Macarthur  Wind Farm Power Development Solar Flagships  PV project Co-generation  at Qenos Upon completion, Macarthur  Wind Farm will be the largest  wind farm in the Southern  Hemisphere with a generation  capacity of 420 MW. Power Development generates earnings  from the development of wind farms.  Development profits are recognised on  a percentage of completion basis. Development profits of $43 million were  recognised in the year, mainly from the  sale of the completed Hallett 5 Wind  Farm (which reached practical completion  in March 2012) and from the Oaklands  Hill Wind Farm (which reached practical  completion in February 2012). Although it has been sold, AGL will  continue to operate and maintain the  Hallett 5 Wind Farm, and will retain  the rights to all electricity output and  renewable energy certificates. AGL will construct two  PV power stations in  New South Wales with a  generation capacity of 159 MW.  If built today, the larger of  the two stations would be  the largest solar power station  in the Southern Hemisphere. Work continued on construction of the  Macarthur Wind Farm in western Victoria.  When completed in early 2013, it will be  the largest wind farm in the Southern  Hemisphere with a generation capacity  of 420 MW. On 9 June 2012, AGL was named as the  successful bidder under the Commonwealth  Government’s Solar Flagships program.  As a result, AGL will construct 2 solar  photovoltaic (PV) power stations at  Broken Hill and Nyngan with a total  capacity of 159 MW. The total capital  cost of the projects will be $445 million  with $195 million being provided from  Commonwealth and New South Wales  state government grants. AGL’s 21 MW co-generation  project for Qenos’ Altona plant  is scheduled for completion in  December 2012. Merchant Operations Merchant Operations is responsible for  managing and maintaining AGL’s growing  portfolio of wind, water and gas-fired  electricity generation plants. AGL’s thermal and renewable generation  portfolio includes the 1,280 MW gas-fired  Torrens Island Power Station in South  Australia, the 150 MW gas-fired Somerton  Power Station in Victoria, and 781 MW of  hydro generation in Victoria and New South  Wales. It now also includes the 2,210 MW  AGL’s flexible and market competitive gas  portfolio was the basis for the improved  result despite a slight offset from lower  residential demand between July and  September 2011 due to mild weather.  Higher generation output from hydro  and wind assets combined with portfolio  management increased AGL’s eco-markets  gross margins. The year also included a full  12 months gross margin contribution from  the small-scale renewable energy scheme  compared with only 6 months in the prior  corresponding period.  Other drivers of the wholesale electricity  result include additional generation from  new assets and increased hydro capacity. In relation to wholesale electricity, the  improved result for the year was partly due  to the non-recurrence of severe weather  events experienced across the National  Electricity Market in late January and early  February 2011. This was driven by increases in gross  margin of $77.2 million from wholesale  electricity, $10.5 million from wholesale  gas and $20.0 million from eco-markets  gross margin. Merchant Energy 2012  $m 2011  $m Operating EBITDA 628.5 522.3 Operating EBIT Energy Portfolio Management 540.4 428.7 Merchant Operations (118.8) (114.7) Business Customers 94.1 90.4 Power Development 40.8 56.3 Sundry (6.8) (7.5) Total Operating EBIT 549.7 453.2