Fuel Supply
A continuous and adequate supply of fuel to generating plant is essential to sustain a reliable electricity supply for off-takers and customers. Fuel also represents the single largest component of the CLP Group’s operating expenditure. In Hong Kong alone, CLP spends an average of approximately HK.4 million each day in supplying fuel to our generating fleet (excluding nuclear fuel cost at Daya Bay). Fuel for the power plants which CLP operates in Hong Kong represented about 40% of Hong Kong’s total energy consumption in 2004. Given the importance of fuel supply to our business, there are several areas where we place uncompromising focus in establishing and implementing our fuel procurement strategy:
• Security of supply
• Pricing
• Environmental performance
• Planning ahead
In Hong Kong, there are no indigenous fuel sources (other than limited potential for renewable energy). We try to
maintain security of supply through:
• operating with a diversified fuel mix of coal, natural gas and nuclear;
• optimizing our coal procurement contracting strategy by balancing the use of term and spot contracts;
• placing early contracts for the majority of our short-termcoal needs;
• proactive supplier management and development;
• maintaining a strategic coal and oil inventory;
• flexible operations at Castle Peak and Black Point Power Stations (including the potential of plant to operate on dual fuel sources such as coal/gas and gas/oil); and
• maintaining multiple fuel sources, to guard against the
risk of reliance on a single supply source or supplier. For our coal-fired assets outside Hong Kong, such as Ho-Ping and, as from 2006, the new BLCP station in Thailand, we seek to apply a similar approach in fuel supply management. Yallourn Power Station in the Latrobe Valley in Victoria has a dedicated open cut brown coal mine adjacent to the power station. The coal mine provides a secure, continuous source of fuel for generation, with ample reserves to meet the projected needs of Yallourn until at least 2032. TRU energy also maintains a portfolio of gas supply contracts from multiple suppliers and as a result expects to have access to sufficient amounts of gas over the next decade and beyond, with agreements providing for potential increases in contract quantities. In addition, TRU energy can store up to 12PJs of gas and withdraw about a quarter of Victoria’s peak daily gas needs from its underground gas storage facility at the Iona Gas Plant. Iona is the largest gas storage facility in Australia and gives TRU energy greater flexibility in managing its gas requirements. The SEAG as Pipeline, which links the
Victorian gas fields and South Australia, also provides the Torrens Island Power Station with greater gas supply security. TRU energy is a one-third stakeholder in the pipeline, which commenced operations in January 2004.
In recent years, there have been significant problems in securing coal supplies in the Mainland. We have generally
been successful in mitigating the effect of coal supply shortages, although this is a matter which requires continuous management focus and the proactive management of relationships with domestic coal Suppliers.
Pricing
The supply of fuel for nuclear capacity at Daya Bay and for gas-fired power stations at Black Point, Torrens Island and GPEC has been largely unaffected by the recent rise in global energy prices. However, unprecedented rises in coal prices started in 2003. These reached a peak in mid-2004, by which time coal prices had increased by a factor of two. Prices have since declined gradually, but at the end of 2005 were still 50% higher than historical norms. Higher coal prices have supported production and infrastructure expansion by suppliers, as well as the start-up of new marginal facilities, thereby providing additional production to meet demand. Demand strength was driven primarily by Asia Pacific economic growth and has since subsided. Freight costs, which increased by a factor of four starting in 2003, are also declining but still show extreme price volatility, with current levels at about twice the historical norms. Coal freight rates were affected by the strength of the overall dry bulk industry which includes iron or other steel industry related freight movements.
2001 Electricity Sales
Total unit sales to customers in Hong Kong increased by 2.4% for the year ended 31 December 2001. Electricity sales to Commercial and Government sectors grew by 3.6% and 6.1% respectively. The growth of the Commercial sector can be attributed to the increase in sales to offices, estaurants and shopping malls. The growth in the Government sector can be attributed to the continuous infrastructure development and enhancement to public facilities. The Manufacturing sector recorded a decline of 7.0%, which reflects further reduction of manufacturing industry in Hong Kong. Sales to Guangdong Guang-Dian Power Grid Group Company Limited were 909GWh, representing 3.2% of total unit sales. Sales to Shekou increased by 1.5% to 672GWh.
