Hong Kong and Lamma households could face higher power bills as HK$4.1 billion gas-fired generating unit approved

Households on Hong Kong Island and Lamma Island could be hit by higher electricity bills with the government’s approval of HK Electric’s construction of a new gas-fired generating unit at an estimated cost of HK$4.1 billion.

The government was satisfied the new gas unit – a combined-cycle gas turbine with an installed capacity of 380 megawatts – was needed for the power company to meet the city’s target of increasing local electricity generation by natural gas to around 50 per cent of its total fuel mix from 2020.

It announced on Tuesday that the Executive Council had approved the construction of the project.

According to HK Electric’s plan, an existing gas unit would be kept in service until 2022 – two years later than it had originally planned – while the new gas unit is being built.

Its gas generation ratio is to increase from the current 34 per cent to 50 per cent in 2020 and 55 per cent by 2022.

As Hong Kong’s power companies are guaranteed a “permitted rate of return” on their average net fixed assets, the construction of a new unit could mean HK Electric’s tariffs would rise by 0.2 per cent next year and 0.3 per cent in 2018, according to the government estimates.

It is not know how tariffs after 2018 could be affected as the government has yet to reach a new agreement with Hong Kong’s two power suppliers.

While HK Electric supplies electricity to Hong Kong Island, Ap Lei Chau and Lamma Island, CLP Power supplies Kowloon and the New Territories, including Lantau Island and other outlying islands.

The government last year pledged to raise the ratio of natural gas for electricity generation from 2020 from 21 per cent to 50 per cent to meet its pledged environmental targets.

Faced with the requirement, CLP Power came up with an offshore liquefied natural gas terminal that would give it flexibility to buy natural gas internationally. The company said an environmental impact assessment for the project had been carried out. But the firm gave no cost estimate for the project.

Dr William Yu Yuen-ping, founder and CEO of environmental conservation group World Green Organisation, said Hongkongers should be prepared to face higher electricity bills in exchange for cleaner air.

“It seems unavoidable,” Yu said. Yet he expected HK Electric’s customers to be spared from tariff increases in the next two years.

“HK Electric earlier promised to freeze basic tariffs for two years until the end of 2018,” he explained. “And international fuel prices have been remaining low. The chance is high that the company would not need to adjust [tariffs].”

A government spokesman said HK Electric’s proposal would “help the government achieve the 2020 fuel mix target of increasing the use of gas to around 50 per cent”.

“With less reliance on coal-fired generation, the emission of air pollutants from coal-fired generation can be reduced significantly,” he added.

“This will improve air quality and reduce respiratory diseases. In addition, the reduction in carbon emission will make a positive contribution to combating climate change.”