Clear The Air Energy Blog Rotating Header Image


Time to set energy policy with goals


Time to set energy policy with goals

From cars to cellphones, pharmaceuticals to plastics, and air conditioning to water heating, energy is part of people’s lives more than ever before. Energy is vital for the effective functioning of our modern society and is a key driver for human development and economic prosperity (SEHK: 0803announcementsnews) . However, the poor local air quality and global climate changes we have been witnessing are attributed to an explosive increase in global energy consumption.

We take pride in Hong Kong being Asia’s “world city” and an international financial centre, and being ranked by the Heritage Foundation as the world’s freest economy for 18 consecutive years. This is underpinned by having not only good governance, built on core values such as the rule of law, transparency, freedom, equality and openness, but also continued economic growth.

For a metropolitan city and a service-oriented economy like Hong Kong’s, energy is of paramount importance to economic activities therein. But, somehow, Hong Kong has in place only a few lines on its energy policy objectives, displayed on the Environment Bureau’s website, and various measures focusing on energy conservation and efficiency. We do not have a structured, coherent and comprehensive energy policy to support our pursuit of an economy for sustainable development.

The growing complexity and strategic importance of energy policy demands a “whole of government” approach. The incoming administration should consider empowering the Environment Bureau (best to call it the Energy and Environment Bureau) to formulate and co-ordinate an energy policy with objectives, strategies and action plans to meet the needs and aspirations of our community and Hong Kong’s commitments as a responsible global citizen.

The bureau should study a wide range of energy issues, which include energy conservation and efficiency, and also promote a competitive energy market, diversify energy supplies; invest in energy research and development; and step up international co-operation.

Dr C.W.Tso, adjunct professor, City University (former head of HK Electric power)

Whiff of double standards in government’s take on air quality


Howard Winn
Jun 14, 2012

We hear that following the row over higher electricity tariffs earlier this year, CLP has put more or less on “permanent hold” the work on converting its Castle Peak ‘A’ power plant from coal-fired to the cleaner gas-fired boilers. It will now continue to run on coal with just one experimental agglomerator, which removes particle matter, but no scrubbers, which take out sulphur.

The government is pressing the power companies to meet emission standards but it would appear that it only wants them to “meet” these standards rather than to better them by a wide margin. That is, the Environment Bureau doesn’t want them to improve their emissions too much, because the resulting capital expenditure would result in a rise in tariffs.

The scheme of control, which is negotiated with the government, allows companies an agreed rate of return from its depreciated net assets. At the same time, the government urges the power companies to reduce emissions, but it doesn’t have the guts to tell the public that this will cost more. Instead, it publicly blames the power companies when they try to raise tariffs.

CLP had wanted to raise tariffs by 9.2 per cent but after the government-inspired row, ended up with a 4.9 per cent increase. The direct effect of this is lower air quality in an arrangement agreed by the bureau.

At the same time, CLP has been forced by the Hong Kong government to buy its gas from the mainland at prices that will have to be negotiated with supplier CNOOC (SEHK: 0883). But since CLP has been cut off from global markets, it’s not hard to see who will have the advantage in those discussions.

The Environment Bureau, led by Edward Yau Tang-wah, plays a highly duplicitous role in the politics of Hong Kong air quality. On the one hand it claims that it can’t do much about Hong Kong’s dirty air and says much of the pollution comes from the Pearl River Delta; on the other it ignores effective measures that could be taken to get old buses and trucks off the road.

When CLP wants to convert to environmentally cleaner gas, the government and the bureau show they have no stomach for a fight with the public and agree to lower standards

Lower power bills line as Poon lets fly at duopoly

Next year’s mid-term review of agreements regulating the power- supply sector will involve discussions on opening up the market, government officials said.

Kenneth Foo

Thursday, May 24, 2012

Next year’s mid-term review of agreements regulating the power- supply sector will involve discussions on opening up the market, government officials said.

Acting secretary for the environment Kitty Poon Kit took the line yesterday by saying both she and her colleagues are “very concerned” about CLP Power’s warning this month that tariffs may jump 40 percent over the next several years.

Also taking a harder line was lawmaker Cheung Kwok-che, who accused CLP chairman MichaelKadoorie of making threats and urged the authorities to take action over his remarks.

Poon said talks will be held next year as part of the review of the Scheme of Control Agreements with the power duopoly, with view to introducing more competition and lowering tariffs.

In line with the timetable stipulated in the agreements, the government will also discuss changes to the regulatory framework by 2016 at the latest.

