CLP Holdings Limited (2) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to CLP's 2020 Annual Results Webcast Briefing. We lodged our 2020 annual results with the Hong Kong Stock Exchange around mid-day today. And those results are now available also on our website, along with the presentation, which we will present to today. We'll follow the usual course of events here. I'm joined onstage by Richard Lancaster, CFO -- CEO of CLP Holdings; and to Richard's right, Geert Peters, CFO of CLP Holdings. We will follow the normal practice, and Richard and Geert will present to the presentation initially, followed by a Q&A session where we will take questions both from analysts who are on the telephone lines and also from e-mails that are submitted via the webcast. [Operator Instructions] So with those formalities in place, I'd like to hand over to Richard to commence the presentation.

Thank you, Angus, and good afternoon, ladies and gentlemen, and thank you for joining us on the webcast today. 2020 has been a unique and difficult year for everyone, and I hope that you, your families and friends have kept safe and healthy through these times. In the face of these unprecedented difficulties, CLP has demonstrated resilience, something which we owe to the remarkable efforts of our people. In Hong Kong, we focused on delivering high reliability and high levels of service while progressing investments for decarbonization and customer services. In Mainland China, our diversified portfolio held up well and recorded broadly stable earnings. In Australia, we've seen pressure on earnings from a significant decline in wholesale electricity prices and the ongoing impact of retail price reregulation. We've also taken steps to support our customers through hardship. And overall, the business performance was broadly in line with 2019, while operating earnings increased by 4.1% and including favorable changes in the fair value of energy hedging contracts in Australia. Importantly, we've continued our focus on decarbonization, and we achieved our 2020 carbon intensity reduction targets. And COVID-19 had a severe impact on all parts of the world during 2020 and will continue to have an influence in many areas through the coming year. As we look ahead, we'll continue to focus on operational resilience, the performance of our business and accelerating the energy transition. Above all, we remain focused on caring for and supporting our people, customers and communities through the safe and reliable delivery of power, together with targeted initiatives, to address issues of safety and hardship as they arise. Financially, we reported operating earnings of nearly $11.6 billion, an increase of 4.1% compared with 2019. Operating earnings per share were $4.58. Total earnings of $11.5 billion, representing $4.53 per share were significantly higher than 2019 due to the impairment of goodwill of $6.4 billion in 2019. The Board and management remain confident in the group's prospects, while also recognizing that the ongoing pandemic creates uncertainties in the short term. And in these circumstances, the Board approved a fourth interim dividend of $1.21 per share, a 1.7% increase when compared with the fourth interim dividend of 2019. And this brings the total dividend for 2020 to $3.10, a 0.6% increase when compared with 2019. Safety is one of our core values. In the past year, we've made concerted efforts to improve our safety performance, and I'm pleased to report a reduction in our injury rates compared with 2019 and we will continue our efforts in this area. In Hong Kong, we continued to maintain our high level of reliability. We also continued to increase customer accounts yet we recorded slightly lower electricity sales in 2020 due to the impact of COVID-19. In Australia, intense retail competition has led to a reduction of customer accounts and electricity sales were also impacted by COVID-19. Our generation fleet was expanded with the commissioning of D1, our new 550-megawatt combined cycle gas turbine in Hong Kong; and our new 50-megawatt Laiwu III wind farm in Mainland China. Electricity sent out was slightly lower, reflecting lower generation from Hong Kong and Jhajjar in India. I'll now hand over to Geert to provide more details on our financial performance.

