HK Electric Investments and HK Electric Investments : 2020 Annual Results

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2020 ANNUAL RESULTS CHAIRMAN'S STATEMENT

2020 was a year that demonstrated HKEI's resilience and progress on our development programme and the decarbonisation journey despite adverse circumstances arising from the COVID-19 pandemic. At the outset, I would like to acknowledge the dedication and commitment of my colleagues, our contractors and suppliers who have met the operational challenges of the pandemic and transferred seamlessly to new ways of working in order to stay on track for our next milestone.

The commissioning of L10, a 380-MW gas-fired combined-cycle generating unit, in February 2020, marked a major step forward in our coal-to-gas transition to supply Hong Kong with greener energy. With L10 fully operational, we now generate 50% of our electricity from gas, compared to about 30% before.

At the same time, we overcame the travel restrictions and shipping delays prevalent through the year to make satisfactory progress with other key infrastructural projects in line with our 2019-2023 Development Plan: the development of L11 and L12, two more 380-MW gas-fired generating units, supported by an offshore liquefied natural gas terminal.

Alongside this extensive development programme, we maintained normal operations of our generation facilities at Lamma Power Station, while taking due precautions to ensure the health and safety of our employees and contractors. Performance of generation, transmission and distribution, and customer services remained strong. Despite the socio-economic challenges of 2020, the company has set a new supply reliability record, achieving an impeccable rating of over 99.9999% and unplanned power interruption of less than 0.5 minute on average per customer.

To help those sectors of the community that have been particularly hard-hit by the economic downturn, we offered a package of relief measures and energy-saving initiatives with a total of about HK$34 million. These included provision of dining coupons to underprivileged households, catering subsidies for NGOs and electricity payment relief to tenants of sub-divided units.

Financial results and distributions

For the year ended 31 December 2020, HKEI's EBITDA was HK$7,140 million (2019: HK$7,194 million) and profits attributable to holders of Share Stapled Units (SSU) was HK$2,732 million (2019: HK$2,327 million).

The Board of the Trustee-Manager has declared a final distribution by the Trust of HK16.09 cents (2019: HK16.09 cents) per SSU, payable on 13 April 2021 to SSU holders whose names appear on the Share Stapled Units Register on 31 March 2021. This, together with the interim distribution of HK15.94 cents (2019: HK15.94 cents) per SSU, amounts to a total distribution of HK32.03 cents (2019: HK32.03 cents) per SSU for the year.

On track for decarbonisation

We are progressing towards decarbonisation along three pathways. The first pathway is reduction of emissions, including carbon dioxide, during electricity generation. This is one of the primary goals of our 2019-2023 Development Plan. Following L10, we are constructing L11 and L12, two more 380-MW gas-fired generating units, for launch in 2022 and 2023 respectively. Despite the disruptions in 2020, construction made satisfactory progress on both units in tandem, including sourcing of equipment from overseas vendors, construction of civil structures and installation of critical plant equipment.

An offshore liquefied natural gas terminal using Floating Storage and Regasification Unit (FSRU) technology is also included in the plan and will be launched in 2022. We commenced the environmental monitoring and audit programme for the terminal during the year and the site work also started in late 2020. When all three new gas-fired generating units are operational in 2023, 70% of our electricity will be generated from natural gas, allowing us to reduce absolute carbon emissions by about 40% compared with the 2005 level.

The second pathway is providing infrastructure to improve energy efficiency within the community. Smart meters and Advanced Metering Infrastructure, which provide customers with real-time information on electricity consumption to optimise their energy use, are an essential part of this. Following a successful pilot project in 2019, we rolled out 40,000 smart meters during the year and are setting up the network infrastructure needed to operate smart meters. Our goal is to migrate our entire customer base to smart meters by 2025.

We are also helping the community improve road-side air quality by providing supporting infrastructure for Hong Kong's growing population of electric vehicles (EVs). In October 2020, in support of a government subsidy scheme, we launched the "Smart Power EV Charging Solution" - a free advisory and technical consultancy service for customers seeking to install EV charging facilities on their premises. The service was well received with over 200 applications from building owners and managers.

The third pathway is encouraging energy conservation and installation of renewable energy generation facilities among our customers. We continued to operate a number of initiatives under the Smart Power Services umbrella during the year. The Smart Power Building Fund approved about HK$13 million worth of subsidies to help customers improve energy efficiency of their residential buildings and business premises. Our Feed-in Tariff Scheme connected another 72 customer-operated renewable energy generation sites to the grid and the total renewable energy generated by all customer-side renewable installations during the year was about 1.5 GWh. The Renewable Energy Certificates covering the total green electricity of about 3.5 GWh generated in 2020 had been fully subscribed by our customers for reducing their own carbon footprints.

