Hong Kong should reform the city’s electricity market and break up the monopoly held by CLP Power and Hongkong Electric, according to a Consumer Council study.
“The current structure and regulation in the electricity market under the Scheme of Control (SoC) system is not fair to consumers in that the two power companies are allowed to earn a high risk-free permitted profit and to pass on business risks to consumers to an undue degree,” the report said.
Currently, two power generators maintain a plant margin or reserve margin of around 45 percent, which is the capacity kept in operation over and above the maximum demand in order to cover for plant breakdowns and unexpected surges in demand.
However, the council noted that “it is highly unlikely that reducing this to about 25 percent would have any measurable impact on security of supply even if idle capacity would be reduced with market competition”.
Therefore, the scheme is “unfair” to consumers in that the two power companies are allowed to earn a high risk-free permitted rate of return (RoR) on their assets and to transfer to consumers the business risks associated with fuel price fluctuations, operational cost and forecasting error in relation to electricity demand, the report said.
The council also urged the government to overhaul the regulatory system of the city’s electricity market “in a gradual and incremental way”.
The government should give top priority to establishing a “full-fledged” energy sector regulator which needs to have the “critical mass” to perform in relation to the structure and size of the industry, it said.
The government should also study the operational feasibility and economic viability of broadening the use of natural gas and liquified natural gas for small-scale power generation.
Currently, renewables account for only 1 to 3 percent of the electricity supply in Hong Kong.
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