Clear The Air Energy Blog Rotating Header Image

Power Plants

Power cuts run deep for HK firms

South China Morning Post — 23 May 2011

Hong Kong manufacturers in the Pearl River Delta are battling to maintain operations in the face of power shortages which are disrupting production and pushing up costs.

Some have complained of power cuts of up to three days a week in Shenzhen and of two days in Dongguan, a production hub, forcing them to resort to dirtier and more expensive diesel generators, and disrupting production schedules.

Key industry bodies have predicted that increasing difficulties in the delta, dubbed the world’s workshop, will force more factories out of business.

Sources close to the Hong Kong Economic Trade Office in Guangdong said the number of Hong Kong factories dwindled to about 35,000 at the end of last year from 39,000 at the beginning of the year and from the 2007 peak of 80,000.

Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong said manufacturers “had their backs to the wall” because of a series of challenges, including power shortages, rising wages and raw material costs, a state policy of upgrading industries, a rising yuan and Middle East political turmoil.

“It is not just difficult,” Lau said. “It is extremely, extremely difficult.”

A manufacturer producing high-fidelity equipment and amplifiers in Shenzhen queried the situation on one social networking site, saying: “How can we survive with suspension of electricity two days a week!”

Ricky Yeung, a manufacturer of high-end cooking utensils under the “Siliconezone” brand, said electricity at his factory in the Boan district of Shenzhen had been suspended every Tuesday, Thursday and Saturday since the start of this month.

The mainland looks set for its worst power shortages since 2004 owing to limited coal supplies. Yeung said the power cuts were also caused by maintenance work at some power plants, and the Shenzhen municipal government had ordered factories and power plants to cut emissions to clear the air before a sports gala for university students in August.

However, these initiatives would not work, because manufacturers, including Yeung, would use diesel-fuelled generators.

“I have no choice but to turn them on,” Yeung said. “I don’t want to because it costs about 1.5 times more than electricity from the power plant.”

Yeung said the power situation was worrying, with the peak production season looming next month.

Lau, who runs a factory near Dongguan producing curtain walls for skyscrapers, said he was faring better, with power cuts only a once a week.

The cuts come as manufacturers are already reeling from a rising yuan. Spot yuan strengthened against the US dollar at 6.4926 on Friday from Thursday’s 6.5039. The yuan has now appreciated 5.14 per cent since it was de-pegged from the greenback in June 2010, and 1.47 per cent since the beginning of this year.

Economists with brokerages such as Morgan Stanley, UBS, Deutsche Bank and Goldman Sachs have predicted that the currency will rise by 5 per cent to 6 per cent this year.

Another blow for manufacturers has been the government’s policy of boosting minimum wages, which are expected to grow by at least 13 per cent annually in the next five years, to drive domestic consumption as the mainland shifts away from exports.

HK on course to reach emission-reduction target

South China Morning Post — 4 Mar 2011

Hong Kong looks likely to reach or even surpass air pollution-cutting targets under a cross-border pact – a payoff for retrofitting the city’s largest coal-fired power plant with emission control devices, said Edward Yau Tang-wah, secretary for the environment.

But it remains unknown whether neighbouring Guangdong has achieved the targets agreed with Hong Kong in 2002. The two sides aimed to cut emissions of major pollutants by 20 per cent to 55 per cent below 1997 levels by 2010.

“Although the final emission figures are still being complied, I am very confident that on our side, Hong Kong will meet or even surpass the targets. I think this is what the public want to see,” Yau said at a ceremony to mark the completion of the emission control project by CLP Power (SEHK: 0002).

CLP Power emissions in 2010 generally fell by 60 per cent compared with the base year 1997, outperforming the reductions required by the government, the company said.

While Hong Kong and Guangdong were still discussing how to further reduce emissions in the next decade, Yau said the next steps for  local power plants were stricter emission caps and a greener fuel mix.

According to CLP Power, emissions at its two operating power stations for three major pollutants last year were 28 per cent to 58 per cent lower than 2009. But it did not provide a breakdown for individual stations.

It said some reductions were made possible by the introduction of low-sulphur coal in 2005. But most of the improvements came from retrofitting four coal-fired generation units, 667 megawatts each, at the Castle Peak Power Station with  devices that can reduce levels of sulphur dioxide, nitrogen oxides and  respirable suspended particles.

The HK$9 billion retrofit equipped the plants with scrubbers that can remove sulphur dioxides by up to 90 per cent and selective catalytic reduction devices that can cut nitrogen oxides by up to 80 per cent.

