CLP Power warns of 'turning point'

CLP Power is facing 'unprecedented pressures' to raise its tariffs to cover the cost of rising gas prices, new infrastructure and meeting tighter emissions targets, a top executive at the utility said yesterday.

Richard Lancaster, managing director of the city's biggest electricity provider, which supplies Kowloon, the New Territories and Lantau Island, said the company was still negotiating with the Environment Bureau over the tariffs for next year.

But he warned of 'unprecedented pressures' to increase tariffs - now at about HK$1 per kilowatt hour for residential use - given obligations to meet emissions targets through wider use of natural gas, which is more expensive.

'I think we need to recognise that we are at a turning point with electricity supply,' said Lancaster, referring to the 2015 emissions targets for local power plants. 'We need to comply with air-quality targets. To do so we need to use more natural gas.'

He said natural gas now cost two to three times what CLP currently paid under a 20-year-old contract with a Hainan reserve.

CLP has said supplies at that reserve are running out and it will have to turn to Central Asia for natural gas, which would be piped to Hong Kong via the mainland.

Lancaster would not say whether CLP was seeking a significant tariff rise, but reiterated that high power prices were a global challenge.

'Electricity tariffs all over the world have been rising significantly,' Lancaster said. 'Although we have maintained a very flat rate and we have very competitive tariffs today, we can't keep away from that pressure indefinitely.'

The power firm increased tariffs by 2.8 per cent this year.

Lancaster also confirmed that the company was looking at the tariff structure for non-residential users who, unlike domestic users, enjoy concessions. But he declined to give further details.

Asked about the negative impact of a tariff rise on the community and economy, Lancaster said he fully appreciated the economic climate but that it was 'difficult for everybody'. He said better energy conservation and management could alleviate the impact of higher tariffs.

Lancaster made the comments yesterday at a CLP event to introduce its HK$5 billion infrastructure investment in Kowloon East, an area designated to become the city's second central business district.

Seven power substations and underground ducts will be built to power the district - which will also be home to 90,000 people by 2021, as well as a multipurpose stadium, a monorail linking the district and a world-class cruise terminal.

Higher raw material prices have sharply pushed up the project's construction costs.

Demand for electricity in Kowloon East is expected to equal the current demand in Tsim Sha Tsui and Ma On Shan combined by 2021.

One of the Kowloon East substations is complete. It is the first 'smart' substation, equipped with a self-healing function that allows it to resume power within one second of interruption. Lancaster said it would improve the reliability of supply.

Hong Kong was ranked fourth of 183 economies in terms of access to electricity in a recent World Bank survey on the 'ease of doing business'.

Lancaster said CLP would also invest in other infrastructure projects such as the Hong Kong-Zhuhai-Macau Bridge, the West Kowloon cultural hub and express rail project.