2002 Electricity Sales
The growth of government and other sector were 7.0% due to
The growth in the Government and other sectors was 7.0%, due to housing and infrastructure developments. This sector mainly consists of Government, hospitals, schools, water services and drainage, public transport corporations, the airport and container terminals. The Manufacturing sector recorded a 4.9% drop, which was attributed to the continuing decline of manufacturing industry in Hong Kong. The manufacturing sector now accounts for only 10.3% of total sales. Sales to Guangdong Guang-Dian Power Grid Group Company Limited were 1,429GWh, representing 4.8% of total unit sales. Sales to Shekou increased by 11.0% to 746GWh. The total export sales of 2,175GWh in 2002 (2001: 1,581GWh) were the highest export sales in a year since 1996. This reflects the strong economic growth in Guangdong Province. CLP has concluded a third supply contract with
Guangdong which extends into 2003. This will assist Guangdong to meet its electricity demand and provide additional sales revenue that will offset costs for CLP’s Hong Kong customers and contribute to shareholder earnings. This is because the earnings from such sales are allocated on an 80/20 basis between customers and shareholders. Overall total sales in 2002 grew by 4.8% over 2001. As there was no tariff increase in 2002, total turnover only increased by 4.2% to HK,844 million due to change in sales mix.
2003 Electricity Sales
Total unit sales increased by 3.9% to 31,043GWh for the year ended 31 December 2003, and comprised 28,035G Who sold to Hong Kong customers and 3,008GWh to customers in the Chinese mainland. As there was no basic tariff increase in 2003, the slight decrease in turnover by 0.4% to HK,739 million was mainly due to fuel clause adjustment as a result of lower composite fuel price for the year.
Electricity sales to customers in Hong Kong grew by 1.2% in 2003, with increased contributions from the Residential and Infrastructure and Public Services sectors. Sales to the Residential sector increased by 3.6%, in line with the increase in the number of customers. The Infrastructure and Public Services sector (formerly described as Government and Others sector) recorded sales growth of 3.8%, which was supported by the new infrastructure projects in 2003. Low sales growth in the Commercial sector was mainly due to the effect of the outbreak of SARS in the second quarter. Sales to the Manufacturing sector recorded a 7.4% decrease, resulting from Hong Kong’s continuing transformation from a manufacturing to a services-based economy. The Manufacturing sector now accounts for less than 10% of total sales. Sales to the Chinese mainland increased by 38.3% and represented 9.7% of the total sales in 2003. They consisted of 2,165GWh (2002: 1,429GWh) sold to Guangdong Guang-Dian Power Grid Group Company Limited and 843GWh (2002: 746GWh) to the Shekou Industrial Zone. The total export sales of 3,008GWh in 2003 (2002: 2,175GWh) were the highest sales to the Chinese mainland in a year since 1996 and were the result of the strong economic growth and hot weather in Guangdong during the year. The export sales assist Guangdong to meet its electricity demand and provide additional revenue that will offset costs for our Hong Kong customers. They also contribute to shareholder earnings as the profits from such sales are allocated on an 80/20 basis between customers
and shareholders.
2004 Electricity Sales
Total electricity unit sales for 2004, including those to the Chinese mainland, grew 2.2% to 31,719GWh. As there was no tariff increase during the year, the increase in turnover by 4.0% to HK,773 million was mainly due to fuel clause adjustment as a result of higher composite fuel price. Local electricity sales recorded moderate growth of 2.1% to 28,632GWh. Sales were affected by the weather, which on average was cooler compared to 2003. The Commercial sector registered a rebound with 3.6% growth in sales, reflecting the economic recovery. Sales to the Infrastructure and Public Services sector also increased
by 3.6%, attributable in part to the new railway infrastructure. The Residential sector recorded marginal
decline of 0.4%. The decline in sales to the Manufacturing sector slowed down as a result of
improved export performance. Sales to the Chinese mainland increased by 2.6% to 3,087GWh and comprised 2,200GWh sold to Guangdong Guang-Dian Power Grid Group Company Limited and 887GWh to the Shekou Industrial Zone. The export sales assist Guangdong to meet its electricity
demand and provide additional revenue that will offset costs for our Hong Kong customers. They also contribute to shareholder earnings because the profits from such sales are allocated on an 80/20 basis between customers and shareholders.
The break down as follow.
2005 Electricity Sales
The demand for CLP’s services continues to grow. Our total electricity unit sales in 2005, including those to the Chinese mainland, grew by 6.8% to 33,879GWh. Revenue registered a 5.9% increase to HK,303 million (2004: HK,733 million).This was mainly attributable to higher unit sales and a fuel clause adjustment as a result of the higher composite fuel price.
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