Saving energy ‘the only solution’

As gas prices rise and utilities strive to cut emissions, consumers must save energy or see their power bills rise by more than half by 2015, an energy specialist has warned.

Professor Tso Che-wah said higher natural-gas prices and greater use of gas to generate cleaner power were inevitable, and the best thing consumers could do to reduce the impact as the costs were passed on to them was to use less.

“The most effective way for us, as consumers who wish to have clean electricity without paying significantly more, is to opt for behavioural change, such as reducing consumption,” he said.

Tso, an adjunct professor at the School of Energy and Environment at City University, retired from Hongkong Electric (SEHK: 0006) in 2009. His comments came a day after CLP Power (SEHK: 0002) sparked outrage by saying it might have to raise tariffs by 40 per cent in four years to meet rising gas prices.

Tso said this was no surprise – his estimates indicated the increase could in fact be as much as 60 per cent in three years.

This took into account extra investments to be made by CLP to meet the 2015 emission caps imposed by the government, as well as rising international gas prices.

Tso also estimated that the power firm would have to make an investment of HK$6 billion to retrofit two new gas-fired generation units, and perhaps another HK$6 billion for an offshore wind farm, as CLP made gas the basis of half of its total capacity and adopted zero-emission means of generation.

He said this meant CLP users would eventually pay HK$1.60 per kW, compared to 98 cents now. Even then, the price would be lower than in many developed nations.

On Tuesday, CLP warned of substantial future tariff increases as a result of it having to use much more expensive natural gas from Central Asia, piped through the mainland. This warning spurred demands for more measures to curb tariffs, such as a liberalisation of the energy market.

But Tso said the gas price, four times that set out in a procurement contract 20 years ago for a Hainan gas field that is now running out, was beyond the control of the power firm.

While some politicians have vowed to press for the allowable rate of return on investment for CLP and Hongkong Electric to be lowered, Tso said this would have no impact on fuel costs, which would be passed on to consumers anyway.

Under a 10-year agreement known as the scheme of control, which was signed in 2008 and ties profits to spending on assets, the maximum return for power utilities was set at 9.99 per cent.

Tso said the tariff structure could be adjusted to allow for cheaper power at night.

Another practical approach would be to step up the interconnection between CLP Power, which serves the New Territories, and Hongkong Electric, which serves Hong Kong and Lamma Island, to minimise the amount of power overproduced for reserve capacity.

“There is no technical difficulty in introducing this. All we lack is the political will to do it,” Tso said.

Other energy analysts were less pessimistic than Tso about the likely tariff increases.

Pierre Lau of Citigroup thought CLP’s price would rise by about 26 per cent, an average of 8.66 per cent a year, between next year and 2015. This would pass on fuel cost rises and earn the maximum 9.99 per cent return for the power firm.

Hongkong Electric was expected to lift tariffs less over the three years – by 19 per cent, or 6.33 per cent a year.

Amid resistance to bigger electricity bills, CLP lifted its tariff by 4.9 per cent on January 1, after stepping back from its original proposal of 9.2 per cent. Hongkong Electric raised its rates by 6.3 per cent, after first proposing an almost 8 per cent increase.

Federation of Hong Kong Industries deputy chairman Stanley Lau Chin-ho said many Hong Kong companies were shocked by the tariff increases CLP predicted.

He said bigger power bills would add to companies’ cost burden. “The administration under the new chief executive [Leung Chun-ying] must sort out a long-term solution to keep tariffs stable,” he said.