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December, 2011:

‘Rolls-Royce level’ costs put CLP in hot seat

Energy official calls power company’s operating costs too luxurious, driving up tariff levels much higher than rival supplier Hongkong Electric

South China Morning Post – Dec. 16, 2011

An administration official has criticised CLP Power (SEHK: 0002)’s ballooning operating costs – which he likened to “Rolls-Royce” levels – amid public outrage over the electricity firm’s more than 9 per cent tariff rise.

Energy Advisory Committee member Ronnie Hui Ka-wah said CLP had informed the body that its expenses had risen 11 per cent – more than double the 5.2 per cent inflation rate forecast this year. “Why does CLP have to be as luxurious as driving a Rolls-Royce when it comes to its spending level?” Hui asked on an RTHK programme yesterday.

He pointed out that the city’s other power supplier, Hongkong Electric (SEHK: 0006) (HKE), had imposed a much smaller increase. Hui said the rise in CLP’s operating costs pushed up its basic tariff, excluding fuel charges, by about 9 per cent compared to HKE’s basic price rise of less than 5 per cent.

Hongkong Electric serves Hong Kong and Lamma islands, while CLP supplies the rest of the city.

Officials said both tariff rises – an average 9.2 per cent for CLP Power and 6.3 per cent for HKE – were unacceptable, but the power suppliers insisted their prices were generally lower than many developed regions.

However, Hui questioned the “big discrepancy” between the two companies’ price rises even if both of them were required to meet the same emission-control targets. He said CLP’s HK$9 billion investment in a scrubber system for its coal-fired plant should not have pushed its costs significantly higher.

A CLP Power senior executive said on Wednesday that after deducting the operating costs of the emission-control devices, the actual tariff rise should be around 6 per cent.

Chief Executive Donald Tsang Yam-kuen has urged both power distributors to reconsider their moves and make a “wise decision” by the end of this year – a comment that was “liked” by almost 6,000 people on his Facebook page.

The dispute has also drawn attention to the control scheme governing power firms’ earnings, which allows the companies to make profits equal to 9.99 per cent of their net fixed asset value, but leaves the government no veto rights.

In addition to the costs, Hui said CLP Power seemed to be working on boosting its generation capacity – a move that he believed was in conflict with a government agreement. However, the adviser did not elaborate.

Hui’s contention could be related to a CLP study on the possible replacement of old coal-fired units with gas-fired ones, a person familiar with the situation said, but this was unlikely to have an impact on tariff levels.

CLP managing director Richard Lancaster had told lawmakers that the deficit in its fuel clause account would grow from HK$58 million this year to HK$840 million next year as gas expenses increased. But many groups, such as the Federation of Hong Kong Industries, opposed the tariff rise, saying it would drive businesses out of the city.

BMW passes gas

UPDATE 1-CLP expects A$245 mln carbon-related impairment loss

HONG KONG Dec 13 (Reuters) – Regional power utility CLP Holdings Ltd said it will write down the value of carbon-emitting assets in Australia, resulting in an expected impairment loss of A$245 million ($247.13 million) due to a new carbon tax law.

Australia’s parliament last month passed landmark legislation to impose a A$23 per tonne tax on carbon emissions for 500 of the nation’s biggest polluters across mining, energy and heavy manufacturing from mid-2012.

Hong Kong-based CLP said in a statement on Tuesday that it had completed a study on the impact of the legislation on its Australian unit TRUenergy, and would have to write down the value of the unit’s coal facility in Yallourn, Victoria, by A$350 million, the company said in a statement.

The writedown would result in a loss that would be recognised in its books this year, it said.

“No further writedowns within the TRUenergy portfolio are required as a result of the passing of the Clean Energy legislation,” the company said.

Analysts had expected a writedown of as much as $772 million because of the new law.

“The new carbon tax in Australia will significantly impact the long-term profitability of this plant,” said CLSA analyst Rajesh Panjwani in a report released on Monday, adding that the coal facility accounted for 17 percent of the power utility’s net worth.

TRUenergy is one of Australia’s largest integrated energy companies, providing gas and electricity to more than 2.5 million households and business customers. TRUenergy owns and operates a 5,469 megawatt (MW) portfolio of electricity generation facilities.

Analysts expect the Australian carbon legislation to have a limited impact on the company in the near term, as the new law allows CLP to claim up to A$1.5 billion in cash compensation and free carbon permits, which could boost earnings at TRUenergy by 15 percent yearly before interest, taxes, depreciation and amortisation (EBITDA) from 2013 to 2015.

But there would be less predictability after the first three years as Australia ended the cash incentive and introduced a carbon-trading scheme under which the market would determine the price of carbon, said analysts. ($1 = 0.9914 Australian dollars) (Editing by Chris Lewis)

Gates teams up with China to build nuclear reactor

Microsoft co-founder in talks with state-owned firm to develop ‘cleaner’ technology, reports say

Dec. 5, 2011 – South China Morning Post

Microsoft co-founder Bill Gates (pictured) is holding talks with the state-owned China National Nuclear Corporation (CNNC) to jointly develop a new type of nuclear reactor.

“A company he [Bill Gates] founded is working with us and he will visit us in a few days for more talks on co-operation,” said corporation general manager Sun Qin in a speech delivered at a forum in Beijing on Friday, which was later released on mainland news portals.

“He is working with us to conduct research on a new type of nuclear reactor and jointly develop [it] with CNNC,” said Sun, who heads China’s top nuclear developer, overseeing military and civilian programmes.

While Sun did not give details about the new reactor technology, postings on the corporation’s website show that TerraPower – of which Gates is chairman – has been talking with CNNC since 2009 about developing a travelling-wave reactor, or TWR. Gates has visited CNNC at least twice.

TWR, a virtual design by TerraPower that has yet to be built or tested, is a new type of reactor that could reduce the need for the enrichment and reprocessing of uranium.

If successful, TWRs would be smaller, cleaner nuclear reactors that would create less nuclear waste, and they could be used for years without refuelling.

TerraPower has been trying to find a country willing to host the first TWR. It remains unknown whether the co-operation with CNNC means China will become the first country to experiment with such a reactor.

Gates visited CNNC in June to discuss possible co-operation between the two companies. Three months later, TerraPower CEO John Gilleland held talks with Sun about co-operating on the TWR.

The concept for TWR had been floating around for years until a former Mircosoft executive and a friend of Gates, Nathan Myrhvold, embraced the idea. Since Gates’ retirement from Microsoft, promoting and developing clean-energy technology has been one of his pursuits.

Lin Boqiang , director of Xiamen University’s Centre of China Energy Economics Research, said the partnership would no doubt raise China’s profile as it struggled with nuclear safety concerns after disaster-hit Japan’s meltdown in March.

“For Gates, China could not be a better partner to work with, given the country’s vast market for nuclear energy,” the professor said.