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Friends of the Earth (HK) urges the Government to set up
a more aggressive energy saving goal


(Press Release on 17 December 2012)  The price of natural gas is expected to increase threefold, so will the electricity tariff keep on climbing? Friends of the Earth (HK) estimates that if the 2.3 million CLP customers together saved 1 percent of their energy, that would save HK$410 million in natural gas expenses, which offsets the pressure to increase the tariff.  Therefore, FoE (HK) urges the government to seize the opportunity during the Scheme of Control (SoC) Agreement's Interim Review in 2013, to set aggressive energy saving goals for the two electricity companies that includes both reward and penalty mechanisms, so as to prompt further the two firms to take on their environmental and social responsibilities.


Friends of the Earth (HK) points out that the Scheme of Control Agreement has always been criticized as not being effective at encouraging power companies or consumers to save energy.  The financial return for the two electricity firms is calculated based on their net fixed asset value, and is absolutely guaranteed.  Therefore, some believe that there is not much incentive for the two firms to save energy. In a worst scenario: if all users in Hong Kong save energy altogether and lower the volume of power sold, the two power firms can then ask for a tariff increase as compensation.  Therefore, energy saving practices would end up becoming a punishment for the users. 


Yet, FoE (HK) analysis indicates that if the increased price of natural gas is factored into the SoC mechanism, the link of energy saving resulting in a tariff increase will be changed.  Based on CLP data and assuming that future purchases of natural gas are three times higher than that of 2011, and given other factors remain unchanged (e.g. the volume of power sold and the allowed rate of return), the average cost of fuel material required to generate each unit of power will increase by approximately 17 HK cents.  If the power companies burden 100 percent of the cost increase onto users, the net tariff could go up by 18 percent in one year.  However, if energy consumers together saved 1 percent, CLP's electricity sales would reduce by 300 million kWh which would save CLP approximately HK$410 million in natural gas expenses, meaning the tariff increase can be avoided.  So even with a decline in electricity sales, and given CLP has the right to raise tariffs to achieve its guaranteed profit it might not need to, as the energy savings means the volume of expensive natural gas required is reduced, resulting in the average cost of electricity generating fuel  per kWh being lowered.  So the overall concept is that the loss of income from sales is balanced out by the reduction in expenses (table 1).


FoE (HK) stresses that in reality just saving power will not guarantee that tariffs will not rise because of a number of other factors that are independent of energy efficiency, such as the value of fixed assets..  Remember that CLP has hinted that natural gas prices for new supplies could triple from the current price.  Our analysis explains that if no energy saving actions are taken, tariffs will rise. However energy saving plans can at least help reduce the fuel costs, thus offsetting in some part the price hike pressure.  In fact, the fuel clause charge of the two electricity companies has been increasing at a faster rate than their basic tariff increases in recent years (table 2).


Frances Yeung, Senior Environmental Affairs Officer at FoE (HK) said, "Secretary for the Environment Wong Kam Sing said that there is not much room for adjustments in the interim review of the Scheme of Control Agreement next year.  This sounds like the government has decided to throw in the towel even before any negotiations.  It's simply unacceptable!"


The current SoC Agreement states that for HK Electric and CLP to gain another 0.02 percent of additional return, they must perform 50 and 150 energy audits respectively among their users, and help them to save 3 million and 12 million kWh respectively.  However, these energy saving goals only account for 0.03 percent and 0.04 percent of their respective electricity sales.  Little can be done if the two firms fail to accomplish these goals as there are no penalties in place.


"Under the protection of the Scheme of Control Agreement, the two firms can earn every penny, and burden any cost increase onto the users without considering their corporate social responsibilities.  The government must take the opportunity to lift the energy saving goals in the interim review of Scheme of Control Agreement, and set up mechanisms with both rewards and penalties.  This can urge the electricity firms to actively put in place energy saving plans, which can do some good for the community and the environment."


Media Contact

Ms Frances Yeung, Senior Environmental Affairs Officer, Friends of the Earth (HK) 25285588

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