Poon said officials will be taking a hard look at the two utilities’ short-term development plans to ensure their capital investment and operating costs – which can be used to back up tariff increases – are justified.

“We will be meticulous in examining the capital investment proposals submitted by them for necessity, timing and cost-effectiveness,” she said.

“This will allow us to avoid investments that are excessive, premature, unnecessary or unreasonable.”

Officials have disallowed such investments before, she said, citing a HK$10.4 billion liquefied natural gas terminal project omitted from the last CLP plan.

“We will also make public details of the discussion with the companies on their new development plans.”

Poon, who was speaking at a Legislative Council session, expects the power companies to submit their tariff proposals along with solid justification, and to fully disclose all relevant details.

How best to reform Hong Kong’s electricity sector?


Stephen Cheung looks at some of the options to overhaul Hong Kong’s electricity sector and make price changes more transparent for consumers. Each, he says, carries its own risks

May 15, 2012

Michael Kadoorie, chairman of CLP, announced last week that the utility’s rates could rise by 40 per cent by the end of 2015 due to an estimated 250 per cent hike in fuel costs. This projection is based on higher use of natural gas at prices that are expected to escalate over the next four years.

In response, several legislators have recommended open access to power transmission. That would introduce competition among generators, including those on the mainland, and fundamentally restructure Hong Kong’s electricity sector.

The sector is governed by a scheme of control, an agreement signed by the Hong Kong government, CLP and Hong Kong Electric (SEHK: 0006) in 2008. Set to expire in 2018, it allows the power companies to earn 9.9 per cent on net assets and 11 per cent on net renewable energy assets, as well as fully recover fuel costs via periodic rate adjustments.

In this context, how can we change Hong Kong’s electricity future? In addition to restructuring, we can make fuel cost-driven rate increases more transparent, or invest public funds in generation units and strengthen price regulations. To select the best option, we need to consider the following questions:

  • Should Hong Kong have a public hearing process? Commonly used in North America, this would enable various stakeholders (for example, consumer groups, environmentalists and the government) to examine the evidence presented by utilities in support of their applications for fuel procurement, capacity expansion, renewable energy development and other actions.

As it invites wide participation, the process can become litigious, time-consuming and unmanageable. But, without it, how can consumers be confident that rate rises are based solely on CLP’s cost increases? Moreover, if CLP has bought fuel and managed costs efficiently, it should welcome this transparent process.

  • Should Hong Kong have an independent regulatory commission? Such a commission could be necessary to manage the potentially voluminous filings by regulated companies, including CLP. It would facilitate the public hearing process with the participation of various stakeholders. But it may be seen as just another unwanted, wasteful and ineffective government bureaucracy.
  • Should Hong Kong restructure its electricity sector? Restructuring has taken place in Europe, parts of North America, parts of South America, Australia and New Zealand. Competition in the electricity-generation market is designed to cut prices by reducing the sector’s cost inefficiencies and excessive earnings.

Restructuring could work under the right conditions: notably, where there is surplus capacity, many suppliers, easy entry and price-responsive demand. Integration of the electricity markets in Hong Kong and southern China could potentially lead to lower prices.

Without such conditions, however, restructuring has traditionally not succeeded in cutting prices or improving reliability. Thus, with its potentially large risks, restructuring may not be the most suitable path for Hong Kong.

  • Should the Hong Kong government become a direct shareholder in CLP? Establishing an electricity fund to hold CLP stock would address the frequent complaint that CLP makes too much profit at the expense of consumers. The fund would recoup some of this profit to help pay the bills of CLP customers.

Yet many unanswered questions remain. Would the fund be financed through the budget surplus, the reserves or long-term bonds? What if CLP stopped paying dividends? Would the fund set a bad precedent for government intervention? And, if an electricity fund is so desirable, why not a real estate fund?

  • Should Hong Kong municipalise its electricity sector? Some US cities (for example, Seattle and Los Angeles) and some Canadian provinces (British Columbia and Quebec) own their electricity utilities. To do this, the Hong Kong government would need to buy the local physical assets of CLP and Hongkong Electric. It could fund the purchase by issuing long-term revenue bonds, not affecting its fiscal spending or reserves. Since the bond rate is lower than the permitted returns of CLP and Hongkong Electric, such a move could mitigate the trend of rising rates.

