Profit-challenged electricity utility CLP Holdings has pinned its hopes of growth on overseas operations, but risks are growing in the company's key markets, particularly in Australia. The company reported a better than expected attributable profit drop of 1.7 per cent to HK$10.42 billion last Thursday. However, the next day, it was busy attempting to clear up analysts' concerns about a potential write-off on its HK$9 billion coal-fired power plant in Yallourn, Australia, in relation to a planned national carbon trading scheme. Analysts are worried about the prospects of the wholly owned, 1,480-megawatt power plant, CLP's largest power asset outside Hong Kong. However, the group was confident of obtaining a subsidy of 25 million carbon permits, worth about A$670 million (HK$3.32 billion), during the five-year transition period to 2015. 'The potential write-off is a big overhang on its balance sheet and share price,' an analyst at a European brokerage said after attending a CLP conference last Friday. 'Australia's carbon-emission control plan is so aggressive that it is unfavourable to all coal-fired plants in the country.' However, CLP group chief executive Andrew Brandler (below) was relatively optimistic. He said the transitional subsidy was 'quite substantial' and any final decision on the potential write-off depended on the design of the carbon trading framework and the value of carbon permits. He added that longer-term plans, such as adding gas-fired generation units and using clean coal technologies at the Yallourn plant, are under consideration. A federal government White Paper in December stipulated an objective of cutting carbon emissions by up to 15 per cent by 2020 from 2000 emission levels. It planned financial subsidies between 2010 and 2015 to ensure a smooth migration to a low-carbon economy. CLP's Australia portfolio, which also includes three gas-fired plants under the umbrella of subsidiary TRUenergy, was the best performer last year. It had 166 per cent growth in profits to HK$604 million on stronger output at the Yallourn plant, higher retail prices of electricity and lower operating costs. CLP's overseas assets, which contributed about 21 per cent of the group's HK$9.74 billion in operating earnings, were crucial in cushioning an imminent profit shortfall on its Hong Kong home turf. The utility said its regulated earnings - profits from regulated electricity supply to customers in Kowloon, the New Territories and Lantau - could tumble 30 per cent this year. A new governance scheme reduced CLP's return on average net fixed assets in use to 9.99 per cent last October from 13.5 to 15 per cent previously. Morgan Stanley analyst Simon Lee said CLP's near-term earnings growth remained limited. But he saw some medium-term investment opportunities on the mainland. These include a minority stake in a nuclear plant in Yangjiang, Guangdong, a six-gigawatt project of China Guangdong Nuclear Power and a 24.5 per cent stake in a planned liquefied natural gas processing plant.