WEBVTT - Richard Lancaster ON CLP (Radio)

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<v Speaker 1>Pleased to say we have the CEO of CLP Holdings,

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<v Speaker 1>Richard Lancaster, with us in our studios. Richard, it's always

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<v Speaker 1>great to have you and to talk about the results.

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<v Speaker 1>So the good news is you maintain your dividend. The

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<v Speaker 1>bad news is you last nearly five billion Hong Kong dollars.

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<v Speaker 1>And I'm just wondering whether this is a story where

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<v Speaker 1>sometimes hedging is your friend and sometimes it's your enemy. Well,

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<v Speaker 1>the good news is that most of these losses were

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<v Speaker 1>unrealized losses, so these were basically accounting losses. And you're

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<v Speaker 1>absolutely right, Brian, that these results from hedging contracts which

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<v Speaker 1>we have to mark to market at the end of

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<v Speaker 1>a period. Prices in the price of energy globally has

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<v Speaker 1>just skyrocketed over the past six months. So when you

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<v Speaker 1>contract forward your contracting at the price at the time,

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<v Speaker 1>when you mark the market at the high prices, then

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<v Speaker 1>you have to to make the accounting losses. But what

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<v Speaker 1>it is showing is that energy is in short supply globally.

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<v Speaker 1>That is putting tremendous pressure on on energy companies right

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<v Speaker 1>through the value chain. And if you're in the business

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<v Speaker 1>of buying fuel converting it to electricity and selling that electricity.

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<v Speaker 1>It will inevitably put pressure on you. Yes, some of

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<v Speaker 1>the losses that you have were on the hedging contracts

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<v Speaker 1>held by Energy Australia. And you know, I can speak

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<v Speaker 1>from firsthand experience. Here was a very cold winter and

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<v Speaker 1>there were blackouts and concerns of rolling blackouts as the

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<v Speaker 1>winter continued. But none of those challenges have really gone away.

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<v Speaker 1>Can you expect much improvements in the next half and

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<v Speaker 1>half after that? We don't expect that energy the cost

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<v Speaker 1>of energy will come down in Australia. We had a

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<v Speaker 1>combination of unfortunate events. The weather, As you quite rightly

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<v Speaker 1>point out, it does affect energy. It affects energy demand,

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<v Speaker 1>but also it with with so much renewable energy you

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<v Speaker 1>on the system in Australia. Now if the wind doesn't blow,

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<v Speaker 1>and if the sun doesn't shine, or if it rains

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<v Speaker 1>too much as it did in the early part of

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<v Speaker 1>the year, it can disrupt rail lines, which means that

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<v Speaker 1>coal can't get from coal mines to power stations. So

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<v Speaker 1>so whether it does have a compounding effect, um, we

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<v Speaker 1>we don't expect that the price of energy will come

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<v Speaker 1>down in the near term. It is globally in very

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<v Speaker 1>high demand. The recovery from COVID, just the challenges that

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<v Speaker 1>supply chains are seeing globally, compounded by the Ukraine conflict,

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<v Speaker 1>has has really put pressure on energy prices globally. Yeah,

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<v Speaker 1>I mean we've seen oil prices come down a lot,

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<v Speaker 1>but I mean, if you could speak more specifically to

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<v Speaker 1>call and natural gas prices, um, what's the trajectory there? Well,

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<v Speaker 1>in if I just look at the Australian market, Australia

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<v Speaker 1>is a global exporter of both coal and natural gas.

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<v Speaker 1>It's a long way away from Europe where we're seeing shortages.

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<v Speaker 1>But what what it is showing is that all over

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<v Speaker 1>the world, demand for energy is exceeding supply, so that's

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<v Speaker 1>putting pressure on prices. The price of coal and natural

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<v Speaker 1>gas in Australia is four times today what it would

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<v Speaker 1>we would normally expect. And we've been doing business in

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<v Speaker 1>Australia for around twenty years, so this is something that

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<v Speaker 1>we have never seen prices at these levels. How long

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<v Speaker 1>do you anticipate those prices remaining elevated. I do not

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<v Speaker 1>see these prices coming down in the short term. We

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<v Speaker 1>we are in a in a situation where supply chains

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<v Speaker 1>cannot be an energy supply chains in particular, cannot be

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<v Speaker 1>easily changed. We've seen a shift in the global supply

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<v Speaker 1>and demand. If if Russian gas is not flowing into Europe,

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<v Speaker 1>then that gas has to come from somewhere else. If

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<v Speaker 1>you can't get enough gas, then you have to shift

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<v Speaker 1>to another fuel, and that's putting pressure on coal. So

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<v Speaker 1>it may be a couple of years before we start

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<v Speaker 1>to see relief in these in these prices. Let's talk

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<v Speaker 1>a little bit about renewables. Um you've talked about getting

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<v Speaker 1>some further exposure here in Hong Kong. What's the latest

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<v Speaker 1>on that on that particular project about offshore wind. That's

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<v Speaker 1>part of our approach to decarbonize Hong Kong's energy supply,

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<v Speaker 1>which is very much in line with government's policy to

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<v Speaker 1>see Hong Kong achieve net zero carbon economy by twenty fifty.

