| HONG KONG, July 23
HONG KONG, July 23 Hong Kong is pushing to boost
electricity imports from mainland China to reduce pollution and
the dominance of two local utilities backed by powerful
families, say industry experts who have been involved in
consultations with the government.
Ageing coal-fired plants, which supply over half of the
city's electricity, are due to be shut from 2017 and Hong Kong
is weighing whether to more than double its mainland imports or
nearly triple the use of natural gas in local power generation
to meet 60 percent of its power needs - roughly equivalent to
demand in New Zealand.
The government recently wrapped up three months' of public
consultations and is expected to make a decision this year.
Some of those involved in the discussions between officials,
power executives and other stakeholders said the government was
leaning towards the import option. Officials from the
Environment Bureau, Hong Kong's energy policymaker, discussed at
length the advantages of what they called the "grid purchase"
option, while highlighting the downside of the so-called "local
generation" option, the people said.
"They would prefer to open up the market. And the only way
is through connecting with China," said Johnny Chan, a professor
specialising in energy and environment with the City University
of Hong Kong, who took part in those discussions.
Plugging Hong Kong into the Chinese grid would create
competition for the city's dominant local utilities - CLP
Holdings, backed by the wealthy Kadoorie family, and
billionaire Li Ka-shing's Power Assets Holdings - and
further strengthen Hong Kong's ties with mainland China at a
time when many query Beijing's growing influence in the
Hong Kong already meets over a fifth of its electricity
demand via a dedicated line from the Daya Bay Nuclear Power
Station in the southern Chinese province of Guangdong. Hong
Kong's grid is not interconnected with China Southern Power Grid
(CSPG), which supplies electricity to Guangdong and
four other southern provinces.
CSPG and State Grid Corp, China's biggest
electricity supplier, have acquired significant stakes in units
of Hong Kong's dominant power companies. CSPG
last year bought a 30 percent stake in CLP's power unit Castle
Peak for $1.6 billion, while State Grid spent about $1.2 billion
to buy into the local initial public offering of HK Electric
, a spinoff of Power Assets, early this year.
Importing more electricity from China would limit the scope
for CLP and Power Assets to grow locally, analysts say, forcing
the two firms, which have a combined market value of $40
billion, to speed up their diversification away from Hong Kong
where they have enjoyed attractive, guaranteed returns for
decades under what is known as the Scheme of Control.
In an emailed reply to Reuters, the Environment Bureau said
it has "an open stance" on the two options and will consider the
more than 86,000 submissions it received from the public
consultations before making a decision. But it noted drawbacks
of going ahead with increasing local gas-fired capacity.
"Allowing existing power companies to construct new
generating units, however, may add to the potential ... costs
that consumers will have to bear," it said. "There will be more
constraints in introducing competition to the electricity market
if we decide to go for this fuel mix option."
Some industry professionals and local business communities
complained about a lack of information in the consultation
paper, which they say prevented them from making an informed
decision. Some call for a more flexible mix of mainland power
and local gas-fired generation. Barring overwhelming opposition,
experts say, the government would go for the import option, or a
watered-down version of that, as the "local generation"
alternative would entrench the utilities' duopoly.
CLP and HK Electric largely dismissed the "grid purchase"
option, warning this could compromise Hong Kong's world-class
power supply reliability. Elaine Wong, a HK Electric
spokesperson, said it would expose Hong Kong to the risk of
"cascading power interruptions or even massive blackouts."
CLP customers experience an average unplanned power
interruption of just 2.3 minutes per year, versus 138 minutes
for customers of China Southern Power Grid.
No one from State Grid and CSPG could be reached for comment
for this article. In March, Tan Xinjian, an official at
state-controlled China Resources Power wrote in a
magazine published in mainland China that the Hong Kong
government or Chinese state utilities should take over CLP and
Power Assets' Hong Kong assets in 2018 when the Scheme of
Control expires as the system has fuelled wasteful spending. A
China Resources Power official said the article was Tan's
personal opinion rather than the company's. Tan could not be
reached for comment.
Under the existing Scheme of Control, CLP and HK Electric
receive an annual return of 9.99 percent on net fixed assets -
putting HK Electric among Asia's leading electric utilities by
return on equity, according to Thomson Reuters data.
While the scheme, initiated by the British government in the
1960s to encourage private investment ensured reliable power
supply, critics say it's too generous and has led to
over-investment. The scheme allows utilities to pass on fuel and
other costs to users, resulting in recent tariff hikes that have
stoked social tension in a city with a yawning wealth gap.
Hong Kong power tariffs are still significantly cheaper than
in cities such as Singapore and London, and electricity bills
are a fraction of average household expenditure.
Others say that imports don't offer any clear environmental
or cost advantage, pointing out that 62 percent of mainland
Chinese plants connected to the southern grid are coal-fired,
and the cost of building an interconnector would exceed the
estimated $1 billion needed to add local gas-fired capacity.
($1 = 7.7498 Hong Kong Dollars)
(Editing by Anne Marie Roantree and Ian Geoghegan)