Thank you, Richard, and good afternoon, ladies and gentlemen. Our 2020 results reflect the resilience of our diversified portfolio of activities during what has been, as Richard mentioned, an extremely difficult year for many companies. Revenue was down by 7.1%, primarily due to lower sales volumes and prices in Australia. Underlying operating performance in Hong Kong was steady with higher earnings reflecting continued investments. We recorded higher earnings from Southeast Asia and slight reductions in earnings from Mainland China and India. In Australia, underlying performance was down yet operating earnings increased once we include the positive impact of $308 million from the fair value changes of our energy hedging contracts. We, therefore, reported an aggregate operating earnings for the group of $11.6 billion, 4.1% higher than in 2019. In 2020, a revaluation loss on investment property of $121 million was recorded in the items affecting comparability, resulting in total earnings of $11.5 billion. As a reminder, in 2019, we recorded a significant impairment of goodwill in the retail business of EnergyAustralia. To discuss the underlying segment operating performance of the business, we use adjusted current operating income or recurring EBIT. The main point to note in the reconciliation of operating earnings to ACOI is the change of the fair value adjustments from negative in 2019 to positive in 2020. In 2019, a steady rise of forward prices in the wholesale electricity market resulted in negative mark-to-market of our energy hedging contract. In contrast, during 2020, we saw a significant reduction in the forward electricity prices in Australia, which resulted in a positive fair value change of our hedges. This brings a ACOI variance of $611 million year-on-year before tax or around $427 million after tax. Finance costs were lower, reflecting the reduced amount of perpetual capital securities and lower borrowing rates, while the higher overall earnings led to higher tax expense. As a result, we delivered a consolidated ACOI of $16.9 billion in 2020, about similar to last year's figure. The headline ACOI slightly reduced by 0.6% year-on-year. The impact of the foreign exchange was minimal. As illustrated in this chart, ACOI in 2020 resulted from an increase in contribution from Hong Kong offset by lower contributions from Australia, and to a certain extent, from Mainland China. I will now proceed to address each of those business units separately in more detail, starting with Hong Kong. Hong Kong's operational performance remained dependable. Local electricity sales were only 0.9% lower than in 2019, although measures taken to restrict the spread of the COVID-19 adversely affected sales across the commercial and government sectors. Sales in the residential sector increased, however, as more people stayed at home and Hong Kong experienced a very hot summer. In addition, demand from data centers continued to rise, driven by the increased adoption of big data and cloud computing. Despite COVID-19, we were able to progress key strategic projects aimed at decarbonizing Hong Kong's electricity generation. With the new CCGT, which commissioned in July 2020, CLP substantially increased the proportion of gas-fired generation, reaching around 50%. From a financial perspective, ACOI in Hong Kong was up 3%, in line with the increase in average net fixed assets. CapEx for 2020 was $8.9 billion. While the net tariff for 2021 remained unchanged, the higher basic tariff reflects our ongoing investment. Looking forward, we are committed to working with the Hong Kong government to deliver the new target of carbon neutrality in the electricity sector by 2050. We continue our decarbonization journey and progress key projects under the development plan. To Mainland china. China was the first country to be impacted by COVID-19. The China economy has also been the leader in the recovery. This has helped to mitigate the impact of COVID-19 on our business. Excluding renminbi depreciation, the ACOI decreased by around $161 million or 5%. Our nuclear projects continued to be the main contributors, delivering over 60% of ACOI. Daya Bay performed reliably as usual. The commissioning of a sixth unit at Yangjiang helped to deliver higher generation. However, earnings recorded by CLP for Yangjiang were lower primarily due to the commencement of spent fuel levy and the expiration of tax holiday for some of the older units. Higher earnings from the renewable portfolio were mainly due to the commissioning of new projects. The payment of renewable subsidies continues to be delayed with the aggregate amount in receivables now overdue, totaling HKD 1.8 billion. Earnings from our thermal projects decreased with lower contributions from both Fangchenggang and our minority coal assets investment. China aims to achieve carbon neutrality by 2060. In support of this policy and CLP's decarbonization strategy, we will seek to develop additional low-carbon project. We also pursue new opportunities in the Greater Bay Area with energy infrastructure projects and energy-as-a-service forming our key priorities there. We continue to monitor the evolution of the market regulations and the development of carbon trading. As the power market continues to mature in China, we expect that market sales and competition will further put pressure on margins. Over to India. India has been one of the countries most severely affected by the COVID-19 pandemic. Despite this, CLP India maintained a high level of safety and availability to serve its customers and protected the health and well-being of its employees. Operationally, Jhajjar Power Station recorded high availability