There are a number of obstacles, however. First, CLP and Hongkong Electric could assert their property rights and refuse to sell at any price. Second, even if they were amenable to selling, they could demand a very high price. Third, the government could be unable to operate the electricity facilities safely and reliably. Finally, the purchase might be seen as anti-business, discouraging investment in Hong Kong – one of the most competitive and business-friendly cities in the world.

Each of these choices has its own implementation challenges and cost-risk trade-offs. Establishing a public hearing process, possibly administered by a regulatory commission, is easier and less risky than the other choices. In any case, the question of how Hong Kong’s electricity sector should evolve over the next few years is a critical issue that deserves collective scrutiny.

Professor Stephen Y. L. Cheung is dean of the School of Business and professor (chair) of finance at Hong Kong Baptist University

CLP chief urges ‘transparent’ energy policy


Power firm wants government to admit to public that rise in energy bills is down to its requirement that generators cut their carbon emissions

Denise Tsang
May 15, 2012

CLP’s group chief executive, Andrew Brandler, has called on the incoming administration of Leung Chun-ying to be more transparent over energy policy than its predecessor has been.

Brandler’s comments come as the 80 per cent of the city’s population who depend on CLP for electricity brace for a sharp rise in their energy bills starting from next year.

The expected rate increase stems from a deal CLP has struck through Capco, a joint venture of its subsidiary CLP Power (SEHK: 0002), with the National Development and Reform Commission and the state-owned fuel suppliers PetroChina (SEHK: 0857announcements,news) and CNOOC (SEHK: 0883).

Brandler disclosed in an exclusive interview with the South China Morning Post (SEHK:0583announcementsnews) yesterday that the terms of the gas supply contract were agreed six months ago. But he said Chief Executive Donald Tsang Yam-kuen’s administration had yet to approve the deal. The slowness of the approval process angered CLP’s chairman, Michael Kadoorie, who attacked the government last week for its inefficiency but did not then disclose the delay in approving the contract. It was Tsang who agreed to the contract with Beijing in 2008.

The new contract provides for the purchase of clean fuel in the form of gas to generate electricity over the next 20 years from 2013. PetroChina will import gas from Turkmenistan to the mainland and funnel it through a submarine pipeline to the Black Point power station.

The new contract price, about three times more expensive than the existing gas contract price set 20 years ago, will lift fuel costs by 40 per cent.

The existing contract, which expires soon as a result of the depletion of the gas reserve in theYacheng field off Hainan Island, charges US$6 per unit, according to a source. That is roughly one third of what other places, such as Japan, pay.

“It is a reasonable price linked to [current] market levels,” Brandler said. “People are angry at CLP and said it’s ripping off customers, but we are not going to make any profit out of it.”

Regulations say the city’s two power producers, CLP and Hongkong Electric (SEHK: 0006), must pass fuel costs on to their customers.

Brandler blamed the Hong Kong government for failing to explain to the public the consequences of its energy policy, which requires CLP and Hongkong Electric to lower carbon emissions by up to 64 per cent by 2015 from 2010 levels. That means CLP needs to double its gas consumption.

“We want more transparency from the new administration,” Brandler said. “The government needs to explain to people about the impact of the energy policy on tariffs.”

The Environment Bureau said CLP had been involved in commercial negotiations with its mainland counterparts on the provision of natural gas. It said the bureau would monitor the developments to ensure the arrangements would be in line with its energy policy objectives.

CLP raised tariffs by 4.9 per cent in January instead of an originally proposed 9.2 per cent, after pressure from the government and the public.

‘Clean energy means higher power bills’

Government’s energy policy makes higher power prices inevitable, warns CLP chief Michael Kadoorie, firing a shot across bows of incoming Leung administration
Denise Tsang
May 09, 2012

The government’s “clean energy” policy will mean higher power bills for consumers, the chief of Hong Kong’s biggest power company, Michael Kadoorie, said yesterday.

In a rare tycoon broadside against the government, Kadoorie, chairman of CLP, cautioned the new administration not to meddle in the sector and said the “inevitable” outcome of an energy policy based on importing cleaner but more expensive gas from the mainland would be higher power bills.

The Hong Kong government agreed with Beijing in 2008 to source “clean energy” gas for the city’s power supply from the mainland. That means CLP now has to buy gas at a price three times more expensive than the supply it secured 20 years ago through a long-term contract. However, attempts by CLP to raise tariffs to offset its higher costs have been stymied by the government, which is sensitive to public pressure over power bills.

Ronnie Hui Ka-wah, a member of the government’s energy advisory committee, rejected Kadoorie’s criticism, saying the government had done well as a regulator and in safeguarding public interests.