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<v Speaker 1>Offshore wind is a technology that we believe now is

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<v Speaker 1>economic in Hong Kong. We have been quite successful in

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<v Speaker 1>putting or encouraging solar panels on small village houses in

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<v Speaker 1>Hong Kong, but that will only be a small part

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<v Speaker 1>of Hong Kong's energy mix. We believe that the combination

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<v Speaker 1>of rooftop solar and solar and sorry and offshore wind

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<v Speaker 1>could see Hong Kong getting somewhere between seven and fifteen

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<v Speaker 1>perc if its energy mix coming from renewable energy. So

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<v Speaker 1>this is an area that we think is an exciting

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<v Speaker 1>development for Hong Kong. We have a site in the

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<v Speaker 1>eastern waters of Hong Kong and we will be putting

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<v Speaker 1>together a proposal for the Hong Kong government to consider

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<v Speaker 1>in the coming months. Of course, an important part of

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<v Speaker 1>the puzzle for renewables is energy storage. Is the scenario

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<v Speaker 1>that you're getting active in we are, and renewable energy

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<v Speaker 1>is very intermittent in its nature, so it has to

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<v Speaker 1>go with some form of storage. Battery technology is one,

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<v Speaker 1>pump storage, hydro is is another. Hydrogen is another possible

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<v Speaker 1>area of storing energy. So these are all technologies that

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<v Speaker 1>we are very very active in. Richard, I want to

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<v Speaker 1>ask you about overall demand out there, but I want

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<v Speaker 1>to couch it a little bit in in You know

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<v Speaker 1>how difficult it's been in managing um. You know, you

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<v Speaker 1>think of utilities as a very steady business. Scryption income

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<v Speaker 1>the money is just coming in every month. Uh, But

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<v Speaker 1>I want to I want to talk a little bit

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<v Speaker 1>about the difficulties of that and when you try to

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<v Speaker 1>gauge demand, are we heading for a global recession or

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<v Speaker 1>are we okay? The world is becoming very unpredictable as

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<v Speaker 1>we recover from COVID. What what we have seen in

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<v Speaker 1>our business is that demand overall has been reasonably stable,

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<v Speaker 1>but the pattern of demand has changed considerably. Even just

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<v Speaker 1>during the COVID pandemic, we saw a shift from people

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<v Speaker 1>using electricity in hotels and restaurants to suddenly using them

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<v Speaker 1>at home. So the pattern of of of of electricity

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<v Speaker 1>use change considerably. Uh for for for us, it is

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<v Speaker 1>a relatively stable market in that people need energy and

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<v Speaker 1>they use it when they when they need it. But

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<v Speaker 1>but the supply chains and bringing energy into homes is

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<v Speaker 1>a lot of work that goes on behind the scenes,

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<v Speaker 1>and that's what we are seeing as a big, big

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<v Speaker 1>challenge at the moment because those supply chains are all

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<v Speaker 1>being disrupted. The patterns of energy use are changing, and

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<v Speaker 1>so we we are having to be very adaptable to

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<v Speaker 1>just to keep the lights on and to keep energy

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<v Speaker 1>as affordable as we possibly can. Very quickly twenty seconds,

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<v Speaker 1>do you feel this crisis supply chain issues, changing perceptions

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<v Speaker 1>around nuclear I think, so nuclear power if you if

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<v Speaker 1>you look at it is carbon free. Uh, it is

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<v Speaker 1>insulated from fossil fuel prices. It is a very stable price.

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<v Speaker 1>So having nuclear power in your energy mix is a blessing.

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<v Speaker 1>And where you can do it, and you can do

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<v Speaker 1>it at scale and it can be affordable, then you

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<v Speaker 1>should keep it in your energy mix, all right, Richard,

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<v Speaker 1>Always a pleasure. Richard Lancaster, CEO of CLP Holdings, the

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<v Speaker 1>larger of the two electricity suppliers in Hong Kong,