Three of the four units are now in full operation and the last unit is  expected to start running by this year’s second quarter. The retrofit programme does not cover older generation units with a total of 1,400 megawatts; these units, which date to at least 1982, are near the end of their lifespan.

Richard Lancaster, managing director of CLP Power, said the retrofit had made the power station one of the cleanest coal-fired power plants in the world.

“It is an important milestone in a journey,” Lancaster said, “and the government has set us further milestones: new emission caps in 2015 and fuel mix in 2020, which are challenging targets for us.”

The 2015 cap will require the power supplier to cut emissions by up to 64 per cent below 2010 levels.

The government has also 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 each account for a third of CLP’s electricity.

Asked if the retrofit would be made redundant if coal-fired power generation is to shrink, Lancaster said the retrofit would still be needed in the next 10 years.

8 ways to curb air pollution

South China Morning Post — 18th Feb. 2011

Poor visibility in Hong Kong is mainly caused by photochemical smog.

Under sunlight, volatile organic compounds react with nitrogen oxides to form ozone, which in turn helps in the formation of fine particulates.

The accumulation of ozone, fine particulates and other gaseous pollutants results in photochemical smog.

Smog is harmful to our health, especially for senior citizens and children.

Nitrogen oxides are released when nitrogen and oxygen in the air react together under high temperature, such as in the exhaust of fossil-fuel vehicles and power stations.

Volatile organic compounds are released from sources such as petrol, paints and solvents.

The most effective way to have better visibility in Hong Kong is to curb emissions of both.

What Hong Kong can do locally is: (1) rationalise bus routes; (2) phase out all commercial diesel vehicles and buses of early Euro standards; (3) widen use of electric vehicles; (4) introduce vehicle congestion charges in commercial business districts; (5) make use of low-sulphur diesel mandatory for all vessels entering Hong Kong waters; (6) replace town gas with natural gas for cooking and heating; (7)restrict use of coal to less than 20 per cent of the fuel mix for power generation; and (8) extend the coverage of building energy efficiency regulations to all commercial buildings.

Given that air quality in Hong Kong is significantly subject to cross-border influence, it is imperative that the Guangdong provincial government also align itself with the best practices in the world to curb emissions from its power, transport and industrial sectors.

Rising fuel costs and cleaner energy force up power charges

South China Morning Post — 15 Dec. 2010

Hong Kong’s power charges will rise by about 2.8 per cent next year, spurred by a double-digit rise in fuel costs this year, an expected similar increase next year and moves by the two power companies to burn more clean fuel.

On January 1, the price per kilowatt hour of electricity will go up from 91.5 to 94.1 cents for CLP Power (SEHK: 0002) customers and from 119.9 to 123.3 cents for Hongkong Electric (SEHK: 0006) users.

It is CLP Power’s second increase and Hongkong Electric’s first since a revamp of their profit scheme in 2009 that led to tariff cuts of 3 and 5.9 per cent respectively. Last year CLP Power imposed a 2.6 per cent rise, while Hongkong Electric froze charges.

Both still regard their charges as among the lowest in the world but are cautious about the outlook as they forecast gas and coal prices will continue to rise. Further uncertainties are created by the move to use more gas and possibly more imported nuclear energy in the next decade.

Lawmakers asked why the two firms, which have been making huge profits, could not have avoided the increase to ease the inflationary pressures facing the public.

But government economists estimate that the increase will have only a negligible impact on inflation and business costs, pushing up the composite consumer price index by just 0.005 of a point in the next year.

Secretary for the Environment Edward Yau Tang-wah said the increase had been “suppressed” to the lowest possible level.

“The original proposed tariff increases were far higher than what we have now,” he said without disclosing the levels.

Coal prices surged by 30 per cent this year and gas prices showed a double digit growth, the firms said.

They said the increase, in response to higher fuel costs, would have no effect on their profits. But both said they looked set to grab the maximum return of 9.99 per cent on their net fixed assets in the next year.

While the tariff gap between CLP Power and Hongkong Electric largely remains at 30 per cent after adjustment, the latter will next year cut the basic tariff rate – reflecting the capital expenditure on power generation and transmission – by 1.4 cents per kilowatt.

“This is done to mitigate the impact of the fuel price increase,” said Tso Kai-sum, group managing director of Hongkong Electric, who pointed out that the company had just doubled its gas use to 30 per cent of the fuel mix this year.

