Power companies must now deliver
Hong Kong's electricity market has entered a new chapter after CLP Power and state-owned China Southern Power Grid (CSG) sealed a HK$24 billion deal to buy out Exxon Mobile's stake in the Castle Peak Power Company (Capco). The move has opened the door to a mainland player for the first time. It also knits the two power markets closer together, paving the way for more co-operation in future. As the acquisition only involves shares without adding fixed assets, it is not expected to bring lower tariffs in the short run.
Amid growing calls to open up the industry for more competition, the latest move can be seen as strategic. CLP said it would bring synergies in that electricity imported into the city must pass through the CSG network. Ultimately, what matters to consumers are prices and reliability. Concerns have been raised that the strategic alliance will give CLP more bargaining chips in future negotiations on tariffs and changes to the regulatory regime. But the power giant said being Capco's dominant shareholder meant it would be more attuned to public sentiment in future adjustments.
Meanwhile, a review of the Scheme of Control, the regulatory regime that does not expire until 2018, between the Environment Bureau and the two suppliers, CLP and Hong Kong Electric, has resulted in some benefits to consumers, including a change to accounting rules that could provide more flexibility in limiting the size of future tariff rises.
The two suppliers have also agreed to contribute HK$100 million in matching subsidies to help residents of selected buildings save energy, financed by financial rewards earned by the companies over the past four years for outperforming on energy-savings targets and audits as set out in the agreement with the government. This means energy-saving initiatives will be financed by power firms rather than users. As Greenpeace has pointed out, the firms will need to pursue future savings targets seriously if this win-win formula is to generate more resources for funds for conservation initiatives.