Hong Kong power utility CLP on course to reach renewable energy goal

PUBLISHED : Monday, 01 August, 2016, 2:54pm
UPDATED : Monday, 01 August, 2016, 11:00pm

CLP Holdings, the larger of Hong Kong’s two power companies, says is on track to raise its generation capacity from renewable energy sources to 20 per cent by 2020 from 17 per cent this year, as it posts an interim profit slightly ahead of estimates.

The company will continue to expand its solar and wind power investments in mainland China and India, which are highly competitive markets but offer good long-term growth potential, according to chief executive Richard Lancaster.

“We are on track to achieve that [2020 target]... renewables are an important element of our strategy,” he told reporters.

CLP set the renewable energy capacity goal mid-2010, during which it also targeted to have at least 30 per cent of its generating capacity fuelled by non-carbon-emitting sources that includes nuclear energy, up from 21 per cent currently and 12 per cent in 2007.

The targets were part of its “Climate Vision 2050”, by which year it aims to slash its carbon dioxide emission per unit of power output to just a quarter the level in 2010.

Chairman Michael Kadoorie said in an interim results filing to Hong Kong’s bourse that CLP has a portfolio of more than three gigawatt (GW) of renewable energy plants, of which 0.3 GW were solar and the rest wind and hydro plants. It has 1.1 GW of renewable plants in India alone.

The Indian government has set targets to raise its solar capacity to 100 GW by 2022 from 6.8 GW in April, and wind capacity to 60 GW from 26.9 GW.

Lancaster noted India’s solar market features “very competitive bidding” for projects, but added he sees “projects with good fundamentals” and some states’ governments have demonstrated “good regulatory track records”.

In China, rapid construction of solar farms outpacing the growth of transmission capacity saw many suffer from low utilisation in the northwest.

CLP was forced to negotiate directly with end-users to sell power from its plant in Gansu province at lower prices than the government-stipulated subsidised prices for power sold to state power distributors, in order to secure more sales volumes.

CLP Monday posted a 7 per cent rise in net profit to HK$6.13 billion for the first half, just ahead of the HK$6 billion estimated by Citi’s analysts, with higher earnings from Hong Kong, Australia and India more than offsetting sharp declines in its mainland China operations.

UBS head of Asian utilities research Simon Powell said the results was good and management has done a good job in turning around its Australia business, but added “it still has a long way to go to restoring a more acceptable return on equity rate [there]”.

Controlled by the Kadoorie family, CLP’s group operating earnings, which exclude non-operating items such as property revaluations and tax provision, rose 11.3 per cent to HK$6.15 billion.

Those from Hong Kong rose 7.4 per cent to HK$4.35 billion thanks to growth in fixed assets, and favourable foreign exchange hedging results.

Its earnings are capped at 9.9 per cent of its average fixed assets in a year, and the government wants to cut it to between 6 and 8 per cent some time after 2018.

In the mainland, however, operating earnings fell 9.5 per cent to HK$946 million, hurt by weaker earnings from coal-fired power projects where tariffs and output were cut amid weak demand growth and fast growing new capacity supply.

A dividend of 57 HK cents per share was declared for the second quarter, up from 55 HK cents in the year-earlier quarter. The total dividend for the first half was HK$1.14, up from HK$1.10 in the year-earlier period.

Since the power industry is ‘capital intensive and requires long-term commitment from its capital providers’, any new pricing system must offer ‘reasonable returns’
Michael Kadoorie, chairman, CLP

For the whole year, 11 analysts polled by Thomson Reuters have given CLP an average net profit estimate of HK$12.06 billion.

Overseas, the company did well, with its Australian operating profit surging 182 per cent to HK$897 million despite a 5.1 per cent depreciation of the Australian dollar against the US dollar.

There, the company said it benefited from higher output at its plants and lower finance costs after repaying most of its borrowings last December. But the result was partially affected by lower electricity retailing margins, and an absence of natural gas storage revenue after it sold a plant last December.

In India, operating profit jumped 117 per cent to HK$200 million, thanks to higher tariffs and lower interest expenses at its Jhajjar coal-fired plant. Profit contribution from newly commissioned wind farms also helped.

A public consultation on the future of Hong Kong’s power market was completed in June.

CLP supplies energy to Kowloon, the New Territories and Lantau Island in Hong Kong and it has taken a less vocal stance to that of the city’s other supplier, Hongkong Electric, which powers Hong Kong Island and Lamma Island, regarding the likely new regulatory regime, which is due to expire late 2018.

Hongkong Electric has publicly opposed the government’s suggestion that the top permitted return should be cut to 6 to 8 per cent.

In the company’s trading statement to the stock exchange on Monday, Kadoorie said that since the power industry is “capital intensive and requires long-term commitment from its capital providers”, he underlined any new pricing system must offer “reasonable returns”, in line with its rival’s view.

He added the current regulatory arrangement has provided the market “with both stability and flexibility, two critical ingredients which have supported that world-class performance”.

“It must be acknowledged that the current arrangement has evolved with the aspirations of the community over time and we remain open to further refinements and improvements that the government and community might suggest,” Kadoorie said.

CLP shares Monday closed 1.5 per cent higher at HK$82. The Hang Seng Index gained 1.1 per cent.