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A switch in time

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Before we, the public, celebrate our victory in temporarily obtaining a lower increase in our electricity tariff this year, we should take a moment to reflect on what we can learn from this hard-fought battle over the fate of our future energy policy.

The reason for the rise was essentially this: there is a pressing need to significantly expand generation capacity, and hence capital expenditure, to cope with Hong Kong's increasing electricity demand. It comes as no surprise that our two electricity providers are again looking to expand their capital expenditure. Why? Because the companies' profits are based on the return on their equity values. Simply put, the more power generation infrastructure that CLP Power and Hongkong Electric invest in, the greater the profits they earn.

Under the existing scheme of control, tariff rates are set so as to allow the utilities to recover their operating and capital expenditure. By rejecting the proposed increase, the Hong Kong government has disagreed with the companies' projected growth rate in electricity demand.

This raises two fundamental questions. First: what kind of model are the companies using to project rises in electricity demand? And, second: where exactly will this growth in demand come from? The new West Kowloon Cultural District project? The high-speed rail line? Or the GDP growth rate? Certainly, gross domestic product growth should no longer be the main driver of growth in electricity demand. The two measurements have decoupled over the past six years, and energy consumption growth in Hong Kong is now much slower than GDP growth.

Looking at historical figures, Hong Kong's entire energy consumption - including electricity - only increased by 6.3 per cent over the 10 years between 1998 and 2008. It's now time for a careful review, especially after the government stated, in its 2009 climate strategy, that Hong Kong's projected energy demand in 2020 would be 36 per cent higher than that of 2005.

There can be no dispute that we need to combat climate change. However, the proposed climate strategy is to make the reduction in carbon emissions mostly the responsibility of CLP Power and Hongkong Electric.

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