Our achievements were recognised by the Environment Bureau and the Electrical and Mechanical Services Department with the "Hanson Grand Retro-Commissioning (RCx) (Implementation) Award" for the excellent performance in energy efficiency at one of our operational headquarters.

Resilience driving continued reliability

Our ongoing commitment to proactive maintenance, crisis preparedness and business continuity planning have enabled us to pivot our activities quickly during 2020 to maintain high-quality, reliable power supply and excellent customer service.

We served more than 583,000 customers and delivered a total of 10,134 GWh of electricity over the year (2019: 10,519 GWh). The decline due to the impact of the COVID-19 pandemic in the commercial and industrial sectors was partly offset by increased consumption from the residential sector. With a supply reliability rating of over 99.9999%, customers only experienced unplanned power interruption of less than 0.5 minute on average in 2020, a new record for the company.

Network expansion and upgrade progressed over the year. These included enhancement of cable network, submarine cable landing points and network infrastructure to make them more resilient in the event of extreme weather, such as super-typhoons, torrential rain and floods.

Despite social distancing requirements across the city and in the workplace, we achieved all 18 pledged customer service standards in 2020. Our 24-hour Emergency Services and Customer Services hotlines offered high-quality information, advice and support on an ongoing basis.

Supporting our stakeholders

It is our priority to support our stakeholders, the community and our own staff through COVID-19. Throughout the year, we offered a package of five relief measures to SME customers. About 70,000 non-residential customers were granted six-month waivers from tariff increases and equipment subsidies were provided to help our customers save costs and become more energy efficient. Small catering establishments in particular were badly affected by the economic downturn of the year. In response, we offered a two-month electricity payment deferral scheme to 180 SME caterers. We also provided needy customers with dining coupons worth HK$20 million and NGOs with food subsidies, in turn generating revenues for SME caterers.

In response to the COVID-19 pandemic and to maintain business continuity, we encouraged customers to use our extensive range of online and remote channels for billing, payment and other routine matters. Further initiatives include the roll-out of e-learning tools for students such as an animated series, virtual guided tours of Smart Power Gallery and an interactive drama to help younger audiences understand and experience more about "Smart Power for Smart City".

We took all possible measures to keep our employees safe while running capital works and maintaining business-as-usual operations at Lamma Power Station and across the network. Sanitisation facilities were set up across all our sites, and personal protective equipment was supplied when needed. Drills were carried out at different workplaces to test our preparedness in the event of confirmed COVID-19 cases. Thanks to the stringent precautionary measures adopted in the company, there had been no secondary infections from the three COVID-19 confirmed cases involving our employees and contractors in 2020.

We also pivoted our community schemes for the new normal. In place of home visits and talks, we supported the elderly and those in need with communications via phone, text or online media.

Outlook

We support the Government's goal of achieving carbon neutrality for Hong Kong before 2050. As a major utility, no doubt we will have an important role to play on this decarbonisation journey. We will engage with the Government on the best way forward including exploring the wider use of zero-carbon energy and carbon reduction technologies. We look forward to the Government updating of the "Hong Kong's Climate Action Plan" which we believe will set a clear decarbonisation roadmap for the power sector.

We have frozen tariffs across the board for 2021 and will also extend relief measures to continue our support for customers. The freeze has been made possible, despite tariff pressure caused by an increase in capital expenditure and a decline in electricity sales due to COVID-19, by a reduction in the Fuel Clause Charge which fully offsets upward adjustment of the Basic Tariff.

Sustainability is firmly integrated into our ethos and we have now reorganised our structure with a new Sustainability Committee to steer our efforts on this front. The Committee, reporting to the Board and supported by the Sustainability Management Committee, is vested with the authority and expertise to assess and manage all of our environmental, climate, social and governance-related issues.

We expect the restrictions and economic impact of the pandemic to ease and that Hong Kong will emerge from the shadow of COVID-19 following the worldwide rollout of vaccines. We remain committed to supplying Hong Kong with a safe and reliable power supply to support the sustainable development of the city.

Once again, I extend my heartfelt gratitude to the Board, the management team and every member of our staff whose hard work under challenging conditions during the year is at the heart of our success.

Fok Kin Ning, Canning

Chairman

Hong Kong, 16 March 2021