The public look to the Government to ensure reasonable electricity tariffs, make flexible response to calls for carbon reduction, and promote the development of RE power generation with a new mindset.

Electricity is not only an important strategic resource in society, but also an indispensable element and cost in people’s daily life as well as industrial and business activities. Electricity tariffs impose a considerable burden on grassroots families, and SMEs with high electricity consumption. Power companies, which control the supply of electricity and monopolize the electricity market, have a higher social responsibility than ordinary companies. Therefore, the Government must properly regulate the electricity supply and market with the aim of safeguarding public interest.

Policy formulation from multiple perspectives in a holistic manner

The Government’s 10-year Scheme of Control Agreements (SCAs) with the two power companies will expire next year. When discussing the energy policy, the Government often focuses on negotiating the new SCAs with the power companies to further promote energy conservation and renewable energy (RE) power generation to cope with whether Hong Kong can honor its undertaking to collaborate with the international community to tackle climate change, which is to reduce Hong Kong’s carbon intensity by 65%-70% by 2030 compared with the 2005 level. However, as energy policy is an important issue affecting people’s livelihood and the economy, it must be dealt with from multiple perspectives in a holistic manner.

Electricity price-setting mechanism criticized for long

The Government has disclosed some terms of the new SCAs under negotiation. Among them are several measures that the public are eagerly looking forward to being implemented, which include seeking to reduce the permitted rate of return of the power companies, improving the charging mechanism for fuel costs, introducing a mechanism to promote the private sector's development of RE, as well as demanding the power companies to pave the way for future potential electricity providers. However, as specific details are not yet available, the public can only wait and see as to whether the new SCAs eventually meet their expectations.

While it is generally believed that cleaner energy will naturally lead to upward pressure on electricity tariffs, there are actually many other factors that influence the tariffs, including the electricity price-setting mechanism that has long been criticized for being unfair to consumers. Early this year, the two power companies announced tariff reductions, but these reductions are actually increases in disguise, with their basic tariffs rising by 3.7% and 3.2%, respectively. The two power companies’ net tariffs (i.e. actual electricity tariffs to be received) can be lowered by 2% and 17.2% respectively only because of the need to return a total of HK$7 billion by which users have been overcharged for fuel costs, as well as the availability of special rebates arising from a government refund of overpaid rent and rates.

New SCAs must ensure tariffs are reasonable

There have long been calls from the public for a reform of Hong Kong’s electricity market. For instance, given the low-risk natural monopoly in the power sector and the low interest rate environment that has persisted for many years, isn’t the permitted rate of return of 9.99% under the existing SCAs too high? The Government once commissioned independent consultants to review the risk-free rate of return, the cost of equity and the cost of borrowing in the electricity market. They suggested that the permitted rate of return could be reduced to 6%-8%. How much room is there for lowering the rate of return under the new SCAs? In addition, given that the power companies directly charge users for fuel costs currently, which is tantamount to passing on all the risk of fluctuations in international fuel prices to the public, what incentives are there for them to look for cheaper fuel? The public look to the Government to take the opportunity arising from negotiating the new SCAs to resolve all these issues in order to ensure reasonable electricity tariffs, make flexible response to calls for carbon reduction, and promote the development of RE power generation with a new mindset.

In the long run, RE power generation opens up a stronger possibility for helping stabilize electricity tariffs. For example, a study conducted by the Central Policy Unit a few years ago pointed out that Hong Kong has great potential for solar power generation, and roof-top photovoltaic panels may account for as much as 10% of Hong Kong’s annual total power generation output. It is expected that with continuously falling installation costs and subsidies granted by the Government, solar power generation will eventually be able to compete on price with traditional coal-fired generation, even without subsidies.

Drawing up blueprint to support renewable energy

Regrettably, Hong Kong’s development on this front has been lagging behind other places that have long adopted new business models to develop solar power. Seoul is one example. In recent years, in addition to asking energy companies to invest at least HK$5 billion to develop solar projects, it also leased out public facilities at preferential rates to encourage development of private solar projects. The citizens can also invest in these projects by subscribing for specific funds. Singapore is another example. Under the SolarNova program it launched three years ago, buildings with small solar potential are grouped together so that private solar companies can bid to operate solar systems on them, and building owners can also raise funds through a crowdfunding platform to allow investors to obtain regular rewards. Therefore, the public hope that the authorities will adopt a new mindset for drawing up a comprehensive blueprint to support the development of RE and help promote a green economy.