Hong Kong officials plan to give consumers HK$8.7 billion helping hand to pay electricity bills over next 5 years

Environment chief Wong Kam-sing reveals proposal after Executive Council approves development strategies put forward by city’s two power suppliers

PUBLISHED : Tuesday, 03 July, 2018, 11:09pm
UPDATED : Thursday, 05 July, 2018, 12:23pm

Hong Kong environment officials are hoping to push a HK$8.7 billion (US$1.1 billion) funding request through the legislature before its summer recess begins later this month to finance relief subsidies for consumers facing higher power bills over the next five years.

Secretary for the Environment Wong Kam-sing revealed the plan on Tuesday as the Executive Council, the body which advises the city’s leader, approved five-year development strategies put forward by Hong Kong’s two power suppliers.

“The government understands the concerns of the public about the inevitable increases in tariffs arising from the change in the fuel mix,” Wong said, referring to how the firms generate their energy.

He said using taxpayers’ money for subsidies was a “new idea” which was necessary to help steer Hong Kong to cleaner fuel sources.

“To help alleviate the impact of tariff increases on households during the transition to a lower carbon future, the government proposes to grant electricity charges relief of HK$3,000 over 60 months,” Wong said.

That amounts to about HK$50 per household a month.

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The proposal would be submitted to the Legislative Council’s Finance Committee within the next two weeks, he said.

Hong Kong is facing higher fuel costs ahead of a gradual increase in the use of relatively cleaner but more expensive natural gas after 2020. A slew of new infrastructure projects is also in the pipeline to help meet official carbon emissions reduction targets, which will further add to cost pressures. Both power firms expect to increase tariffs.

CLP Power, which supplies Kowloon, the New Territories and Lantau Island, has a capital expenditure target of HK$52.9 billion for the next five years, while HK Electric, which supplies Hong Kong and Lamma islands, is shooting for HK$26.6 billion.

Just a year ago Wong was projecting a 5 per cent reduction in power bills over the next decade as a result of a renegotiated regulatory framework for the two firms which lowered their permitted earnings from 9.99 per cent of their fixed assets to 8 per cent.

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On Tuesday he rejected claims there had been a miscalculation, saying the previous forecast was based on an assumption that “all relevant factors”, including fuel costs, would not change over the coming 10 years. But crude oil prices had risen at least 40 per cent since last year, he said.

The renewed framework, known as the “scheme of control”, will take effect in October for CLP Power and January next year for HK Electric.

But according to the latest plans, CLP will increase its net tariff by 2 per cent to 117.7 cents per unit of electricity starting from October until the end of the year, before raising it by another 1 per cent to 118.8 cents per unit in 2019. HK Electric will increase the rate by 6.8 per cent to 120.1 cents per unit in 2019, starting in January.

On top of higher fuel costs, the two utility companies will also have to replace several coal-fired power generators with new gas-fired ones, build a new offshore liquefied natural gas terminal, and implement new energy efficiency and conservation initiatives.

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CLP has projected that net tariffs, after rebates, will increase at an average annual rate of 3.7 per cent up to 2023, and HK Electric by 6.2 per cent.

“This adjustment has taken into account the tariff pressure incurred as a result of the need to meet the carbon reduction target in 2020 by increasing the use of natural gas to about 50 per cent in the power generation fuel mix,” CLP managing director Chiang Tung-keung said.

“Without the necessary infrastructure, we would not be able to increase our flexibility to tap into cleaner and competitively priced fuels as they become available in the future.”

HK Electric managing director Wan Chi-tin said the next five years would see the firm’s proportion of gas-fired generation grow from 30 per cent to 70 per cent, which would inevitably put pressure on its fuel charges.

Richard Tsoi Yiu-cheong, of the Society for Community Organisation, feared that even with subsidies the higher tariffs would be an unbearable burden for low-income residents, especially those in subdivided flats who used shared electricity meters.

“It will be hard for them to benefit,” Tsoi said, and ultimately their landlords would reap the rewards.

Tsoi suggested the government provide subsidies by deducting charges from power bills based on the amount of electricity consumed, instead of offering money up front to registered users.

Walton Li of environmental group Greenpeace said the subsidies would only incentivise consumers to use more electricity.

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“Subsidies should be linked to energy-saving performance,” he said.

Lawmaker Tanya Chan, who chairs Legco’s environmental affairs panel, said the relief measures amounted to a subsidy for the power firms.

She questioned whether there was enough time for a full discussion of the plan and for the Finance Committee to pass it in time.

The committee will discuss the proposal on Wednesday, before the legislature breaks up for its summer recess in less than two weeks’ time.