The principal activity of the Company is investment holding and those of the subsidiaries are the generation and supply of electricity.
The Group's profit attributable to shareholders for the year ended 31-12-2018 amounted to HKD 13.80 billion, a decrease of 4.8% compared with previous corresponding period. Basic earnings per share was HKD 5.3633. A final dividend of HKD 1.19 per share was declared. Turnover amounted to HKD 91.43 billion, a decrease of 0.7% over the same period last year, gross profit margin up 4.0% to 62.6%. (Announcement Date: 25 Feb 2019)
Business Review - For the year ended December 31, 2018
The new SoC Agreement took effect on 1 October with a lower permitted rate of return, as did the first 5-year Development Plan under the Agreement that provides for a capital spending of HK$52.9 billion. The investments contemplated under the plan will help us support Hong Kong in meeting its carbon reduction goals and ensure supply security. Expansion of our Black Point Power Station with the two advanced combined-cycle gas turbine generation units enables the gradual retirement of the four oldest coal-fired units at Castle Peak Power Station. Meanwhile, we are constructing an offshore LNG terminal that will guarantee the diversity, and thus the security and cost competitiveness, of future gas supplies. We will also increase the transmission capacity of the existing cross-border transmission overhead line circuits connecting Hong Kong and Mainland China. The new SoC Agreement is our greenest so far and includes important initiatives to promote local renewable energy development, energy efficiency, and conservation. A Feed-in Tariff scheme (FiT), Renewable Energy Certificates (RECs), and a new CLP Eco Building Fund were launched to support these goals.
Hong Kong, one of the world’s most densely populated and vertical cities, is an ideal laboratory for developing technologies that will improve our customers’ experiences. Among other measures, we began a general rollout of smart meters for our customers. This technology not only enables our customers to better manage their electricity consumption, but also helps CLP improve supply reliability and the efficiency of our operations. In 2018, electricity sales in Hong Kong grew by 1.5%, underpinning the need to continue investing in energy security, capacity, and reliability. Our basic tariff was cut 3.7% on 1 October, in line with the lower return under the new SoC Agreement. During the year, operating earnings from our Hong Kong electricity business decreased 3.4% to HK$8,558 million.
We continued to support Mainland China’s transition to a low-carbon economy through our investments in nuclear and renewable energy sources, which contributed the bulk of our earnings in the country.
Yangjiang Nuclear Power Station in Guangdong for the first time made a meaningful contribution to our earnings, following the completion of the acquisition of our 17% equity interest in the facility in December 2017. The operation of Daya Bay Nuclear Power Station remained strong and our long-term investment in the plant continued to constitute a stable component of the Group’s earnings.
In 2018 our Mainland China renewables portfolio benefitted from ample wind and sun resources and lower grid curtailment. Our solar portfolio expanded to 292MW after the purchase in May 2018 of the remaining 49% of a project in Gansu Province and the commencement of commercial operation of a new plant in Liaoning Province in July 2018. New wind projects in Shandong Province, one preparing for connection to the grid and one committed to construction, will further strengthen our wind portfolio going forward. Our renewable portfolio now amounts to over 1,700MW while zero-carbon generating capacity (including nuclear) is more than 4,200MW.
Performance of Fangchenggang Power Station improved, reporting a higher output as it benefitted from the economic growth in Guangxi Autonomous Region and less competition from hydro generation. However, our coal projects continued to face the triple challenge of high coal cost, low tariffs and low utilisation.
Operating earnings for the year were up 74.7% to HK$2,163 million, driven by the growth and strong operating performance of our zero-carbon assets.
In 2018, energy produced by our renewable energy assets in India was the highest ever, as resources were more favourable than usual, the availability of our assets had been high and the Veltoor solar project made its first full-year contribution.
Our coal-fired Jhajjar facility performed well despite a longer-than-projected planned outage. Utilisation rate and sent-out reached new records, reflecting the importance of our asset in responding to growing demand. Unfortunately, we continued to be affected by coal shortage and quality issues in connection with the industry’s logistic challenges at large. The Power Purchase Agreement (PPA) for our gas-fired Paguthan power plant expired in December 2018. This is an excellent asset and we continue to explore long-term options for the project, although the lack of affordable natural gas makes this challenging.
Meanwhile, our new partnership with CDPQ will allow us to grow our zero-carbon electricity generating portfolio in one of the world’s largest and fastest-growing economies at a time when the industry is ripe for consolidation.
During the year, operating earnings of our India business dropped 11.6% to HK$572 million.