CLP Power managing director Richard Lancaster said the company could not afford such a cut, as it had many investments to make on power infrastructure, such as new railway lines and the Kai Tak development, which falls within its supply area of Kowloon and the New Territories.

The two executives also briefly touched on the proposed expansion of nuclear energy imported from the mainland. Lancaster said nuclear energy was relatively stable in cost and that to satisfy half of the power needs with nuclear energy, as proposed by the government’s climate change action strategy for 2020, at least two 1,000 megawatt generating units would have to be built. A quarter of the city’s power comes from the Daya Bay nuclear plant, which is partly controlled by CLP Power.

Tso also indicated an interest in nuclear energy imports but said more studies were needed to assess the impact on tariffs and how the electricity could be transmitted.

Greenpeace said that expanding nuclear energy intake would make redundant expensive investments needed to cut pollution from coal-fired generation units.

Friends of the Earth urged the government to address the “systemic” problem in the firms’ regulatory regime that discouraged them and the public from saving energy.

The firms can earn more by making bigger capital investments, thus boosting the net assets upon which their returns are based

Blackout woes for plants in Dongguan

city-in-blackoutLast updated: April 7, 2010

Source: South China Morning Post

Severe drought results in power rationing

The devastating drought in the southwest is forcing once-a-week blackouts at Dongguan factories due to power shortages from the nation’s hydroelectric dams.

Since April 1, Hong Kong manufacturers say power supplies have been suspended one day each week in Dongguan, and some expect the mandatory rationing will spread to industrial towns in Shenzhen.

Several factory owners said they were left with little choice but to generate their own electricity through diesel-powered generators, a dirtier and more expensive alternative.

Some warned that the supply crunch could balloon into a crisis next month, when the peak-production season begins. This would exacerbate recent challenges such as labour shortages, soaring raw material costs and wages, a possible appreciation in the yuan and weak demand in the United States and Europe.

“The export sector improved obviously in the first quarter, but new challenges come from all fronts now,” Toys Manufacturers’ Association of Hong Kong vice-president Yeung Chi-kong said yesterday. “Some costs such as electricity are rising so fast and are beyond our control that it will be lucky if a factory doesn’t lose money.”

To keep production lines moving, Yeung, who is also vice-chairman of toy exporter Blue Box Holdings, said the company’s factory in Dongguan was forced to produce its own electricity, which cost 30 per cent more than power from the state supplier.

He estimated that higher fuel costs, together with about a 21 per cent rise in the minimum monthly wage in Dongguan to 920 yuan (HK$1,046.70) and at least a 20 per cent jump in prices of plastics and paper-packaging materials, would in turn jack up overall operating costs by 5 per cent.

This would erode the factory’s wafer-thin profit margin, he said. “We are trying to pass the extra costs on to customers, but so far they are bargaining extremely hard,” Yeung said.

The once-in-a-century drought ravaging Yunnan, Guangxi and Sichuan provinces has hobbled hydropower plants, which have reduced electricity supplies to Guangdong by about 23 per cent in the first three months of this year.

Electricity from the western provinces supplies about one-third of Guangdong’s power needs.

The Guangdong provincial government placed priority on supply to residential users, and discouraged consumption by energy-consuming industries such as electroplating and cement and steel production. The province signed agreements last month with Hong Kong supplier CLP Power (SEHK: 0002), which will export more power across the border, particularly in summer.

Wilson Shea Kai-chuen, a premium product manufacturer in Dalong in Shenzhen and vice-chairman of the Hong Kong Small and Medium Enterprises Association, said he expected compulsory power blackouts would begin in a few weeks, when the busy season begins.

He said that on April 1, state supplier China Southern Grid recommended factories in Dalong suspend operations a day every week or minimise power consumption.

Dennis Ng Wang-pun, the managing director of exporter Polaris Jewellery, said electricity supply in Panyu in Guangdong remained normal but warned that the electricity crunch would come on top of labour shortages.

His factory in Panyu, which has about 400 workers processing jewellery, was still short of about 100 workers, Ng said. He said new orders improved in the first quarter from the same period last year, at the height of the global financial crisis, but shoppers’ appetite remained weak.

“I don’t see a marked improvement in demand in the US until the second half,” he added.

