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The Challenge Of Ensuring Hong Kong’s Energy Supply

Andrew Brandler, Oct 10, 2008 – SCMP

Chief Executive Donald Tsang Yam-kuen’s recent energy deal with Beijing, securing gas and nuclear power supplies for Hong Kong for the next 20 years, is a landmark in the development of the city’s energy policy.

We at CLP Power had been consistently advised for many years that Hong Kong would need to look after its own energy needs as Beijing wrestled with the very real challenge of securing reliable power for the fast-growing mainland cities and provinces. So this deal represents a new, critical development in Hong Kong’s energy policy. This was immediately followed by the Hong Kong government’s statement that the liquefied natural gas terminal project that CLP Power had proposed would not be approved.

CLP Power welcomes Beijing’s support for long-term energy supply. The task ahead is to turn good news into good results and complete the deal on behalf of the Hong Kong people – to secure sufficient gas at the best possible price, and in time for us to replace our declining supplies from the Yacheng gas field in the South China Sea.

It is a measure of Beijing’s good faith in this deal that we have immediately been able to begin detailed discussions with counterparts at the National Development and Reform Commission. But even with this fast start, we are going to face an acute time challenge to make adequate quantities of gas available by 2013.

Hong Kong needs new gas supplies in place then if our Black Point Power Station is to continue providing a significant portion of our power supply, reduce our reliance on coal and enable us to meet lower environmental emissions targets.

As the Yacheng supplies deplete, the deal opens the way to draw gas from three sources: from new gas fields planned to be developed in the South China Sea; from the second east-west gas pipeline bringing gas from Turkmenistan; and, from an LNG terminal to be located on the mainland.

None of these three sources is in place today. However, let us be very clear: Hong Kong’s needs are so substantial that we will need not one or two of these sources to be brought on stream, but all three.

Black Point will be using about 3.4 billion cubic metres of natural gas a year by 2013. In the following decade, as demand for electricity steadily rises and as Hong Kong progressively tightens caps on emissions from local sources, consumption will potentially rise to as high as 6 billion cubic metres by around 2023.

To meet this need, we have been advised that 2 billion cubic metres was planned to come from several new, but smaller, gas fields in the South China Sea to replace Yacheng. If the second west-east gas pipeline can be extended to Hong Kong, we would be able to draw 1 billion cubic metres from this source. With the planned volumes of gas from these two sources, a significant amount of gas will almost certainly need to be sourced from the new LNG terminal in the Pearl River Delta.

Our government’s decision to reject our proposal to build an LNG terminal on South Soko Island means we lose a four-year head start, and face a challenging timetable, as an appropriate mainland site needs to be found and approved, which will involve a rigorous Environmental Impact Assessment.

If we are to meet our targets to ensure power supply reliability over the coming decade, I can’t overemphasise the critical importance of government support and, where necessary, leadership, all the way to completion.

The Memorandum of Understanding is a starting point for meaningful cross-border collaboration in the power sector.

Its implementation and a successful outcome for Hong Kong will depend on the effective collaboration by mainland enterprises with CLP Power, encouraged, enabled and stewarded by our government and the mainland authorities. CLP Power will play its full part.

Andrew Brandler is CEO of CLP Holdings (SEHK: 0002) Limited

Government Gave Power Plant Right To Pollute More

SCMP – Friday October 8 2004

China Light and Power omits certain details in the letter from Daisy Chan (‘CLP has made significant cuts in emissions’, October 6).

Compare the CLP-ExxonMobil coal power plant at Castle Peak to Hong Kong Electric’s most recent Lamma Island coal plant (built in 1997). You will see that CLP has been given the right by Secretary for Labour and Economic Development Stephen Ip Shu-kwan to generate twice the amount of one pollutant (particulates), three times another (nitrogen oxides) and 10 times a third (sulphur dioxide) as the Hong Kong Electric plant.

Moreover, the actual emissions from the Castle Peak plant are kept secret by the government at the request of CLP. At any time since 1997, CLP could have spent a fraction of its profits to clean up this plant, but it has instead waited for seven years – and now it has sent a letter to Mr Ip asking that it be allowed to earn 15 per cent profit on its investment to clean up the sulphur dioxide. This is unconscionable. The Star Ferry only asks seven per cent profit for its shareholders.

And the real question is why Mr Ip has allowed CLP to force us to suffer for seven years when the technology has existed for more than 10 years to reduce the sulphur dioxide by more than 90 per cent.

The public is not allowed to see or have an opinion on CLP’s letter. We believe that we are entitled to know what profits Mr Ip thinks are acceptable to CLP and that he will be hard-pressed to justify more than a seven per cent return for the shareholders of CLP-ExxonMobil, the single biggest polluter in Hong Kong.


Change In Pollution Law Relaxes Controls Over Power Plants

SCMP – Updated on Apr 19, 2008

Legislators are asking why the bill to amend the Air Pollution Control Ordinance does not cap emissions of carbon dioxide from power plants (“Carbon caps for power plants mean high bills”, April 11).

