HK Electric Investments and HK Electric Investments : 2021 Annual Results

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2021 ANNUAL RESULTS

CHAIRMAN'S STATEMENT

I am pleased to present the 2021 annual results of HK Electric Investments (HKEI), and its wholly-owned subsidiary HK Electric. During the year, we passed a key strategic milestone - we successfully synchronised a new gas-firedcombined-cycle generating unit, L11, ready for commercial operations in May 2022.

This milestone comes at one of the most critical periods in our long history - as we evolve our operations to enable Hong Kong to achieve its decarbonisation goals to create a cleaner, healthier home for future generations. We continue to focus on fighting climate change while meeting energy demands through innovation that ensures excellence in every aspect of our activities. A key achievement on this front is our attainment of over 99.9999% power supply reliability - for the second year in a row - making us one of the world's most reliable electricity companies.

Through the course of the year, we successfully reduced our carbon emissions by about 26% compared to the base year of 2005. We achieved this primarily by progressively replacing coal with natural gas, which has much lower emissions, as our primary fuel for power generation. About 50% of our electricity came from natural gas in 2021, and we will steadily increase this proportion in the coming years.

Other major initiatives of the 2019-2023 Development Plan also progressed well. They include the construction of the last of three new gas-firedcombined-cycle generating units, L12; an offshore liquefied natural gas (LNG) terminal that will enhance the security of gas supply; and the rollout of smart meters with the associated Advanced Metering Infrastructure. These initiatives will enable Hong Kong to transform to a low-carbon and smart city.

Electricity sales increased by 2.2% in 2021 due to increased consumption from the commercial sector as Hong Kong slowly recovered from the economic slowdown triggered by the COVID-19 pandemic during the year. Net tariffs were frozen for 2021 at HK126.4 cents per unit of electricity to enable customers - especially small caterers and underprivileged families - to bounce back.

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Financial results and distributions

For the year ended 31 December 2021, HKEI's EBITDA was HK$7,954 million (2020: HK$7,140 million) and profits attributable to holders of Share Stapled Units (SSU) was HK$2,933 million (2020: HK$2,732 million).

The Board of the Trustee-Manager has declared a final distribution by the Trust of HK16.09 cents (2020: HK16.09 cents) per SSU, payable on 11 April 2022 to SSU holders whose names appear on the Share Stapled Units Register on 30 March 2022. Together with the interim distribution of HK15.94 cents (2020: HK15.94 cents) per SSU, this amounts to a total distribution of HK32.03 cents (2020: HK32.03 cents) per SSU for the year.

Capital investment to cut carbon emissions

The 2019-2023 Development Plan is our near-term pathway to reduce carbon emissions. Following 6.6-kV power receiving, gas turbine gas-in, steam blow and system restoration, we successfully synchronised L11 to the grid on schedule in November 2021. On-load tests were completed in preparation for commercial launch in May 2022.

In tandem, we moved ahead with construction activity on the main station building, chimney and circulating water intake for L12. After completing the installation of power block facilities, L12 will commence commercial operations in 2023.

The LNG terminal using Floating Storage and Regasification Unit (FSRU) technology passed key stages of its development process, including vessel design upgrade, jetty construction, pipe laying, topside structure fabrication, and hydrostatic testing. The terminal is scheduled for commissioning in 2022. To help mitigate any potential disruptions to the marine ecosystem, we have established a Marine Conservation Enhancement Fund and a Fisheries Enhancement Fund, which provided funding of approximately HK$27 million to 19 projects in the year.

Our strategic vision is to act as a catalyst to help our customers achieve more sustainable lifestyles. One of our key initiatives in this regard is the deployment of smart meters to help individuals and businesses optimise their energy use. We have installed more than 120,000 smart meters by the end of 2021 and launched a new mobile app that allows customers with smart meters to check their electricity usage at any time. With a better understanding of their consumption patterns, customers will be able to manage electricity use more effectively.

Actions to achieve Hong Kong's climate change goals

Under Hong Kong's Climate Action Plan 2050, the Government will strive for carbon neutrality by 2050. To support this effort, we have put into place several important initiatives.

Renewables uptake in Hong Kong is showing growth, in part due to the promotion through an attractive Feed-in Tariff Scheme. Customers' renewable energy installations connected to the HK Electric grid generated a total of 3.8 GWh of electricity in 2021.

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Our state-of-the-art technologies ensure emissions control - including highly efficient natural-gas-firedcombined-cycle plants to reduce carbon emissions from electricity generation, selective catalytic reduction system to minimise nitrogen oxides (NOx) emissions, low NOx burners, flue gas desulphurisation, and powerful electrostatic precipitators. As a result of these measures, we kept sulphur dioxide, NOx, and respirable suspended particulates below statutory emission caps. We also engaged with the Government and agreed on more stringent emissions caps in the Technical Memorandum No. 9 published in 2021, which will come into force from 2026.