Southeast Asia and Taiwan
Our operations in Taiwan returned to normal after the completion of a planned major overhaul at the Ho-Ping coal-fired power plant. The Lopburi solar plant in Thailand recorded stable and satisfactory operations.
In the past decade, Vietnam’s policy has called for coal-fired generating plants to support its economic growth. In 2018, our negotiations with authorities continued regarding commercial and financial arrangements for the Vung Ang II and the Vinh Tan III projects. As a reliable partner, CLP continues to assist Vietnam and its utility to explore options to progress these two legacy developments. However, we note that the availability of international financing for new coal facilities is becoming increasingly difficult to secure and we are mindful of the changing international context and the commitments we have made under our Climate Vision 2050.
In 2018, operating earnings in Southeast Asia and Taiwan reached HK$162 million, reflecting the good performance of our projects and higher coal costs.
2018 was again a year of very tight supply-demand balance, resulting in high wholesale prices while our generating assets continued to perform well. On the other hand, fierce competition and our restraint in passing through higher costs to customers led to lower sales and margins.
While wholesale electricity prices were high during most of 2018, pricing is expected to soften in 2019 as a large number of wind and solar projects come online. Now more than ever, careful planning will be required to ensure stable and reliable electricity supply. EnergyAustralia’s initiatives to help the country transition to clean energy include pumped hydro, battery storage, and gas-fired generation, which will provide the flexible and affordable capacity for meeting peak demand. Fundamentally, a national energy policy is required along with comprehensive planning to help ensure adequate electricity supply and to stabilise prices as Australia moves toward a low-carbon electricity generation.
Volatile electricity prices are not in the interests of either the country or its electricity supply companies. They also brought about high retail prices which caused difficulties for customers.
To ease cost pressures, EnergyAustralia rolled out a range of programmes to lower the cost of energy and put our customers in control of the energy they use. In 2018, operating earnings from EnergyAustralia increased 20.6% from a year earlier to HK$3,302 million.
Business Outlook - For the year ended December 31, 2018
In spite of the challenges in the rapidly-changing energy sector, our business continued to grow steadily in the last few years as we have focused on managing our operations professionally and delivering a dependable, increasing return to our shareholders. Looking ahead, our
transformation pathways through decarbonisation and digitalisation are clear and they provide us with good opportunities to grow. Electricity will play a growing role in a zero-carbon economy. The Energy Transitions Commission, an international industry organisation of which CLP is a member, projects that the world must achieve net zero emissions around 2060 to avoid potentially catastrophic climate change. To achieve that in a cost-effective way will require electricity’s share of the total energy mix to rise from 20% to 60%, with annual generation quintupling from 20,000TWh to 100,000TWh.
By the sheer size of their population, the impact of the energy transition will be very material in Mainland China and India, CLP’s major growth markets. Nuclear power can contribute to this transition, but most of the new generating capacity will come from renewable sources - wind, solar and water. While the economics of renewable energy have changed in recent years such that renewables can increasingly compete against conventional sources of power without subsidies, the market place is also becoming more competitive. Based on our strong foundations in China and India, we will continue to strengthen our capabilities as a regional renewable energy developer and operator to seize the opportunities amid this growing competition.
In Hong Kong, our focus will be on delivering the investments and initiatives under the 5-year Development Plan which all aim at contributing to the city’s cleaner, smarter and less carbon-intensive future. CLP will continue to support the Hong Kong Government’s future clean energy policies including the recommendations arising from the upcoming Public Consultation on the Long-term Decarbonisation Strategy. In Australia, we will continue to invest in clean and flexible capacity to ensure the reliability and affordability of power supply as the country moves away from fossil fuels towards renewable energy sources.
As power grids become increasingly decarbonised, customers both produce and consume power and assets become increasingly distributed across the grids, the task to build and operate power grids becomes more complex. We expect to see an accelerated development of a diverse range of products including transmission, storage, distributed energy as well as digital and customer-facing solutions, making decarbonisation and digitalisation interdependent. We have the ambition to become a “Utility of the Future” capable of managing the additional complexity, developing new products, services and solutions along the entire value chain, and empowering customers to become active participants of a power system.
By combining our extensive experience, capability and partnership network developed through various innovation initiatives over the past few years, the Group has already laid a solid foundation for developing customer-oriented and technology-enabled energy solutions. CLP is well-positioned to take advantage of the accelerating pace of technological advance and respond to climate change in an industry with positive growth prospects.
Source: CLP Holdings (00002) Annual Results Announcement