They are missing the point. The bill does not seek to tighten the existing controls over power plant emissions but to relax them.

The ordinance at present allows the Environmental Protection Department (EPD) to set emissions caps for power plants in Hong Kong having regard to:

  • The best practical means for preventing the emission of air pollutants;
  • The attainment and maintenance of the government’s air quality objectives; and
  • The extent to which emissions are prejudicial to health.

The EPD does not need additional legal powers to require the power companies to fit scrubbers and use other “best practical means” for reducing their emissions.

What is new in the bill is the proposal that the EPD should be able to relax emissions caps so that the Hong Kong power companies can buy emissions credits (essentially licences to pollute) under a recognised emissions trading scheme.

The bill would give the power companies the right to appeal if the EPD refuses their application to buy emissions credits.

The bill gives the general public in Hong Kong no right to challenge the granting of an application, even if the increase in allowed emissions would worsen local air quality and be prejudicial to health.

The EPD has promised its counterpart in Guangdong to implement the pilot cross-border emissions trading scheme that they announced in January 2007. It is right that it should do so.

However, it is regrettable that the proposed amendment treats emissions trading as a private matter between the EPD and the power companies and fails to impose any duty on the EPD to exercise its new power with a view to improving air quality in Hong Kong.

David Renton, Repulse Bay

Back To Square One On Energy Roundabout

Updated on Mar 13, 2008 – SCMP

The decision to establish an energy commission brings efforts nearly back to a full circle, writes Eric Ng in the first part of a series looking at reforms

The State Council’s decision to establish a national energy commission instead of a ministry puts China’s energy administrators just short of completing a full circle.

And, as in most government restructuring, it has raised more questions than answers, with bureaucrats still fighting for whatever power they can grab before the dust settles.

“As the power and responsibilities of various regulatory bodies have not been unveiled, it is hard to tell what will be in store for us,” said Xie Yifu, a senior engineer at the planning and development department of China Power Investment Corporation, one of five state-owned electricity firms.

“However, the establishment of the energy commission has elevated the importance and independence of energy in the government structure, which should be positive to the industry as it theoretically would help balance the interests of different energy sectors.”

History suggests reform is a never-ending cycle.

China first established a ministry of energy in 1988, amid strong opposition from leaders in the then ministry of coal. But the “super regulator” only lasted five years and was disbanded in 1993, with the ministry of coal reinstated.

In 1998, the ministry of coal was again hammered, downgraded to the coal industry commission. It was subsequently abolished in 2001.

The former state development planning commission, now the National Development and Reform Commission (NDRC), assumed overall regulation of the oil, gas, power and coal sectors.

Calls for the re-establishment of the ministry of energy surfaced as early as 1999.

It was suggested that it should be complemented by an independent energy regulatory commission, modelled after the United States’ Federal Energy Regulatory Commission, as China explored the deregulation of energy pricing and the establishment of free markets to enhance efficiency.

However, no energy ministry was formed during the last major government reshuffle in 2003. Beijing decided instead to set up the State Electricity Regulatory Commission (Serc), allowing power prices to be the first subject of the deregulation experiment. It maintained its tight grip on petrol and gas prices.

Once again this week, the idea of a ministry was too much for the factions within the energy sectors to swallow. The latest reshuffle involves the amalgamation of functions from the NDRC’s Energy Bureau and the State Council’s Office of the National Energy Leading Group.

The Energy Bureau is responsible for industry policy and setting prices as well as project approvals, while the leading group has taken charge of the drafting of the long-awaited energy law and the mainland’s foreign energy co-operation strategy.

The end result was the abolition of the leading group and the establishment of a symbolic National Energy Commission, with day-to-day execution carried out by a National Energy Bureau under the NDRC.

The bureau has taken on administrative power over the nuclear energy sector, formerly held by the Commission of Science Technology and Industry for National Defence.

The move will help elevate the importance of nuclear energy in China’s power mix as it strives to reduce reliance on coal to address pollution problems. NDRC vice-chairman Zhang Guobao said this week the commission was studying raising the nation’s 2020 target for nuclear generation capacity to 60 gigawatts, up from 40GW.

Analysts said the latest reshuffle was no big deal.

“The change is not substantial. That said, I think the best that came out of this round of reform was the direction for the NDRC to reduce micro-management and projects approval, and to concentrate on macro planning,” said Lin Boqiang , from Xiamen University’s Centre for China Energy Economics Research.

“In most countries, bureaucrats tend to feel that they have power only if they have the right to approve concrete projects. Setting strategy doesn’t give that sort of empowerment feeling,” he said.

How much power will be siphoned off to lower-level governments remains to be seen.

Beijing-based energy consultant Robert Blohm said: “It’s like they are just putting everything in a sketch just to get the approval of the National People’s Congress. The details will come as the fighting [for power] continues.”