Lawmaker Wong Kwok-kin said CLP’s “threat” to raise tariffs meant the government must consider importing electricity from the mainland.

Kadoorie, in a swipe at perceived government meddling, said the chief executive-elect, Leung Chun-ying, would face “a challenge” in defining what the government should do and what was best left to the private sector.

“On those few clear days when I can look across the harbour from my office in Central, I see the West Kowloon reclamation and the site of the old Kai Tak airport. Both have been lying vacant and unused for many years,” Kadoorie said, in a statement read by CLP’s vice-chairman, William Mocatta.

“If the speed and efficiency of decision-making and implementation by CLP in managing and operating the electricity supply system for Kowloon and the New Territories had matched those standards, I would be speaking to you today in darkness.”

Kadoorie – who said he was like “the overwhelming majority of Hong Kong people who did not vote” for the city’s new chief executive – said his only interest in the political process was that it “would lead to confident, capable and committed leadership to carry our society forward in the years to come.”

Leung’s office declined to comment.

CLP, the larger of Hong Kong’s two power suppliers, warned after its annual shareholders’ meeting yesterday that tariffs would be “materially” higher by 2015 on the back of a roughly 40 per cent rise in fuel costs.

CLP’s chief executive, Andrew Brandler, said the company would have to use twice as much gas to meet the government’s 2015 emission reduction target. “The era of cheap gas is over,” Brandler said.

The 2015 target requires power suppliers to cut emissions by up to 64 per cent below 2010 levels. The government has proposed changing its reliance on different sources of electricity to a mix of 50 per cent nuclear, 40 per cent gas and 10 per cent coal by 2020. Coal, nuclear and gas currently each account for a third of CLP’s electricity generation.

CLP was forced to lower its proposed tariff increases to 4.9 per cent from the previously proposed 9.2 per cent, on January 1 after lengthy discussions with the government in the last two weeks of December.

Architect Wong Kam-sing, who is the front runner to be the new environment minister, said he and his officials would negotiate with CLP and Hongkong Electric (SEHK: 0006), over carbon reductions.

Lam Pun-lee, a former Polytechnic University professor who has closely followed the Hong Kong power sector for more than a decade, said the government was being unreasonable in suppressing power firms from lifting tariffs. He said CLP tariffs were raised in accordance with the scheme of control, a 10-year agreement between the government and the power companies that is due to mature in 2018.

This allows CLP and Hongkong Electric to earn a 9.99 per cent return annually on their average net fixed assets and pass fuel costs on to end users.

CLP Power (SEHK: 0002) has teamed up with the state-owned China Southern Power Grid in negotiating to buy a 60 per cent stake in the power generation company Capco, from ExxonMobil Energy of the US. CLP Power already owns 40 per cent of Capco, which in turn owns three power plants in Tuen Mun and Lantau.

Additional reporting by Cheung Chi-fai

Legco votes down tariff motion

The Legislative Council has voted down a motion to force the disclosure of details of the two power companies’ tariff increase proposals, by invoking the Powers and Privileges Ordinance.

CLP Power and Hong Kong Electric have provided a Legco panel with part of the information, but asked for some data to be kept confidential.

The Environment Secretary, Edward Yau, said some sensitive information should not be divulged, as it could affect the firms’ bargaining power, leading to potentially higher costs, and higher tariffs.

Subsidy only encourages power use

Clear the Air says: no doubt this is a backdoor pacifier payment after dragging the power companies before Legco for trying to apply the legal binding agreement that the inept Government had signed with them under the Scheme of Control.

Subsidy only encourages power use

A long time ago, the government said it would combat climate change and save energy.

Then, in last week’s budget announcement, the government decided to give each of the city’s households an annual electricity subsidy of HK$1,800 (“Taxpayers can look forward to lower bills”, February 2).

I think the subsidy will make the problem of energy consumption even worse because it will encourage people to use more electricity than before. Because people won’t need to think about the cost of power, they will use more and more energy, exacerbating climate change.

If we really want to solve this problem, we need to teach people the advantages of protecting the environment.

The government could also establish more sources of renewable energy such as solar panels.

Hong Kong uses a lot of energy, and the government and public need to work together to change the situation.

Chan Tsun-ho, Sha Tin

Why tariff rise was questioned

Arrogant reply from ENB – an excessively generous binding contract was signed by HK Govt with CLP which lies at the root of this problem.