Letters to the Editor: Expensive, unsightly wind farms will have tiny impact on carbon footprint


Last updated: March 21, 2010

Source: South China Morning Post

I refer to the article concerning the plans by power firms’ CL Power and Hongkong Electric (SEHK: 0006) to pump HK$10 billion into offshore wind farms (“Clearly inadequate”, March 14).

I have to question the wisdom of these proposals.

Not content with defacing Lamma with the Hongkong Electric power plant which was constructed in the 1980s, these companies now want to despoil great tracts of sea near some of Hong Kong’s beautiful outlying islands with gigantic wind farms – one between Lamma and Cheung Chau and the other off Sai Kung.

As the article effectively confirmed, the economics concerning these options just do not make sense: “So, for about HK$10 billion, the two wind farms would produce at best about 1.5 per cent of Hong Kong’s electricity and reduce its carbon dioxide emissions by less than 2 per cent.” Therefore, they will do little to make the city greener or its skies cleaner and they will have a negligible effect on the city’s carbon footprint and air quality.

If it really is necessary to satisfy the political desire to meet the 2005 report produced by the Council for Sustainable Development for 1 to 2 per cent of Hong Kong’s electricity to be generated by renewable energy by 2012 by focusing on the wind farm method, then a more appropriate location for locating the wind farms should be chosen.

Somewhere such as, for example, the southwestern coast of the New Territories where the existing power stations of Black Point and Castle Peak are located may work.

Even wind turbines around Castle Peak itself may be more of an acceptable eyesore than ruining the view near Lamma, Cheung Chau and Sai Kung.

A far better solution is to ditch the idea of wind farms altogether.

With the cleanest power from an air pollution perspective being nuclear, we should instead source what Hong Kong needs from the mainland’s future nuclear power stations that the central government plans to build.

What is required is a leap of imagination.

Unfortunately it is not to be found with the wind farm proposals that have been put forward.

Nick Seymour, Kennedy Town

Emissions rise, but CLP vows to meet targets

emissionsLast updated: March 11, 2010

Source: South China Morning Post

CLP Power emitted more air pollutants and greenhouse gases last year as a result of more coal burning, but was confident of meeting the more stringent emission targets this year.

The city’s largest electricity supplier still complies with the 2009 emission caps set by the Environmental Protection Department, though the emission of three main air pollutants – nitrogen oxides, sulphur dioxide, and particulate mattergrew by 6 per cent, 20 per cent and 30 per cent respectively last year.

The carbon dioxide released by local power generation also rose by 6 per cent, to 19 million tonnes.


Clearly inadequate — Power firms plan to pump HK$10b into wind farms, but they’ll do little to make the city greener or its skies cleaner

South China Morning Post — 14 March 2010

Hong Kong’s two power companies are planning to spend HK$10 billion on offshore wind farms, but it will do little to reduce carbon emissions or clean the air, environmental scientists say.

CLP Holdings, Hong Kong’s largest power company, plans to build what will be one of the biggest offshore wind farms in the world – generating 200 megawatts a year – at a cost of almost HK$7 billion.

The wind farm, located 10 kilometres off Sai Kung and comprising 67 wind turbines 120 metres high, will produce less than 1 per cent of Hong Kong’s electricity output and reduce its carbon dioxide emissions by 1.4 per cent.

Meanwhile, Hongkong Electric Holdings recently submitted an environmental impact assessment for a HK$3 billion wind farm to be built between Lamma Island and Cheung Chau that would generate 100MW of power – enough for 50,000 households.

The government has already passed the impact assessment for CLP’s wind farm, but the Hongkong Electric project is still awaiting approval.

Hongkong Electric says the project would produce the equivalent of 1 to 2 per cent of its current electricity output for the city – about 0.25 to 0.5 per cent of Hong Kong’s total electricity consumption.

The company says the project would enable it to reduce the amount of coal it burns by 62,000 tonnes a year and as a result reduce its carbon dioxide emissions by 150,000 tonnes a year.

Hong Kong generated 43.4 million tonnes of emissions in 2007, according to the International Energy Agency. That means Hongkong Electric’s wind farm would cut the city’s CO2emissions by 0.4 per cent. So, for about HK$10 billion, the two wind farms would produce at best about 1.5 per cent of Hong Kong’s electricity and reduce its carbon dioxide emissions by less than 2 per cent.

“If people believe that wind farms will make a serious contribution to reducing Hong Kong’s carbon emissions, they are misinformed,” says Bill Barron, who teaches in Hong Kong University of Science and Technology’s environment department.