and steady performance in 2020. Wind generation was low, however, due to abnormally low wind resource, coupled with the impact of severe weather events. This was partially offset only by generation from the expanded solar portfolio. Our transmission assets have achieved 100% availability and have provided the first full year contribution. Others on the chart include an impairment for the Khandke wind farm after the renewable of our PPA for this project resulted in a lower tariff and an impairment for Paguthan, which did not generate this year. Total receivables from distribution companies for renewable energy were HKD 0.8 billion, which is slightly lower than at the end -- than the amount at the end of 2019. ACOI after excluding renminbi -- after excluding Indian rupee depreciation has decreased by $85 million or 9%. Looking ahead, we will continue to focus on investments in noncarbon assets subject to the new foreign direct investment rules. Construction teams for the Sidhpur wind farm have been mobilized, and we expect to complete construction during 2022. Over to Southeast Asia. The operational performance of our business unit in Southeast Asia and Taiwan remained steady. Ho-Ping delivered high earnings from lower coal costs and higher generation. Operations at the Lopburi Solar Plant continued to be reliable. However, the financial performance for the project has been adversely affected by the expiration of a tax exemption. Others on the chart include an impairment of $123 million at Lopburi, resulting from a step-down in tariff from December 2021 on. This will bring a new period and a significant reduction of contribution in the future years. Others also include recovery of some of our past development expenses from the Vietnam project. As a result, the ACOI for the region contributed -- the ACOI contribution for the region was 12% higher than in 2019. Looking forward, our efforts in the region will focus on exploring investment opportunities in renewable generation. Turning now to Australia. In our Customer segment, we experienced a full 12 years -- 12 months of price reregulation compared with only 6 months in 2019. Customer care and hardship plans, together with higher bad and doubtful debts, have added short-term costs. This offsets the benefit of some significant efficiency initiatives that were undertaken. Focus on customer retention and acquisition halted the decline in customer accounts seen in 2019 and during the first half of 2020. In our Energy segment, the market had a volatile start to the year through bushfires and an extreme weather. Our combined portfolio of stations and hedging contracts allowed us to navigate through those changes -- challenges. The restoration of full coal supplies to Mt. Piper added to its output. We undertook major scheduled maintenance outages at both Yallourn and Mt. Piper in the second half, which resulted in lower generation volumes. These programs were undertaken to ensure high availability through the critical summer months and in the longer run. While operational performance has been good, market prices have seen a significant progressive decline since late 2019. The combined impact of these factors saw a modest reduction in earnings from the Energy segment. Altogether, Energy Australia recorded an ACOI of HKD 2.041 billion, down by 11% when excluding the Australian dollar depreciation. Looking ahead, we see some headwinds in Australia to the performance of our business in 2021. In the Customer segment, we will continue to focus on service excellence and customer support. However, the continued effects of the ongoing pandemic will continue to put pressure on debt, which, together with intense competition, will maintain pressure on margins. Our Energy business will increasingly see pressure from the impact of lower wholesale electricity prices, driven by the growth in renewable energy generation. Also, we will see lower gas margins as legacy low-cost gas supply contracts have now expired. To maintain reliable supply, major maintenance is, again, planned as well next year at both the unit in Yallourn and one in Mt. Piper during the second half of 2021. Finally, we will continue to progress the development of our options for fast-response generation projects, storage and demand response to participate in the energy transition. Over now to the financial dashboard. Free cash flow for the CLP Group slightly increased by HKD 400 million. However, total cash flow decreased by 4% because of lower proceeds this year from divestments. The group invested around $11.7 billion in 2020, $8.7 billion in Hong Kong, $2 billion for plant maintenance at Mt. Piper and Yallourn in Australia and the remaining $1 billion for the construction and acquisition of renewable projects in Mainland, China and in India. Our finance team successfully closed several financing initiatives in the course of the year, including a USD 350 million Energy Transition Bond issuance for the offshore LNG terminal and $1 billion of long-term notes for CLP Power with terms of 10 and 15 years. We also closed an inaugural ESG export credit financing with Sinosure for the LNG terminal. Net debt has decreased by HKD 1.4 billion to around HKD 42.6 billion. The net debt-to-total capital ratio reduced to around 25%. We have significant undrawn debt facilities and high credit ratings. Our financial position remained strong. In summary, the business is well placed to address our commitments to shareholders and bondholders alike while retaining the ability to fund our investment plans under the scheme of control and in our other businesses. I will now hand over to Richard to discuss the strategic outlook of the business.

