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Clear The Air Meeting with John Tsang Chun-Wah

Meeting with John Tsang Chun-Wah

Consultation on the 2008/09 Policy Address to be delivered by Donald Tsang, Chief Executive.

• Energy :

The recent agreement signed between the HK Govt and the mainland for the supply of gas to the SAR is a welcome step towards cleaning up electricity generation within Hong Kong. (Power generation by gas is 60% efficient and by coal only 38% since gas burns at approx 500degrees hotter than coal).

However Turkmenistan gas won’t be flowing into Hong Kong CLP power station before 2013 at least. Hong Kong Electric (HKE) already has its own LNG gas supply from Da Peng 93 kms pipeline but only has 335 Mwh capacity of gas generation.

China Light & Power (CLP) generated 23% of its output in 2007 by burning 2.5 billion m3 of gas. HKE generated 17% of its output in 2007 by gas.

Until such time as Hong Kong gets a guaranteed stable source of gas supply, CLP and HKE will have to burn more coal to match current production rates. In addition CLP needs to increase its sales to Southern China to help offset the burning of high polluting sulphur fuel by factories currently using their own generators due to a lack of grid supply.

We are aware steps are just now being taken by the two power companies to meet the 2010 targets and reduce emissions due to coal burning through the installation of FGD equipment and NOx burners – however recent research conducted by Clear The Air with what has been already implemented in the US revealed that NOx burners definitely increase the amount PM 2.5 released into the atmosphere since the Electrostatic precipitators in the stacks cannot catch the PM2.5.

It is precisely these PM 2.5 particles that contribute to our bad air quality, reduce the visibility and increase the burden of our healthcare to combat asthma and all kinds of respiratory diseases affecting all including the children. At the scale of the US, and based on published scientific studies alone, the American EPA estimates that the most likely benefits of meeting the revised 24-hour PM 2.5 standards will range from US$17 billion to US$35 billion.

How can we now immediately and drastically reduce PM 2.5 levels and clean our filthy air ? It is by the use of agglomerators – the technology exists it is proven largely in Australia , USA and Poland; CLP would have to install 2 agglomerators per boilers that means 16 in total (15 more to install).

Today, only one is installed. At an average cost of HKD 10M for purchase and installation this means a total bill of HKD 150M, (or 10 days of CLP’s current summer cost for its supply of coal).

Let’s keep in mind that the PM 2.5 are the ultra fine particles that refract the light and cause our “haze” and stay in the lungs for the long term – they are the most harmful ones – the NOx burners cause the soot particles to superheat, crack and break into superfine particles and escape –

What agglomerators do, they charge them with an electrostatic device which causes them to cling to larger soot particles which the precipitators then catch. The agglomerator technology can collect more than 75 % of those superfine particles currently emitted from the stacks of CLP and HKE, They are easily retrofitted to meet with the 2010 emissions caps proposed by the HK Government.

Mr Tsang, the agglomerators are THE answer to the air pollution we will be facing until LNG comes significantly into play.

Meanwhile Hong Kong needs to mandate to use of low sulphur bunker fuel in maritime use here and to consider mandating aircraft run their engines for 2 minutes at half throttle prior to take off to remove the unburnt JetA fuel blasted in the Tung Chung air.

More Gas For HK In Deal With Mainland

20-year energy supply guaranteed

Ng Kang-chung, Denise Tsang and Agnes Lam – SCMP – Updated on Aug 29, 2008

Hong Kong and the mainland signed a new energy deal yesterday that guarantees continued supplies of natural gas and nuclear power for 20 years and holds out the prospect of cleaner air and cheaper electricity.

The deal, which took analysts by surprise, also appeared to put paid to plans by CLP Power for a controversial liquefied natural gas terminal on the Soko Islands, off Lantau.

Under the deal with the National Development and Reform Commission, state-owned gas supplier China National Offshore Oil Corporation will continue to supply Hong Kong with natural gas for a further 20 years.

The city will also receive gas from the nation’s second west-east natural gas pipeline being built to transport gas imported from Central Asia to the Pearl and Yangtze river delta regions.

The deal marks the first time Hong Kong has been included in the nation’s energy supply blueprint.

The 4,800km pipeline is expected to reach Shenzhen in about five years. Hong Kong officials estimated the city would receive about 1 billion cubic metres of gas a year from this source.

The agreement opens up opportunities for Hong Kong companies to invest in natural gas developments in Guangdong.

Under the deal, the China Guangdong Nuclear Power Holding Company will renew its supply agreement with Hong Kong for a further 20 years.

