Scheme of Control review
Electricity in Hong Kong is supplied by two vertically integrated utilities, each serving different geographical areas. They are regulated by the Government under a Scheme of Control (SoC) framework, which requires them to invest to meet the demand for electricity and allows them to earn a return based on the capital investment in fixed assets made to supply electricity.
As one of the electricity utilities in Hong Kong, we are required to conduct our business in a manner that is compatible with the environmental and economic needs of the community. The first SoC was in place in 1964 and for over half a century, it has been effective in keeping pace with changing times to meet community expectations. It has provided regulatory and economic certainty, enabling us to meet the needs of our customers with reliable power at reasonable tariff levels.
Read more on the Scheme of Control
Yearly tariff review
Under the SoC, we are required to submit to the Government a tariff proposal for the next year before the end of October every year. CLP and the Government will jointly review and agree on the tariff before it becomes effective.
Our electricity tariff consists of a Basic Tariff and a Fuel Cost Adjustment. The Basic Tariff covers all the costs required to provide electricity, including a standard cost of fuels and a return as determined by the SoC. The Fuel Cost Adjustment covers the charges or rebates for the difference between the actual cost of fuels and the standard cost of fuels recovered through the Basic Tariff.
The Average Net Tariff for 2018 has been adjusted to HK$1.154 per unit of electricity on 1 January 2018. The Average Basic Tariff was increased by 2.3 cents per unit while the Fuel Cost Adjustment was increased by 1 cent. A Rent and Rates Special Rebate of 1.1 cents per unit is being offered to all customers. The tariff adjustment will take effect from 1 January 2018 under the existing Scheme of Control Agreement which will expire on 30 September 2018.
Enhancing gas-fired generation capacity
To support the Government’s environmental policy to increase the percentage of gas used in local generation to around 50% in 2020, additional gas-fired generation capacity is required. Construction of a new 550MW gas-fired generation unit at Black Point Power Station is going ahead with the main civil works milestone completed during the year and operation for the unit planned before 2020.
As one of the possible future gas sources to meet our increasing gas demand, we have moved forward with our proposal to build an offshore liquefied natural gas (LNG) terminal in Hong Kong waters that will enable us to have direct access to a range of gas sources from around the world and strengthen the reliability of Hong Kong’s fuel supplies. We target to receive the environmental approval for the LNG terminal in 2018. Preparation for the commercial arrangements for LNG supplies are also under way.
Emission caps and carbon targets
To improve air quality in Hong Kong, we have been working together with the Government on setting caps on emissions from our power plants for three specified pollutants, i.e. sulphur dioxide (SO2), nitrogen oxides (NOx) and respirable suspended particulates (RSP). These caps have become progressively lower over time as a result of regular reviews. The emissions caps applicable for 2017 are 6% to 9% below those for 2015 and 2016, which required us to reduce SO2 emissions by 65% and NOx and RSP emissions by more than 30% from the 2014 base. We were able to meet these stringent emissions requirements by maintaining increased consumption of natural gas, importing additional nuclear energy from Daya Bay on a temporary basis, reducing the use of coal, making use of low-emissions coal and enhancing the operational performance of our emissions control equipment.
In January 2017, the Government announced Hong Kong’s Climate Action Plan 2030+ and a carbon intensity reduction target of 65%-70% (compared with 2005) for 2030. The Government indicated that Hong Kong will phase down coal-fired electricity generation and use more natural gas and more non-fossil fuels in the fuel mix to meet the enhanced target. CLP will work together with the Government on future new generation capacity and the potential replacement of coal generation units upon normal retirement to contribute towards this target.