Thank you, Geert. Well, 2021 is CLP's 100 and 20th anniversary year, and 12 decades ago, we commenced operation with a single electricity-generating unit in Hong Kong. And today, we're one of the largest power businesses in the Asia Pacific region. In our home market of Hong Kong, we continue taking steps to reduce the carbon intensity of our electricity supply and contribute to Hong Kong's sustainable future. We've commissioned our first new highly efficient gas-fired generating unit at Black Point Power Station, and early civil works have commenced on a second unit scheduled to be online in 2023. We made significant progress on the offshore LNG terminal to help supply competitively priced gas to these new plants. And these important investments will allow us to progressively retire our oldest coal-fired units. In addition, there's been steadily -- steady progress on customer-related initiatives, including the rollout of smart meters, feed-in tariff scheme, Renewable Energy Certificate program and the installation of rooftop solar panels on some of our buildings in generating plants and substations. We've also been exploring opportunities for more renewable energy including a potential offshore wind farm. In November, the Hong Kong government announced its goal to achieve carbon neutrality by 2050. CLP will continue to work closely and proactively with the government and develop plans to contribute to this new target. And we're seeing similar efforts to accelerate decarbonization across the globe. This includes China targeting to be carbon neutral by 2060, new policies launched in the 2 largest Australian states of New South Wales and Victoria and the U.S. rejoining the Paris Agreement. And CLP will continue to be proactive in addressing the energy transition, which encouragingly is gathering speed. We started our decarbonization journey in the early 2000s and first publicly announced our carbon emission intensity reduction targets in 2007. We refreshed these targets in 2017. And again, in 2019, we published our revised Climate Vision 2050 statement, which clearly and transparently outlines our decarbonization trajectory. And I'm pleased to say that we've met our 2020 target with an emissions intensity of 0.57 kilograms of CO2 per kilowatt-hour of electricity. Which represents around a 29% reduction from 2010 levels. Whilst this is a significant achievement, we're committed to reviewing our targets at least every 5 years with the aim to steepen our trajectory towards a science-based target. And we will undertake a review of our targets again this year as planned. Our transition towards the Utility of the Future is also continuing as digitalization and the introduction of new technologies continue to transform our industry. Accelerating the adoption of digitalization allows us to implement smart operations and support our efforts to deliver more user-friendly and smarter energy services to customers. This is particularly true in Hong Kong in the Greater Bay Area, one of the largest markets in the world by GDP with a population of more than 70 million. And we look to build on our Hong Kong innovation experience using existing partnerships and assets to capture the opportunities in this large and fast-growing market. As part of CLP's energy-as-a-service strategy, we focus on emerging business models, including district cooling, corporate power purchase agreements, microgrids and infrastructure for data centers to deliver digitally connected low-carbon energy solutions to our customers. We launched Smart Energy Connect, Australia's Asia's first online energy app store in 2019, providing customers with tools to improve their energy efficiency and automation. And investments in technology companies also help our progress on the digitalization journey. CLP recently joined our longstanding partner, China Southern Power Grid, to invest in an energy innovation investment fund that targets innovative energy technologies in the Greater Bay area. We'll continue to build on these relationships as we explore this important market. Our foundation stones of sound governance, risk management and taking responsibility for our people and communities provided a strong platform for navigating through this challenging year. We've seen the benefits of comprehensive business continuity planning. And I acknowledge the diligent, and at times, extraordinary efforts of our people throughout this year. Looking ahead, we'll continue to invest to deliver long-term value to all of our stakeholders. Hong Kong and our connection to the Greater Bay area are at the heart of our business. We'll increasingly focus on the Greater Bay area for investments in energy services, which capitalize on the synergies with our innovation experience in Hong Kong. We'll also continue to invest in renewable energy such as grid parity or offshore wind projects in selected provinces of Mainland China. In Australia, we're an integrated customer-focused energy supplier. We'll increasingly invest in fast-response generation and storage to contribute to the accelerating energy transition. And in India, we'll further expand our portfolio, focusing on renewables and low-carbon opportunities. Throughout this diversified portfolio, we'll continue to manage our operations and make investments guided by our strategic focus of decarbonization, digitalization and customer service. So thank you, ladies and gentlemen. And we'll now be happy to take your questions.