Speaking at the signing ceremony yesterday, Chief Executive Donald Tsang Yam-kuen described the agreement as “extremely good news” for Hong Kong’s power supply and environment.

National Development and Reform Commission vice-chairman Zhang Guobao said: “A stable energy supply to Hong Kong will boost Hong Kong’s prosperity.”

Secretary for the Environment Edward Yau Tang-wah said the main purpose was to ensure a long-term, stable energy supply.

What is more important is that we do not need to build LNG terminals in Hong Kong any more. So, there will be no more pressure for raising tariffs as a result of investment,” he said.

CLP’s HK$10 billion Soko project had been expected to inflate by an estimated 13 per cent the value of the power company’s net assets, on which electricity tariff rises are based.

The agreement puts a big question mark over a preliminary 20-year deal CLP made with British-based liquefied natural gas supplier BG two months ago for the project.

CLP said it would study the implications for the project, which “is already at an advanced stage”, and study new options. The terminal was designed to replace dwindling supply from Hainan’s Yacheng gas field in 2013.

A government spokesman last night declined to say if the new agreement would kill the project, but added: “The need for that project is greatly reduced.”

Hongkong Electric welcomed the agreement. Green groups also hailed it, saying they believed it would bring better air quality to the city.

Carbon dioxide emissions can be reduced by 50 per cent when liquefied natural gas is used instead of burning coal to generate power. And sulfur dioxide – a major source of air pollution here – can be cut by more than 90 per cent, according to environmental officials.

Power Firms In Air-Quality Pact

Anita Lam – SCMP – Updated on Aug 04, 2008

The government has reached a pact with the two power companies to boost air quality during the Olympic equestrian competition.

Secretary for the Environment Edward Yau Tang-wah said Hongkong Electric and CLP Power had agreed to use cleaner fuels during the events in an effort to cut emission of pollutants during the Olympic and Paralympics events.

“The two electric companies will increase their use of natural gas by about 20 per cent … we hope this will help improve the city’s air quality,” he said.

Natural gas is the cleanest of all fossil fuels, in releasing 2,591 times less sulfur dioxide and five times less nitrogen oxides and carbon monoxide than coal.

But it makes up only 17 per cent of energy generation for Hongkong Electric and about a third for CLP Power due to cost concerns and technical constraints.

The two companies said gas use would revert to normal when the Games were over but they would continue to review supplies to decide whether to increase its use in the long run.

Other green measures for the events include a ban on idling engines at the venue. The Equestrian Company will also confine its fleet to vehicles with emission standards of Euro three or above.

Mr Yau said that in the long run, the government would further strengthen co-operation with Guangdong over a standardised set of air pollution indices and the two governments would also continue to assist the 60,000 Hong Kong enterprises in the Pearl River Delta to reduce emissions. Speaking on a radio programme, the minister said the government had already poured HK$93 million into a Cleaner Production Partnership Programme.

Regulate CO2 from Power Plants Now

Hong Kong green groups’ joint campaign

Filed under: Hong Kong Climate change — Jacqui Dixon @ 20:28 pm – CSR Asia

Six green groups in Hong Kong have been running a campaign over the last few weeks to encourage the Hong Kong government to incorporate carbon dioxide into the Air Pollution Control Ordinance, which limits air pollutants from the two local power companies CLP and HEC. The groups argue that “the government only regulates power plants’ so called ‘conventional’ air pollutants, such as sulphur dioxide, nitrogen oxides and continues to turn a blind eye to capping their CO2″.

Regulate CO2 from Power Plants Now!

Six Green Groups Urge You to Sign a Petition to the Government

Dear friends,

Climate change is accelerating! Hong Kong Observatory said our winter will disappear after 20 years. The government is amending the Air Pollution Control Ordinance to limit air pollutants from the two local power companies, CLP and HEC after 2010. Yet emissions of carbon dioxide (CO2), the major greenhouse gas (GHG) causing climate change, is not regulated at all. Six green groups now urge for your support to combat global warming by escalating the urgency for the government to restrict CO2 emissions from the power plants.

The two power companies are the biggest local sources of GHG emissions, accounting for 70% of the total CO2 released. They definitely contribute to climate change. However, the government only regulates power plants’ so called ‘conventional’ air pollutants, such as sulfur dioxide, nitrogen oxides and continues to turn a blind eye to capping their CO2.

Send the following letter to the Chief Executive and the Secretary of Environment Bureau today. Request for CO2 emission caps for power plants in the Air Pollution Control Ordinance. Let’s stop allowing the power companies to cook the climate!