Although carbon dioxide is a greenhouse gas, it is invisible and does not contribute to Hong Kong’s dirty air. At the atmospheric level, as opposed to street level, the city’s air is polluted by regional smog, which the Environmental Protection Department says is caused by emissions from transport and power stations in the Pearl River Delta and Hong Kong.

Most of the locally generated pollution is produced by the two power companies – the worst pollutants being sulphur dioxide and nitrogen oxides, neither of which are listed in the Kyoto Protocol as greenhouse gases. They are considered local pollutants.

Hong Kong and the Guangdong provincial government in April 2002 reached a consensus to reduce sulphur dioxide, nitrogen oxides, respirable suspended particulate and volatile organic compounds in the Pearl River Delta by 40, 20, 55 and 55 per cent, respectively, from 1997 levels by 2010, These are the government’s main emissions targets.

Hongkong Electric says that as a result of burning less coal, its wind farm would reduce emissions of sulphur dioxide and nitrogen oxides by 520 and 240 tonnes, respectively. Based on Hong Kong’s 2007 emissions, this would amount to a reduction in emissions of sulphur dioxide and nitrogen oxides by 0.8 and 0.25 per cent respectively. CLP says its wind farm will reduce sulphur dioxide by 54 to 60 tonnes, and nitrogen oxides by 394 to 440 tonnes.

In total, Hong Kong’s wind farms would reduce sulphur dioxide emissions by about 0.8 per cent and nitrogen oxides by about 0.7 per cent.

So why are Hong Kong’s power companies spending so much money on projects that will have a negligible effect on the city’s carbon footprint and air quality?

The wind farms are in part a response to the target set out in the government’s First Sustainable Development Strategy for Hong Kong, released in 2005.

This report – produced by the Council for Sustainable Development, whose chairman was the then chief secretary, Donald Tsang Yam-kuen – called for 1 to 2 per cent of Hong Kong’s electricity to be generated by renewable energy by 2012.

But the power companies are not legally bound by this government target.

The other key driver for the power companies to build offshore wind farms in Hong Kong is the scheme of control, the regulatory framework which governs them.

Unlike most developed countries – which have open and competitive arrangements for the production and distribution of power – Hong Kong still clings to the scheme of control system introduced in the 1960s that allows the city’s power companies to operate as two separate monopolies.

Around the same time, the government also granted monopoly franchises to the bus, power and telecoms sectors. Hong Kong’s economy was developing fast, and the government wanted to encourage badly needed investment in electrification in order to support growth.

It wanted to guarantee a stable power supply and provide incentives to power companies to make long-term investments in Hong Kong.

The scheme turned Hong Kong’s electricity market into one of the most profitable in the world. The scheme is reviewed and renegotiated every 10 to 15 years. The current scheme of control began last year.

The previous scheme permitted the power companies to earn an annual rate of return on depreciated net assets of 13.5 to 15 per cent – double the rates of markets such as Australia and Britain.

Before the previous scheme of control expired in October 2008, the idea of abandoning the scheme was floated, along with introducing third-party competitors from the mainland.

At the same time, power companies came under fire from business, which said the utilities charged too much for their power compared with other countries. The utilities were also blamed for their perceived part in air pollution, which became a subject of serious concern within the community around 2004.

These factors helped the government to negotiate the current scheme of control on less favourable terms for the power firms.

It will run for 10 years rather than 15 and has a lower permitted rate of return – 9.99 per cent – on assets that use conventional resources such as coal and gas to generate electricity.

The current scheme also differs from its predecessor in that it allows a return of 11 per cent on renewable energy assets and includes financial incentives for exceeding emission targets or fines for failing to reach them.

But the scheme of control’s key characteristic remains – it encourages power companies to overinvest in assets. The more assets a company has, the more it is allowed to earn.

“Under the scheme of control they can gold-plate the power station, which is why we have so much excess generating capacity,” says Simon Powell, head of sustainable research at CLSA.

The result is that Hong Kong has a Rolls-Royce power supply, with the companies maintaining 50 per cent more capacity than needed to meet peak demand.

So Hongkong Electric has peak demand of 2.5 gigawatts but has the installed capacity to produce 3.7GW of electricity, while CLP has peak demand of 6.5GW and a capacity of 13.6GW.

The power plants run at about 55 per cent of their capacity.

That means Hong Kong has a highly robust power supply and rarely suffers blackouts. It also means that its tariffs are somewhat higher than places such as Singapore and Britain, but cheaper than Tokyo.