South China Morning Post

Why tariff rise was questioned

I write in response to the letters from Y. K. Leung (“Tariff rises would power greener city”, December 31) and Thomas Gebauer (“Puzzled by environment chief’s stand”, January 1) on the electricity tariff.

Electricity is a basic necessity to Hong Kong people. A safe and reliable supply of electricity at a reasonable price is vital to our economy.

As power generation is the single largest source of air pollution in Hong Kong, we have taken pains in recent years to tackle it, resulting in a 71 per cent reduction in sulphur dioxide emissions in 2010 compared to 2007. That explains the multiple goals of the government’s energy policy, which centre on safety, reliability, affordability and the minimisation of the environmental impact.

Hong Kong is in the process of shifting to the use of cleaner fuel, including natural gas, for power generation. This means the fuel cost element of electricity tariffs will inevitably increase. However, the electricity tariff review this year differs from previous years in that we could not come to terms with the power companies on the extent of the tariff rise.

In the case of CLP Power (SEHK: 0002), our querying of its double-digit percentage rise in operating costs and premature capital investment, and emphasis on the need to moderate a tariff rise through deployment of the tariff stabilisation fund, were echoed by the community and resulted in CLP’s response: it lowered the increase to 4.9 per cent.

As we work towards cleaner air by improving emission control and increasing the use of cleaner fuel, there is a continued role for the government to exercise due diligence on the power companies’ expenditure and the resulting tariff adjustment. And that is what we have been doing in the past as well as assessing the 2012 adjustment. This is also what the community expects us to do, isn’t it?

Vyora Yau, principal assistant secretary for the environment (financial monitoring), Environment Bureau

EPA Moves on US Power Plant Emissions Rules

December 23, 2011

In this July 1972 photo provided by the U.S. National Archives entitled "Burning Discarded Automobile Batteries," black clouds billow from smokestacks in Houston, Texas (file photo).

In this July 1972 photo provided by the U.S. National Archives entitled “Burning Discarded Automobile Batteries,” black clouds billow from smokestacks in Houston, Texas (file photo).

The U.S. Environmental Protection Agency plans to regulate the largest remaining source of uncontrolled toxic air pollution in the United States: coal- and oil-fired power plant emissions. The new rules — 20 years in the making — will affect 1300 power plants, half of which lack modern air-pollution controls.

Most power plants affected by the rules were built in the 1970s, before clean-air technologies were developed that capture, or “scrub,” smokestack pollutants, notably mercury from burning coal, before they are released into the air.

Mercury is a neurotoxin that can cause severe birth defects and impair cognitive and fine motor skill development in children.

The new EPA rules require the dirtiest power plants to reduce emissions of mercury, arsenic, chromium, nickel and acid gases by more than 90 percent within the next three-to-four years or be shut down.

Retrofitting old power plants with smokestack “scrubbers” will also significantly reduce the amount of black particulate matter, or soot, released into the air. Soot has been linked to higher rates of asthma and heart disease.

EPA administrator Lisa Jackson, who chose to announce the new regulations at a Washington, D.C. children’s hospital, said the new air-pollution limits will protect the health of all Americans.

“When we talk about cutting hundreds of thousands of cases of respiratory symptoms, we’re talking about young people who can go outside and be with their friends without the worries that they will be struggling to breathe,” she said. “When we talk about reducing mercury levels in our environment, we’re talking about lower amounts of mercury in the fish that Americans eat every day. We’re talking about the fact that coming generations will grow up exposed to lower amounts of toxic pollution in the air they breathe.”

The EPA rules could cost the power industry upwards of $10 billion dollars, and many companies will have to decide whether to comply or shut down their old coal- and oil-powered plants.

Misty Allen is a spokesperson for GenOn (JEN-on) Energy, a company based in Houston, Tex., that operates both natural gas and coal-fired power plants that were built in the 1970s. Allen says her company will be directly affected by the new EPA rule.

“At this stage we are still evaluating the rule and evaluating which technologies are appropriate or whether or not individual units would retire or shut down,” she said. “So, that’s still under consideration by the company.”

Asked whether consumers will end up paying higher electricity bills because of the EPA rule, Allen has a ready answer.

“As with everything in the market, yes.”

Most environmental groups have praised the EPA ruling. One leading organization, the Union of Concerned Scientists, is hailing the agency’s move, saying the benefit to public health in limiting smokestack emissions far outweighs the price tag for the pollution controls. But the group adds that the new pollution controls were long overdue.