Friends of the Earth (Hong Kong), Greenpeace, Greensense, Greeners Action, WWF Hong Kong, Clear The Air

Hong Kong Power Regulations Based in Part on Emissions

The New York Times
Published: January 8, 2008

HONG KONG — The two electric power companies here agreed Monday to a new regulatory system that sets their annual rate of return, based in part on how much pollution they emit, a carrot-and-stick approach that could some day be a model for mainland China’s giant power industries.

The 10-year agreement between the Hong Kong government and the territory’s two companies — Hong Kong Electric and CLP — authorizes the companies to charge electricity rates that will give them a 9.99 percent return on assets.

If either company exceeds regulatory limits for any pollutant, however, it would be required to charge customers less, reducing its allowed rate of return by 0.2 to 0.4 percentage point.

If the companies manage to cut their pollution more than required, then they are allowed to raise prices to the point where they effectively earn bonuses of 0.05 to 0.1 percentage point on their rate of return.

A complicated formula also allows them to charge slightly more for electricity as they exploit renewable energy sources.

Western regulators increasingly provide complex environmental incentives and impose penalties on power companies. But regulators in mainland China and Hong Kong have tended to rely mainly on fines if companies fail to meet basic requirements.

Particularly on the mainland, though, fines are seldom assessed, and violations are rampant, according to environmental critics.

Mainland power companies also have limited incentives and flexibility to choose fuels that are more environmentally friendly than coal. For instance, only a few provinces allow wind-turbine operators to charge significantly more than coal-fired plant operators for the electricity they sell to the grid. And the rate subsidy for burning agricultural waste to generate electricity is not high enough to make it economical in many areas.

Instead, the regulatory system on the mainland has focused on keeping electricity rates as low as possible, with little regard for the pressure this puts on power companies to choose cheap but highly polluting coal-fired power plants.

Melissa Brown, a specialist in Hong Kong power regulation, who is executive director of the Association for Sustainable and Responsible Investment in Asia, a research group, said the new system in Hong Kong sets a useful precedent for the mainland.

“Anything that is a bonus-and-penalty scheme is a positive,” she said.

But Ms. Brown cautioned that regulators there were unlikely to follow the example soon.

She also noted that the government released too few details on Monday on future allowable levels of specific pollutants to make it possible to calculate the actual effect of the new agreement on air pollution here.

Smog has become a chronic problem in the city. CLP and Hong Kong Electric have denied that they are the main sources of pollutants, hinting that nearby factories and power plants on the mainland are to blame.

Exxon Mobil owns 60 percent of a power-generating joint venture with CLP, and CLP owns the rest plus all of the distribution grid, which serves three-quarters of Hong Kong’s nearly seven million people.

Two officials at the State Electricity Regulatory Commission in Beijing said on Tuesday morning that while the mainland and Hong Kong maintain separate regulatory regimes, the mainland is looking at ways to make power companies more responsive to environmental concerns by encouraging the use of alternatives to coal, notably by allowing generating companies to charge distribution companies extra for electricity from renewable sources.

Edward Yau, Hong Kong’s secretary for the environment, said that the government had set the new regulated rate of return at 9.99 percent after deciding that public opinion strongly favored a rate below 10 percent.

The previous rate, under a 15-year agreement expiring at the end of 2008, was 13.5 percent to 15 percent, and was widely criticized as excessively generous to the politically influential power companies. The new rate of return is still well above the prime rate of 6.75 percent that the dominant local bank, HSBC, charges for loans to companies with strong credit ratings.

Emissions Caps Could Be Costly For Power Firms

SCMP – Cheung Chi-fai
Jan 08, 2008

Power companies may earn up to a combined HK$476 million a year less under new schemes of control that tie the emission of pollutants to returns, the Environment Bureau has said.

The companies which exceeded the emission cap of any single pollutant by between 10 and 30 per cent would have their rate of return cut by 0.2 per cent, the bureau said yesterday.

If emissions go beyond the caps by more than 30 per cent, the rates of return will be cut by 0.4 per cent. Based on 2006 assets figures, this means CLP Power (SEHK: 0002) may earn HK$290 million less and Hongkong Electric (SEHK: 0006) HK$186 million less.

Conversely, if the power companies achieve emission reductions of between 10 and 30 per cent below the caps, they will receive extra returns equalling 0.05 per cent.

If emission cuts go below the caps by more than 30 per cent, the companies will get extra returns of 0.1 per cent. That would amount to HK$73 million and HK$47 million for CLP Power and Hongkong Electric respectively. Hahn Chu Hon-keung of Friends of the Earth said it was difficult to assess if the penalty would be a sufficient deterrent.

He said little was known about 2010 or post-2010 emission caps and the limits already given were too lenient. Hong Kong has an agreement with Guangdong to cut emissions by 2010.