In addition, to help improve roadside air quality, and support Hong Kong's development into a low-carbon and smart city, HK Electric has been promoting the use of electric vehicles (EVs). We continued facilitating the uptake of electric transportation in Hong Kong by providing consultancy and technical support that will underpin the construction of around 50,000 EV charging points at residential carparks. We also engaged with the Government, bus and ferry companies to build charging facilities for public transport across Hong Kong Island.

We support the United Nations' Sustainable Development Goals (SDGs), focussing our efforts on three SDGs most relevant to our business, i.e. SDG 7 - Affordable and Clean Energy, SDG 9 - Industry, Innovation and Infrastructure, and SDG 13 - Climate Action. We have maintained a safe and affordable electricity supply with a world-class supply reliability. Our development plans for new gas-fired generating units and the offshore LNG terminal are also on track, enabling us to attain our emissions reduction targets. We are running various campaigns to educate the community and support our customers to go green, including the full-scale deployment of smart meters.

Excellence in service delivery

At HK Electric, we have a responsibility to ensure that our migration to cleaner energy does not compromise our core pledges of reliability and service excellence. In 2021, we served about 584,000 customers, supplying a total of 10,361 GWh (2020: 10,134 GWh) of electricity - due to increased consumption from the commercial and industrial sectors. Our customers experienced less than 0.5 minute of unplanned power interruption on average per customer over these 12 months.

Greener electricity generation is a critical component of this. Lamma Power Station delivered improved environmental performance, thanks to about 50% gas-fired electricity generation, the use of low-sulphur coal, as well as sustainable energy sources (wind and solar). We deployed the latest technologies such as sensors, advanced analytics, and robotics to sustain low carbon intensity and increase automation while upholding our high standards of safety, supply reliability, and excellent service. More than 40 innovation projects are at various stages of implementation, including battery units to supply more eco-friendly and noise-free site power for heavy machinery.

HK Electric achieved all our pledged customer service standards throughout the year, with a move towards increasing the availability of self-service channels to give our customers more autonomy.

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Helping hands for the community

We took advantage of the few months in 2021 when COVID-19 eased its hold on Hong Kong to resume volunteer work, spending more than 1,300 hours on activities that needed less in-person contact. The Smart Power Care Fund extended financial help to those in need, distributing HK$10 million worth of dining coupons on top of subsidies for energy-efficient electrical appliances, tariff subsidies for those living in subdivided units, and other relief measures.

As always, we maintained our efforts towards educating the public and younger generations about responsible energy use and renewables. Our long-standing Happy Green Campaign expanded its scope to 507 schools, with more than 80,000 students and local citizens taking part in various activities organised online or offline. The Smart Power Gallery hosted 99 virtual/physical guided tours to increase environmental awareness among children, introducing topics like climate change, renewable energy, and smart cities.

In addition, we sustained our ongoing measures to keep all stakeholders safe during the COVID-19 pandemic. To help build a protective barrier against COVID-19 in the community, we have been encouraging our employees to receive vaccines through a package of incentives including group vaccination booking, vaccination leave and gift coupons. Thanks to their support, all our employees have been vaccinated except those who are medically exempt.

Outlook

Basic Tariff is frozen for 2022 and a special rebate of HK1 cent per unit of electricity is provided to help customers recover from difficult times. However, significant increases in global fuel prices, together with increased natural gas consumption, have driven an upward adjustment of the Fuel Clause Charge. As a result, the 2022 Net Tariff is increased by HK8.9 cents per unit of electricity, wholly attributable to the increase in fuel costs.

We have set aside HK$63 million from our Smart Power Building Fund, Smart Power Care Fund and Smart Power Education Fund to provide support for the underprivileged, promote energy efficiency and conservation, and strengthen education on low carbon living to help alleviate the tariff impact on the public.

Our priority for the next 12 months is to achieve all deliverables under the 2019-2023 Development Plan on schedule, further increasing gas-fired power generation by 2023.

In alignment with Hong Kong's commitments to COP26 goals, we have pledged to evolve our business to decarbonise our entire value chain, supporting Hong Kong's zero-carbon transition under the Climate Action Plan 2050. While we target to achieve carbon neutrality in our operations before 2050 in the long term, our medium-term target is to reduce our absolute carbon emissions by more than 50% compared to the 2005 level not later than 2035. To increase the proportion of power we generate from renewables, we will proceed with our planning and design of a large-scale offshore wind farm that will produce about 4% of our electricity output when complete. We will also contribute our expertise to the ongoing government study into the use of hydrogen, an energy source which emits no carbon oxides.

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The global power sector faces the challenge of green transformation which will have a long-term impact on the sector. We believe that decarbonisation and economic growth go hand in hand. As a Group, we are committed to investing in achieving carbon neutrality, a fairer and more equitable society, and pursuing the highest standards in corporate governance.

In closing, I express my heartfelt gratitude to my colleagues, the management, the Board, frontline staff and all our stakeholders whose efforts have made our achievements possible.

Fok Kin Ning, Canning

Chairman

Hong Kong, 15 March 2022

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