Thank you, Richard, and thank you, Geert. [Operator Instructions]. I think we probably have questions on the telephone lines initially, so could we please proceed. Could I also perhaps just ask people to register their name company affiliation as they ask their question? Do we have a question on the line, please? Yes.

Hello.

Hello. Pierre, I think if that's you, we can hear you. Please proceed.

Yes. I'm Pierre Lau from Citi. Thanks for the detailed briefing. I have 3 questions. The first one is you have quite a sharp increase of your bad debt position from Australia last year. Do you expect some of these bad debt provisions will be written back this year because of that impact from COVID-19? The second question is for India. We reckon that the profitability of your Indian business kept declining in recent years. Do you have any business strategy to improve it for your Indian business ahead? And the final question is about Hong Kong. What's the update of your offshore wind power project in Hong Kong in terms of, say, completion timing, CapEx, capacity, et cetera?

Thank you for those questions, Pierre. I'll take the second and third question and I'll hand over to Geert for the question on the provisions in EnergyAustralia. But starting with India, our strategy for India is we see tremendous opportunities for growth in the Indian market as India, along with all of the countries in the world, are needing to fund and develop the low-carbon energy infrastructure to see through the energy transition. We sold down 40% of our business to CDPQ in 2019 to provide us with a platform with a strong partnership that can capture these opportunities. So we do see the business is ripe for growth. The industry is needing new investments. And we see the potential for India. However, in 2020, this was a particularly challenging year to take forward the first steps of that growth. And whilst we did get off to a good start with the Sidhpur wind farm and also the acquisition of transmission investments, as the year progressed, the opportunities as a result of COVID were less forthcoming. But we do still believe that there is good opportunity in India, and with our partnership with CDPQ, we have a strong platform for growth. Your third question on the offshore wind in Hong Kong, we first looked at offshore wind in Hong Kong in -- around 2008, and at that time, it was a very costly technology. It was still at quite an early stage of its development, and we didn't feel that the offshore wind for Hong Kong would be economically viable. However, we have preserved a site and we have been doing very extensive wind and weather measurements over the past 10 years so we have a tremendous amount of good quality data. And in that time, the cost of and the developments in offshore technology have really come on a pace. So we believe that offshore wind could well be viable technology for Hong Kong. This would still need to be discussed with government and approved as part of the next development plan. But in the meantime, we are revisiting this technology. We are revisiting the environmental permitting, which we secured over 10 years ago and looking how we can use new technology to make this economically viable for Hong Kong. Geert, you'd like...