“The caps are quite lenient and there seems to be little difficulty for the power companies to meet them,” Mr Chu said. “It is almost guaranteed that they will get extra returns.”

Based on the 2006 emission figures of CLP’s Castle Peak power station and Hongkong Electric’s Lamma power station, the firms had already met the caps for last year, except for particulate pollutants.

Man Chi-sum, chief executive officer of Green Power, welcomed the link between emissions and returns but said the government should set out future caps clearly, especially those for after 2010.

“The precondition for its success is to gradually tighten the caps in the long term,” Dr Man said. “So it is time for us to consider the caps for beyond 2010.”

He said it would be difficult for the power companies to exceed the caps by 30 per cent. But Dr Man agreed that power companies might opt for the emission trading scheme with the mainland in case they faced a serious shortfall in the targets. He said the cost of buying credits from mainland power plants might be lower than the penalties imposed.

Apart from the penalties on exceeding emission caps, the new schemes will require the two power companies to carry out a combined 200 energy audits for clients and encourage them to adopt energy-saving measures.

They will also set up a loan fund totalling nearly HK$190 million for potential applicants to implement these measures.

If 18 million kWh could be cut, the two firms would get an extra 0.02 per cent in returns, which would equal HK$23.8 million.

But Mr Chu said the saving targets meant almost nothing as they accounted for only 0.0004 per cent of Hong Kong’s electricity consumption in 2006.

He said another scheme implemented since 2000 alone had achieved a reduction of 172 million kW.

Power Agreement To Be Welcomed

Leader Jan 08 2008

Under the new schemes of control to begin in September, CLP Power and Hongkong Electric have accepted smaller profits. As a result, the consumer will pay a lower basic tariff. The firms also face a cut in their rate of return if they exceed any pollution emissions caps, but will be entitled to a slightly higher rate if they do not.

They will be allowed to make a 9.99 per cent profit on the value of their investment in fixed assets, compared with 13.5 to 15 per cent at present. Analysts calculate their average return over the past 10 years at 14.4 per cent. The new deal therefore represents a 30 per cent cut in core profit, a remarkable concession in Hong Kong. To make up for it, they will have to source more of their earnings offshore, a strategy they have already employed with success. ”

But they will not find a better rate of return. The reduced rate remains superior to the single-digit returns obtainable in the heavily regulated electricity markets of Australia, where they are both significant players, or of Britain. On balance, that is a good deal in a stable market where customers have a name for paying their bills.

And they have driven a tough bargain. The government has achieved its aim of reducing the rate of return to a single digit, but only by a face-saving 0.01 per cent. The 0.2 to 0.4-point cuts in the rate of return for exceeding any of the emissions caps are also derisory in terms of deterrent value. And there may be a devil in the details of the caps and cuts. A more effective incentive to cut emissions will be to avoid provoking critical scrutiny of their privileged market position.

The government says consumers, who will soon face power bill increases of up to 6 per cent, stand to benefit from cuts in the basic tariff that could reach double digits. However, the saving could easily be eroded by further increases in fuel costs, which are passed on.

That said, the new agreements are to be welcomed. The existing scheme served the city well because it encouraged investment in new generators and power networks to supply the demands of a growing population and industry. Now that population growth has slowed and industry has largely moved elsewhere, there is no longer any reason for virtual monopolies to be allowed to milk their customers according to that formula.

A higher rate of return – 11 per cent – on investment in renewable energy reflects the higher costs and the case for environmentally friendly measures. However, this is a reminder that over the decades the existing schemes were criticised for encouraging overinvestment in fixed assets. Officials should exercise discretion in the public interest in pre-approving new capital works, such as CLP’s plan to build a terminal for liquefied natural gas.

The agreements are for 10 years instead of the existing 15, as the government mulls models and regulatory frameworks for opening up the market to other players. The duopoly has made a pretty safe gesture in accepting it. If there is to be any competition, it is likely to be introduced in an orderly way. The government will be mindful of the imperative of stability in power supplies in an overwhelmingly high-rise working and living environment, and is unlikely to refuse to renew the agreements. Hong Kong has only two power suppliers, from generator to front door. They and the city need each other.

