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HK Electric Investments HK Electric Investments Limited 24Th November 2020 HK Electric Investments - a Utility Pure Play

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HK Electric Investments HK Electric Investments Limited 24Th November 2020 HK Electric Investments - a Utility Pure Play HK Electric Investments HK Electric Investments Limited 24th November 2020 HK Electric Investments - A Utility Pure Play HKEI carries a simple and clear mandate to operate HK Electric as a utility company focusing on cash distributions Public Shareholders 33.37% 21.00% 19.90% 25.73% HK Electric Investments and HK Electric Investments Limited (2638.HK) 100% The Hongkong Electric Company, Limited 2 Key Investment Highlights 1 Sole supplier, regulated utility Growth 2 Attractive regulatory framework – Scheme of Control Agreement Quality 3 Growing asset base and returns Solid Recurring Cash Flows 4 Strong investment grade profile 3 Sole Supplier of Electricity to Hong Kong Island Vertically Integrated Electricity Utility Power Generation Infrastructure • Lamma Power Station & Lamma Winds • Total installed capacity of 3,617MW in 2020 • 6 coal-fired units • 5 oil-fired gas turbine units • 3 gas-fired combined cycle units • 1 wind turbine unit • 1 thin-film photovoltaic solar system Transmission & Distribution • 6,536 km of transmission and distribution circuits • 27 zone substations & 24 switching substations • 3,920 distribution substations • Energy Management System Consoles • Distribution Management System Consoles • System Control Centre Customer Services • Customer Centre • Customer Emergency Services Centre • Account-On-Line Service 4 Sole Supplier of Electricity to Hong Kong Island - De Facto monopoly • Sole supplier of electricity to Hong Kong Island and Lamma Generation Island — Captive customer base • Stable and growing demand from commercial customer base Transmission — Commercial customers in Hong Kong less affected by economic Fully fluctuations and less price-sensitive integrated across the • Vertically integrated assets forming core power infrastructure power value chain — Generation, transmission & distribution infrastructure Distribution — Unique, embedded asset in highly urbanized and congested Hong Kong Customers Supply Reliability in 2019 Supply ≈582,000 (As at October 2020) 99.99989% 5 Attractive Regulatory Framework 1979 – 2008 2009 – 2018 2019 – 2033 Permitted Return: 13.5%1 Permitted Return: 9.99%2 Permitted Return: 8.00% 100% Regulated Business Long-Term Agreed Framework Entire business regulated under the Scheme of Control Bilateral agreement with the Hong Kong Government Agreement (SCA) Continuous regulation under SCA regime since 1979 Mature and developed, with stable electricity demand Current SCA commenced in 2019 with a 15-year term insulated from broader economic fluctuations Strong Partnership Permitted Return under SCA Full Cost Recovery 8.0% on average net fixed assets Entitled to full recovery of operating costs Full pass-through of fuel costs 1 Permitted Return of 13.5% of average net fixed assets plus extra 1.5% on certain acquisitions made after 31 December 1978 as detailed in the SCA at that time 2 The Permitted Return is 11% of the total value of its Average Renewables Net Fixed Assets 6 Attractive Regulatory Framework Transparent regulatory regime with full cost pass-through Tariff Permitted Operating Stabilisation Forecasted Return Costs Addition / Total Revenues = = + + = Deduction ÷ Average Net Fixed Actual Fuel Cost Assets Forecasted Unit Net Tariffs Volume = + X X Generation, T&D and Admin Expenses Actual Units Actual Revenue Sold Rate of Permitted Return = + Depreciation +/– + Other Adjustments Tax Note: Chart for illustration purposes only, excludes certain minor costs. Refer to Prospectus for further details 7 Multiple Growth Drivers Existing Asset Represents recurring improvement in capex Replacement 2 coal-fired units decommissioned in 2017 & 2018 3 more coal-fired + 1 gas-fired combined cycle units to retire by 2023 Cleaner Energy ~70% gas generation by 2023 Initiatives L10 commissioned in Feb 2020 Construction of L11 and L12 in progress Offshore LNG Terminal at design stage Mass rollout of smart meters and the advance metering infrastructure (AMI) for all Smart Grid our customers to be completed by 2025 Demonstrated Ability to Grow Asset Base (and therefore Returns) Future growth drivers underpinned by Hong Kong Government’s green initiatives and environmental policy Proven Track Record of Growing Net Fixed Assets 56000 54000 52000 50000 48000 46000 44000 42000 40000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2004-2008 2009-2013 2014-2018 2019-2023 Permitted 9.99% on non-renewable average net fixed assets 13.5% 8% Return 11% on renewables average net fixed assets Approved Development HK$11.9 Billion HK$12.3 Billion HK$13.6 Billion HK$26.6 Billion Plan Capex 9 Distributions to Shareholders (HK$ million) 2014* 2015 2016 2017 2018 2019 