On your first question, Pierre, you may recall also that in the beginning of this year we had bushfires. And so both the bush fires and then the COVID have led the local companies and the government as well to request that customers with payment difficulties induced by those extraordinary events be helped. And so various payment plans have been set up. Other facilities have been established. But together with that, it is true that we have reviewed our provisioning methodology. We have included an assumption about macroeconomic growth. And we have seen an increase -- because of these tempered collection efforts, we have seen an increase in the amount of receivables due beyond 180 days and we've taken significant provisions on that. Now the future will tell when hopefully -- and we really hope for that, that many of those people get back on their feet. When those people will get back on their feet and progressively get into payment plan to catch up, we will see in the future if we over-provisioned or not. But we did take a significant provision on outstanding debt beyond 180 days. As of now, we don't necessarily see a trend of behavior except for people that are really impacted by these events that I mentioned.

I'm not sure whether we have another question on the -- line, telephone lines. If there is, the moderator can alert us. However, we do have some questions submitted from the web. I might just read these out or read out the first one. First one is from Evan Li of HSBC. And the question is regarding Australia, what do you think of the demand/supply situation of the electricity market in Australia progressing into 2021? How does your schedule of maintenance of your generation fleet look for this year? How much upside to returns do you expect from initiatives that you're undertaking, such as pumped storage, demand response systems, et cetera? And what returns would these bring to the business?

Again, I'll perhaps take the first 2 questions on demand/supply outlook and also the maintenance. And then Geert, you may want to offer some comments on the returns on the future investments. Firstly, with the demand/supply outlook. Australia is going through the energy transition. Both the Victorian and New South Wales governments announced at the end of 2020 quite extensive plans to support the development of more renewable energy and also to underwrite and provide government support to projects for energy storage, peaking capacity and also transmission interconnections. So a lot of investment backed by governments is going into the market to support the energy transition. Now baseload power is still needed during this transition. So we are coming up to a period where there will be a natural oversupply of the market, which will see downward pressure on prices. And that will be inevitable until we start to see closure of some of the older baseload plants. So it is a market in transition, and we would expect that the near-term outlook would be a downward pressure on wholesale prices. Regarding our maintenance schedule for our generating fleet in Australia, we did conduct 2 major outages at -- one at Yallourn and one at Mt. Piper. We -- these are plants, which are reaching the stage of their life where quite substantial major inspections and major maintenance is required. So at -- on one of our units at Yallourn and 1 unit at Mt. Piper, we conducted major overhauls and we would see the same program being completed in 2021. So still major works at both Yallourn and Mt. Piper in 2021.

So yes, as Richard mentioned, we're in an energy transition. And that system will need different and new assets, assets that are needed to deal with that intermittency and the volatility that we see in the system. These assets are storage, demand response and flexible capacity. Now how do they make money? It depends on what the market design is. As you know, there are systems in Europe where there are capacity remuneration systems put in place. There are other systems, one that is less famous now in Texas, where it's all about energy and where these assets make money just between the spread in high peak and sometimes negative low prices. In Australia, what is certain is that these assets are required. With respect to what will be the profile of the long-term earnings in the long run, that will, in part, depend, of course, on how many investments are made, who makes those investments and also on what the rules of the game will be. We try to model for different scenarios, outcomes for different contributions from the government and different rules. And of course, we -- when we make investment decisions, we make them when the majority of our scenarios come out and deliver the cost of capital. But the future will tell. We are clearly getting into a different system and the remuneration formulas are different than what they used to be in the past. So modeling the profitability is more complex. That doesn't mean we don't do it or we don't try to do it. And as I said, we aim to have a return on our cost of capital.

Thank you, Geert. The second question we have on the web is from Ken Liu of UBS. Ken has 2 questions. On Australia, what drove the major improvement of the retail segment profit in the second half of 2020? The second question is on Hong Kong. What are the possible options that CLP looking at to achieve the discussed 2050 carbon neutrality target as renewables do not seem very viable in Hong Kong for now. Does it mean that we will need more import of power in the long run, which may threaten our local-generation business in the long term? With those 2 questions, there is a little bit of detail in the first one. Geert, if you're comfortable with that, otherwise, I have the details at hand. And the second one, possibly for Richard. So do you want to start with the second question first?