Power Plays

Published in the SCMP on the 8th of January 2008:

  • Two companies’ permitted rate of return reduced from between 13.5 per cent and 15 per cent to 9.9%
  • Based on 2006 figures, total reduction in electricity payments by residential and commercial customers to amount to HK$5b per year
  • If power companies exceed emissions cap for any pollutants, rate of return will be reduced by 0.2-0.4 percentage points
  • If emissions of all pollutants remain below specified caps, companies will be entitled to an increase in permitted return of 0.05 to 0.1 percentage points
  • Tenure of agreement will be reduced from existing 15 years to 10 years
  • Government will consider rediness for open market in deciding whether to extend tenure for another 5 years

Cut in Core Earnings of Power Companies

Electricity bills may not drop as much as companies’ cut in earnings

SCMP – Denise Tsang
Jan 08, 2008

Hong Kong’s electricity duopoly are bracing for a 30 per cent cut in core earnings as early as October, but a lower return rate does not necessarily mean consumers’ bills will drop accordingly.

CLP Holdings (SEHK: 0002) and Hongkong Electric (SEHK: 0006) Holdings will have the return of their earnings on electricity supply slashed to 9.99 per cent from 13.5-15 per cent return on net fixed assets in use, forgoing HK$5 billion in profits between them based on their 2006 audited profits, the government says.

As part of the new regulatory regime on the power utilities, the new return means their core earnings will be cut by 30 per cent from the 14.4 per cent return the two firms have earned on average in the past 10 years.

The government trumpeted that the new regime accomplished its three main missions – slashing the utilities’ return to a single digit, lowering emissions and paving the way for an open market.

CLP and Hongkong Electric also accept that their contract period will be shortened to 10 years from 15. The conclusion of 18 months of negotiations means a U-turn of the power firms’ ferocious opposition. “The deal is as good as they can get compared to what they are earning in developed countries like Australia and the UK,” said an analyst of a European brokerage who expected future returns to be 10 per cent.

“A 10 per cent return is perceived as very attractive in these countries, and the two companies obviously know this very well because they invest there,” he said.

Many analysts believe the deal is reasonable for the two electricity companies and clears up regulatory uncertainty. But academics and analysts believe power bills will not necessarily be reduced at the same rate, as the new regime continues to peg the utilities’ core earnings to capital investment in power generation, transmission and distribution.

One pointed out that the prevailing higher cost of fuel could offset a cut in the basic tariff, as consumers must pay for the cost of production despite the government’s forecast of a “double-digit” reduction next year.

CLP, which serves Kowloon, the New Territories and Lantau, will embark on the new regime in October and Hongkong Electric, which lights up Hong Kong and Lamma islands, in January next year.

Power Companies Agree To Reduce Tariffs

SCMP Lina Lim
7:00pm, Jan 07, 2008

The government on Monday entered an agreement with the territory’s power companies – in the wake of community concern about utility fee rises scheduled for early 2008.

The two power companies are the China Light Power Company and Hong Kong Electricity Company.

The government said that under the new agreement, the rate of return of the two utility companies would be reduced to below 10 per cent to ease the public’s monthly electricity bills.

Secretary for the Environment Edward Yau Tang-wah said the new agreement would help allay community concerns gathered from two public consultations in 2005 and 2006. The new agreement would also be in line with the government’s environmental policies.

“I firmly believe that the new agreements have achieved a reasonable balance. On the one hand, we have responded to public aspirations for reduced tariffs.

On the other hand, the permitted rate of return under the new agreements will provide sufficient incentive for the power companies to continue investing in the electricity supply,” Mr Yau said.

Under the new agreement, the permitted rate of return of the two power companies would be reduced from the existing 13.5 per cent to 15 per cent to 9.99 per cent.

Customers of China Light Power Company and Hong Kong Electricity Company would see reductions in basic tariffs from October 1 this year, and January 1, next year, respectively.

However, the reductions would depend on the balance of the average net fixed assets of the two companies and their operating costs upon commencement of the new agreements.

“Based on the balance of the average net fixed assets of the two power companies for 2006, the total reduction in electricity payments for residential and commercial customers can amount to HK$5 billion annually,” Mr Yau explained.

Emission reductions are also an aim of the new agreements. If the power companies exceed the emission cap for any pollutants agreed upon, their rate of return would be cut by 0.2 to 0.4 percentage points depending on their actual emission levels. A maximum penalty of HK$200 million to HK$300 million would also be imposed.

Mr Yau said the government would also offer incentives. If emissions by the companies were kept below the stated caps, then an increase of 0.05 to 0.1 percentage points would be awarded.

“This also strikes a balance between the environmental obligations of the power companies towards our air quality as well as providing them with a stable operating environment,” he explained.

The environment minister said the government wanted to expand the electricity market to encourage friendly competition.

Studies on open market models and the regulatory frameworks, as well as enhanced interconnection between the grids of the two power companies, would be carried out in the next regulatory term.

“On the preparation for an open market, the tenure of the new agreements will be reduced from the existing 15 years to 10 years,” Mr Yau said.