State-owned power provider Synergy is haemorrhaging money, with the utility’s bottom line set to blow out by more than a quarter of a billion dollars over the next four years.

This week’s mid-year review of the State finances shows forecast revenue to Synergy is expected to be a massive $537 million lower to 2021-2022 compared with the May Budget.

While Treasury noted Synergy would have lower expenses to the tune of $265 million, the slump in turnover has left a $271 million black hole in the electricity provider’s budget.

The sharp decline in expected revenue has been caused by plummeting demand for energy from the grid as growing numbers of households in Perth and the South West generate their own power from solar panels.

There are almost 200,000 households with rooftop solar panels on the south-west grid, which stretches from Kalbarri in the north to Kalgoorlie in the east and Albany in the south.

Amid forecasts that the uptake of solar photovoltaic cells, or PVs, will continue to gallop along, Treasury said Synergy’s business model of generating electricity from power plants and selling it to customers over the grid was likely to take a battering.

It said the deterioration in the utility’s trading position primarily reflected: “a reduction in forecast energy demand due to the increased utilisation of solar photovoltaic generation by customers”. “The rapidly changing market in which Synergy operates ... and its response to this have the potential to place pressure on Synergy’s financial performance over the forward estimates period,” Treasury said.

Another key headwind for Synergy is competition in the industrial and big business market, where the utility is not protected by a monopoly as it is with the small-user market such as households.

Treasury said Synergy was being squeezed in this so-called contestable market, forcing it to offer lower prices or risk losing customers.

The grim outlook follows warnings by Synergy’s chairman, Rob Cole, in the group’s annual report earlier this year in which he said the flood of renewable energy on to the system was having “profound consequences” for its business.

Mr Cole noted the amount of rooftop solar capacity grew 183.6MW — or a staggering 25 per cent — in the year to June.