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December, 2010:

Rising fuel costs and cleaner energy force up power charges

South China Morning Post — 15 Dec. 2010

Hong Kong’s power charges will rise by about 2.8 per cent next year, spurred by a double-digit rise in fuel costs this year, an expected similar increase next year and moves by the two power companies to burn more clean fuel.

On January 1, the price per kilowatt hour of electricity will go up from 91.5 to 94.1 cents for CLP Power (SEHK: 0002) customers and from 119.9 to 123.3 cents for Hongkong Electric (SEHK: 0006) users.

It is CLP Power’s second increase and Hongkong Electric’s first since a revamp of their profit scheme in 2009 that led to tariff cuts of 3 and 5.9 per cent respectively. Last year CLP Power imposed a 2.6 per cent rise, while Hongkong Electric froze charges.

Both still regard their charges as among the lowest in the world but are cautious about the outlook as they forecast gas and coal prices will continue to rise. Further uncertainties are created by the move to use more gas and possibly more imported nuclear energy in the next decade.

Lawmakers asked why the two firms, which have been making huge profits, could not have avoided the increase to ease the inflationary pressures facing the public.

But government economists estimate that the increase will have only a negligible impact on inflation and business costs, pushing up the composite consumer price index by just 0.005 of a point in the next year.

Secretary for the Environment Edward Yau Tang-wah said the increase had been “suppressed” to the lowest possible level.

“The original proposed tariff increases were far higher than what we have now,” he said without disclosing the levels.

Coal prices surged by 30 per cent this year and gas prices showed a double digit growth, the firms said.

They said the increase, in response to higher fuel costs, would have no effect on their profits. But both said they looked set to grab the maximum return of 9.99 per cent on their net fixed assets in the next year.

While the tariff gap between CLP Power and Hongkong Electric largely remains at 30 per cent after adjustment, the latter will next year cut the basic tariff rate – reflecting the capital expenditure on power generation and transmission – by 1.4 cents per kilowatt.

“This is done to mitigate the impact of the fuel price increase,” said Tso Kai-sum, group managing director of Hongkong Electric, who pointed out that the company had just doubled its gas use to 30 per cent of the fuel mix this year.

CLP Power managing director Richard Lancaster said the company could not afford such a cut, as it had many investments to make on power infrastructure, such as new railway lines and the Kai Tak development, which falls within its supply area of Kowloon and the New Territories.

The two executives also briefly touched on the proposed expansion of nuclear energy imported from the mainland. Lancaster said nuclear energy was relatively stable in cost and that to satisfy half of the power needs with nuclear energy, as proposed by the government’s climate change action strategy for 2020, at least two 1,000 megawatt generating units would have to be built. A quarter of the city’s power comes from the Daya Bay nuclear plant, which is partly controlled by CLP Power.

Tso also indicated an interest in nuclear energy imports but said more studies were needed to assess the impact on tariffs and how the electricity could be transmitted.

Greenpeace said that expanding nuclear energy intake would make redundant expensive investments needed to cut pollution from coal-fired generation units.

Friends of the Earth urged the government to address the “systemic” problem in the firms’ regulatory regime that discouraged them and the public from saving energy.

The firms can earn more by making bigger capital investments, thus boosting the net assets upon which their returns are based

CLP, Hongkong Electric to Raise Power Tariffs by 2.8%

14 Dec. 2010

CLP Holdings Ltd. and Hongkong Electric Holdings Ltd. will raise tariffs in the city by an average of 2.8 percent next year to cover rising fuel costs, company officials said.

The increase will have no effect on CLP’s profitability, Managing Director in Hong Kong Richard Lancaster told city legislators at a briefing on the charges today.

“We’re coming under severe pressure in terms of fuel costs,” Lancaster said. Hongkong Electric also raised tariffs to cover increased fuel prices, Wan Chi-tin, a director of engineering at the utility, told lawmakers.

The price of coal, used to generate about half of Hong Kong’s electricity, has risen about 30 percent this year, according to briefing notes produced by CLP today. The city’s government forecasts a 2.5 percent increase in consumer prices this year.

About 56 percent of CLP’s revenue comes from its operations in Hong Kong, according to data compiled by Bloomberg. The utility also runs power companies in mainland China, Australia, India, Southeast Asia and Taiwan. Sixty-nine percent of Hongkong Electric’s profit last year came from its operations in the city, according to its annual report.

Shares of CLP gained 22 percent this year and Hongkong Electric rose 19 percent, compared with the 7.1 percent increase in the benchmark Hang Seng index.

CLP raised tariffs by an average 2.6 percent last December to fund projects including measures to curb air pollution. Hongkong Electric kept prices unchanged then.

Why our energy future lies in safely produced nuclear power

South China Morning Post — 01 Dec 2010

Already, about one-quarter of Hong Kong’s electricity is nuclear, which is more than 10 times the national average. Nuclear electricity has saved, for Hong Kong alone, the atmospheric emission of millions of tonnes of CO2 and other pollutants every year. A substantial Chinese nuclear programme could bring about an impact a hundredfold bigger.

However, while we enjoy a lower-carbon-footprint lifestyle and better air quality, Chernobyl and Three Mile Island are constant reminders of the nuclear safety issue. Although tens of thousands of scientists and engineers have spent decades of hard work to produce generations of safer and more efficient reactor designs, we must remember that present-day nuclear power reactors are not intrinsically safe. Our marvellous record today is the result of a rigorous system managed, operated and supervised professionally, and with zero tolerance for errors. China has to secure an enormous energy supply to sustain the economic activity and livelihood of its huge population. This colossal task is currently managed by converting into CO2 a sea of oil and a mountain of coal every day. This is obviously an undesirable situation – environmentally, sociopolitically and strategically.

Given the magnitude, complexity and urgency of the problem, China has few practicable alternatives, and a sizeable nuclear power programme is understandable. In such a scale of things, the participation or not of Hong Kong carries little weight. As a matter of fact, Hong Kong is already located right at the centre of one of the highest concentrations of nuclear power plant developments in the world. Non-participation will not make Hong Kong less susceptible to problems from Guangdong’s nuclear plants, or keep our sky clearer and our atmosphere cleaner.

We estimate that more than 20,000 scientists and engineers will be needed to provide healthy support for the nuclear industry in the Pearl River Delta region within the next 20 years, when the many new reactors built today will start to age and face problems. We will have to count on their expertise and professionalism, not only for the energy supply, but also for our health and safety. Our best bet, it seems, is to be proactive, seek opportunities for active participation and help build a better and safer nuclear industry around us. We may then hopefully achieve a win-win solution for Hong Kong.

C. H. Woo, chair professor of solid-state electronics, department of electronic and information engineering, S. Q. Shi, professor, department of mechanical engineering, C. T. Liu, chair professor of materials science and engineering, department of mechanical engineering, all Hong Kong Polytechnic University; J. Lu, professor, college of science and engineering, City University of Hong Kong