Officials should keep a close eye on electricity tariffs
Under the new scheme of control, Hong Kong’s two power companies should earn less, but that may not result in lower charges for consumers
When a public consultation on the energy market was launched two years ago, hopes were high that the government would forge a better deal for consumers. While the new agreement with the two power companies appears to have made some progress on that front, whether consumers will pay less as a result remains unclear.
In question is the controversial scheme of control that guarantees profits for CLP Power and HK Electric based on fixed-asset investments. Under the revised agreement, the rate of return is to be lowered from the existing 9.99 per cent to 8 per cent. The arrangement will remain in place until 2033, five years longer than usual.
Environment minister Wong Kam-sing believed that the new scheme, to be enforced after 2018, would result in a 5 per cent reduction in tariffs. But the two power giants remain non-committal, saying future adjustments of tariffs hinge on various factors.
Understandably, the companies do not want to bind themselves to any specific cuts at this stage. But the public can be excused for feeling confused. Wong later clarified that the anticipated cuts in tariffs were made on the assumption that all other parameters remained unchanged. Given the volatility of fuel costs and other market factors, it would not be surprising if the reduction in tariffs did not materialise. Indeed, the last review only brought temporary relief. Following the reduction of the rate of return from 13.5 per cent to 9.9 per cent in 2008, the two power companies cut tariffs by between 3 and 5.9 per cent. But, in the following years, tariffs were again on an upward trajectory.
Officials say the 15-year validity of the new arrangement gives the companies a clearer investment environment to replace coal-fired plants with generators using natural gas and non-fossil fuels, which is pivotal to meeting the city’s more stringent emission targets. But it also undermines the government’s bargaining power and the room to manoeuvre during the period, which in turn puts consumers in an even more disadvantaged position.
The government undertook to prepare for the introduction of new suppliers in future and work with the two companies on interconnection and grid access studies. It is important that we work towards that goal. The pressure to raise tariffs will increase as we switch to cleaner fuels. With an ambitious target to cut carbon intensity by 70 per cent by 2030, households and businesses are likely to be paying more in return for a cleaner environment. The government should closely monitor tariffs and ensure that energy prices are fixed in a transparent and fair manner.