Parallel power grids seen as a shock to the system
China Hong Kong Power Development's plan to plug into the local electricity market may give more choice to consumers but industry experts have cast doubts on its technical and economic viability.
In a move to challenge CLP Holdings and Hongkong Electric Holdings, the newcomer, a consortium led by former Chinese premier Li Peng's daughter, Li Xiaolin, intends to source 'clean electricity' from Guangdong to consumers in Hong Kong through a power grid it plans to build.
Although Ms Li said on Wednesday that a business plan was in the making and was expected to be available by the first half of this year, her so far sketchy outline of the project would see a brand new power transmission and distribution network running parallel to that of CLP and Hongkong Electric and a battle for bigger customers.
'Nowhere in the world have I seen any parallel power grids,' said an electricity engineer with 30 years experience in Hong Kong and Australia power markets. 'Constructing a power network is expensive and a parallel network doesn't create any economic efficiency at all.'
Ms Li, president of state-owned power producer China Power International Holding which holds 50 per cent of China Hong Kong Power, said it wanted to source electricity from ally China Southern Power Grid, the state monopoly in power transmission and distribution in southern China.
China Southern Power Grid is the second-largest shareholder of China Hong Kong Power with a 35 per cent stake with the rest held by media firm, Vertex Communications & Technology Group.
Few engineers have disputed the newcomer's source of electricity but many have raised questions on how it can bring electricity into the city, a tiny market with mature growth, high operating costs and lack of natural resources.
UBS analyst Alice Hui Suk-fong believes China Hong Kong Power would have to deploy CLP and Hongkong Electric's power network if it wanted to light up a bigger service area.
Accessing their privately-owned power grids is impossible at least until the end of the scheme of control regulatory regime in 2008, since CLP and Hongkong Electric have ignored public calls for third-party access to the grids.
Another industry expert said the government was unlikely to inject competition into the sector prior to 2008 because it would cause more harm than good to consumers.
He pointed out that competition would lead to the cherry-picking of CLP and Hongkong Electric's customers, leaving a smaller number of customers sharing the same amount of fixed costs.
'This means bigger electricity bills to the remaining CLP and Hongkong Electric customers,' he said. 'And the government is not ignorant of this logic.'
Secretary for Economic Development and Labour Stephen Ip Shu-kwan yesterday again said the government had yet to receive any application from a new power supplier. 'There is no franchise scheme in the electricity market of Hong Kong. Any company that plans to provide electricity in Hong Kong must comply with all the relevant legislation here,' Mr Ip said.
He sidestepped a question over whether the inclusion of a new player would add pressure to the existing power companies in cutting tariffs and opening up the electricity grids. 'The opening up of the power grid will come sooner or later. We too want to see the opening up of the power market,' he said.
POWER PLAY
2005
February 1-April 30
First of two public consultations on future of Hong Kong?s electricity market.
March 29
Vertex forms China Hong Kong Power Development, a 30-70 joint venture with China Power International Holding to sell electricity in Hong Kong.
March 30
Vertex suspended from trading after share price jumps 150 per cent to 37 cents in the first 35 minutes of market opening.
March 31
Trading resumes and shares surge 167 per cent to 99 cents.
April 7
Shares tumble 19 per cent to 58 cents on rumours of a Securities and Futures Commission investigation into the stock?s performance.
April 13
Vertex sells 20 per cent of its 30 per cent interest in China Hong Kong Power for $20 million to a former Kuwaiti oil minister.
April 14
Shares jump 45 per cent before closing 18.8 per cent higher at 63 cents.
April 29
China Power president Li Xiaolin says a proposal to sell electricity in Hong Kong has been submitted to the government.
June 10
State-owned China Southern Power Grid revealed as potential investor in China Hong Kong Power. Vertex shares rise 5.55 per cent to 57 cents.
June 22
Vertex chairman Steven Poon Kwok-lim sells 40 million shares ? 7.79 per cent of the company ? on the market at 58 cents each for $23.2 million.
2006
January 1-March 31
Second public consultation on the electricity market?s future.
January 3
Vertex shares surge 30.76 per cent to 34 cents as company says it is in the final stage of introducing an investor to China Hong Kong Power.
January 4
China Southern Power Grid takes a 35 per cent stake in China Hong Kong Power, leaving China Power with 50 per cent and Vertex 15 per cent. Ms Li says a business plan on importing electricity from Guangdong will be available in the first half, although the government says it has not received a proposal. Vertex suspended from trading.
January 5
Vertex shares surge 105 per cent on resumption of trading before closing 82.35 per cent higher at 62 cents. SFC says it will ask the company to explain abnormal share price movements.