2020 Distributable 3,218 3,538 3,538 3,538 3,538 2,830 income Interim 1,461 1,760 1,760 1,760 1,760 1,408 1,408 distribution Final distribution 1,757 1,778 1,778 1,778 1,778 1,422 2014 (HK cents per SSU) 2015 2016 2017 2018 2019 2020 Actual * Annualized Interim distribution 16.53 19.56 19.92 19.92 19.92 19.92 15.94 15.94 Final distribution 19.89 19.89 20.12 20.12 20.12 20.12 16.09 Annual distribution 36.42 39.45 40.04 40.04 40.04 40.04 32.03 Y-o-Y Change (in %) 1.50% 0% 0% 0% -20% * Actual figures for period from 29 Jan 2014 (IPO date) to 31 Dec 2014 10 2019-2023 Development Plan - Objectives • Support the Government’s “Hong Kong’s Climate Action Plan 2030+” – Build infrastructure for transition from coal to gas generation • Help transform Hong Kong into a smart city and enhance power networks • Maintain highly reliable power supply and excellent customer services 11 2019-2023 Development Plan - Overview 2019 to 2023 Capital Expenditure - $26.6 B Transmission & Distribution Systems 34% $9.1 B Customer and 34% Corporate Services $9.1 B Development New Generating Units 61% & Other Generation $16.261% B Facilities $16.2 B 12 Towards Low-Carbon Power Generation Generation Mix 2018 2019 2020 2022 2023 Gas >30% >30% ~50% ~55% ~70% Coal <70% <70% ~50% ~45% ~30% 100% • Phasing Out of Coal- Fired Units – A total of 5 units will have retired between 2017 and 2023. 50% • Expansion of Gas-Fired Generation – 3 units will be commissioned during 0% 1980 1985 1990 1995 2000 2005 2010 2015 2020 the current Development Plan period. Oil Generation Coal Generation Gas Generation Fuel Mix Oil Coal Gas 13 Securing Additional Source of Gas Supply ● Gas generation to increase to ~ 50% in 2020 to meet Government’s fuel mix target ● Gas generation increases further to ~55% in 2022 and to ~70% in 2023 with new generating units Proposed Offshore LNG Terminal in Hong Kong Waters ● Lamma Power Station currently wholly relies on a single cross-border submarine pipeline – risk of gas supply loss under incidents threatening electricity supply security Offshore LNG ● Building an Offshore Liquefied Natural Terminal using Double-Berth Gas (LNG) Terminal greatly enhances Floating Storage and gas supply security and bargaining power Re-Gasification Unit Technology on gas purchase (Illustration Photo) 14 More Resilient Power Grid Construct and reinforce T&D Facilities • New zone substation in Eastern District • Replacement zone substation in Sheung Wan • New distribution substations and network expansion for new developments Congested underground utilities and shortage of space significantly increase network construction cost and maintenance Improve and enhance grid intelligence and automation features • Deploy smart meters to build an intelligent information exchange platform for customer energy management • Reinforce and enhance remote control and monitoring system Deploy smart meters to promote transformation of Hong Kong into a smart city 15 2021 Tariff Year 2020 2021 Adjustment Change in % Components (¢/unit) Basic Tariff 102.0 109.0 + 7.0 - Fuel Clause Charge 24.8 17.4 - 7.4 - Net Tariff before Special Rebate 126.8 126.4 - 0.4 - 0.3% Special Rent & Rates Rebate - 0.4 - + 0.4 - Net Tariff after Special Rebate 126.4 126.4 Unchanged - (¢/unit) Effect of Special Rebates on Lowering Net Tariff 140 134.9 134.9 134.9 133.4 132.3 132.5 126.8 124.7 126.4 Effect of Special 126.4 126.4 120 Rebates 120.1 Net Tariff Payable 112.5 Net Tariff payable with Special Rebates 110.4 100 2013 2014 2015 2016 2017 2018 2019 2020 2021 Note: The Average Net Tariff figures of 2013-2020 are per Tariff Review. 16 Tariff under 2019-2023 Development Plan Year Annual Tariff Review D-Plan Forecast Components 2019 2020 2021 2022 2023 Basic Tariff 101.3 102.0 109.0 114.8 115.7 Special Rent and Rates Rebate -2.3 -0.4 - - - Net Basic Tariff 99.0 101.6 109.0 114.8 115.7 Change since 2019 - +2.6% 10.1% +16% +16.9% Fuel Clause Charge 23.4 24.8 17.4 29.8 36.2 Special Fuel Rebate -2.3 - - - - Net Tariff 120.1 126.4 126.4 144.6 151.9 Y-o-Y Change - +5.2% - +14.4% +5% Change since 2019 - +5.2% +5.2% +20.4% +26.5% Source: Company as of 11 November 2020 Note: All figures in ¢/unit unless otherwise stated 17 Residential Tariff Lower Than Other Cities 3 Residential Tariff (HK$/unit) 242% 229% 218% 222% 2 157% 147% 100% 103% 1 81% 0 Shenzhen* HK Electric Seoul Macau Singapore London Tokyo Sydney New York Remarks: (1) Comparison based on monthly residential customer consumption of 275 units (3,300 units p.a.), overseas tariffs and exchange rates are as at Oct 2019 (2) HK Electric’s 2020 tariff (excluding any of the subsidies and reliefmeasures) (3) * Government owned entity Sources: 1. Shenzhen: Shenzhen Power Supply Bureau 4. Macao: Companhia de Electricidade de Macau 7. Tokyo: TEPCO 2. HK Electric: The Hongkong Electric Company,Ltd. 5. Singapore: SP PTE Ltd. 8. Sydney: EnergyAustralia 3. Seoul: KEPCO 6. London: EDF Energy 9. New York: Consolidated Edison,Inc.
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