Go ahead and answer the first one.

Okay. The first one. In Australia, you might recall that in the interim results, we actually mentioned that we had undertaken a reallocation of some elements within the Australian business. The key item there was that we moved the retail hedge book, hedge -- retail hedge analysis from the Energy business into retail so that retail could better see the actual costs of the hedging policies that were necessary to keep their earnings stable through the year. What that actually means is that there is additional hedging cost in the first half, which will now appear within the retail segment. And the retail results themselves will now become quite seasonal. First half in Australia, where energy procurement costs are high, will typically be low margin and low return. In the second half, which doesn't incur those same costs to address volatility, the second half will tend to be stronger. So going forward, that is going to be a reality of the results within our retail segment where the first half is somewhat weaker due to those higher energy procurement costs, the second half is a stronger result. You will find, Ken, on Page 47 of the results announcement pack some detail about the reallocation within that business. And there was a similar table at our interim results. So between the two, I hope you can find the details and I will certainly follow up later if required. For the second question?

On Hong Kong's carbon neutrality target, CLP welcomes the clarity that we get by having a clear target and a clear timetable to work towards. So we now have a 30-year target to see Hong Kong achieving carbon neutrality. If you consider the 70% of Hong Kong's carbon emissions arise from power generation activity, that is simply because there's very little other industry in Hong Kong. Then for Hong Kong to achieve a carbon neutrality target, the electricity sector has to completely decarbonize and that will then open up opportunities for electrification of transport and -- to help Hong Kong achieve a carbon neutrality target. So this is a subject that CLP has been giving a lot of consideration to over many years. There are a number of options that Hong Kong has. Renewable energy is possible, and we've seen that with our feed-in tariff scheme and with government projects to put solar panels on reservoirs and on large government infrastructure. It is possible, but it is only going to be a small single-digit percentage of Hong Kong's energy mix. Offshore wind is possible. And with my earlier question, this is a technology which has now become much more cost-effective than it was 10 years ago and we believe that it is now at a stage where it could be and could form part of Hong Kong's energy mix. And offshore wind isn't just restricted to Hong Kong. There are offshore wind developments around Hong Kong in the Guangdong area that could be feasibly brought into Hong Kong as well. So offshore wind is another component. There's nuclear power, which currently forms about 1/3 of CLP's energy mix, and extending the imports of nuclear energy would also fill the gap. But we are making a shift towards natural gas generation in Hong Kong. And we're doing that with a long-term view that gas technology has the potential to switch to carbon-free fuel, and I'm speaking about hydrogen here. Our equipment manufacturers are working very hard and believe that by the 2,030s they will have combined cycle gas turbines that will be able to use hydrogen as the fuel. And the benefit of hydrogen is that it can be blended quite easily with natural gas so that you can progressively increase the amount of hydrogen in the natural gas fuel mix until you get to a point where it has to transition across. So we believe that there are viable options for Hong Kong that the electricity sector can be decarbonized. It will be challenging. It will require enormous support from both the Hong Kong government and the Mainland government to make this happen, but we do believe that it is feasible.

Could I please just check whether there are any further questions on the telephone lines at the moment? If not, we do have a further question from Simon Lee of Morgan Stanley through the webcast facility. It is -- parallels the last question to some extent. And Richard, I think you've addressed many of these points already, but I will just read it out. What are the parameters CLP will use to evaluate offshore wind projects in Hong Kong? Can you ensure that building offshore wind in Hong Kong will not lead to higher power tariffs? Also, can you share how CLP will assist Hong Kong to meet 2050 carbon neutral targets. And what will be the fuel mix target in Hong Kong and import versus domestic power generation targets?