So Hong Kong’s power companies have no need for additional generating capacity and CLP on occasion sells power to the mainland from its Hong Kong plants.

However, the lower permitted returns under the current scheme of control have resulted in significantly lower earnings for the power companies. CLP’s 2009 net profit fell by 12.9 per cent to HK$8.5 billion. Earnings from its Hong Kong business fell 21 per cent, despite a 1.7 per cent increase in local sales. Hongkong Electric’s 2009 net profit declined 17 per cent to HK$6.7 billion from HK$8.03 billion in 2008.

Building wind farms offers power companies a modest increase in assets while generating a good rate of return.

The cost of producing 1MW of electricity from offshore wind farms is three to five times the cost of producing 1MW from coal, which, from a scheme of control perspective, makes them attractive.

“From an internal rate of return perspective, wind farms are a very profitable proposition,” Powell says.

While wind farms would boost the firms’ earnings, some analysts say it is unlikely tariffs would also rise, which adds to the appeal since it reduces the likelihood of public and Legislative Council criticism and increases the chances of government approval.

Other experts are not so sure.

Pierre Lau, managing director and head of Asia-Pacific Utilities Research with Citi, estimates Hongkong Electric’s capital investment will increase from HK$48 billion to HK$51 billion by the end of 2015, even without building the wind farm.

“Before calculating the wind farm investment, the additional capex [capital expenditure] will allow Hongkong Electric to increase tariffs by about 5 per cent,” he said.

“If we include the HK$2.5 to HK$3 billion wind farm project, there can be another 6 per cent rise in electricity costs.”

Hongkong Electric spokeswoman Elaine Wong would not say whether the company would raise tariffs in the next few years. She said spending on the wind farm would occur in phases so the impact on tariffs would be limited. “In addition, as no fuel will be required, costs should be saved,” Wong said.

The Environment Bureau said it had not yet received an investment proposal from Hongkong Electric, but the government would consider a range of factors – including environmental impact, tariffs, renewable energy policy and economic benefits – in making its decision on the wind farm.

“It is our objective to promote wider use of renewable energy while protecting consumer interests,” the bureau said.

While some are cynical about the motives of the power companies, analysts say they are behaving in the best interests of their shareholders.

“They are following the price signals and policy targets set by the government,” says Stephen Oldfield, a utilities analyst with UBS.

Critics say the government’s renewable energy targets are little more than window dressing in response to criticism that it is doing little to move Hong Kong in the direction of a sustainable economy in a world moving increasingly in this direction.

“They [wind farms] look good in brochures and improve the government’s image when it speaks at international forums,” one analyst said.

Others are more charitable towards the government, saying it is not in a position to do much given that Hong Kong does not have much space for large solar panels, or have lots of agricultural waste for generating biomass power.

“If you want a renewable energy target then building some offshore wind farms is probably the best you can do in Hong Kong,” Oldfield says.

But analysts say that if the government is serious about reducing emissions it needs to do more than build a few wind farms. Most believe this means speeding up the replacement of coal with gas-fired power stations. Natural gas produces half the CO2 and nitrogen oxides emitted by coal burning and produces hardly any sulphur dioxide.

But it is roughly twice the price of coal. The higher fuel costs, together with the cost of installing gas turbines or retrofitting coal-fired turbines, will put more upward pressure on tariffs.

Arguably, Hong Kong has been slow to do what Europe has done in moving to gas as a base load supply and using coal for peak requirements. But there have been concerns over the reliability of supply in Hong Kong.

CLP, which steadily reduced its emissions of pollutants in the 1990s, had to increase coal generation after it became concerned that the gas reserves on which it relied from a field off Hainan were being depleted faster than expected.

Analysts say there is now ample supply, with Hongkong Electric already getting supplies via a pipeline from southern China. CLP will also start getting gas piped in from the mainland for its Castle Peak power station over the next few years.

But the cleanest power from an air pollution perspective is nuclear, since it produces near zero emissions.

In September last year, the government approved the extension of CLP’s contract with the Guangdong Daya Bay nuclear power station for another 20 years.

Under the current contract, which expires in 2014, CLP receives 70 per cent of the power station’s output – about one-third of CLP’s power supply and about a quarter of Hong Kong’s total consumption.

It is possible Hong Kong could get electricity from future nuclear power stations being built on the mainland.

The combined generating capacity of both companies is currently 65 per cent coal and 25 per cent gas. But given overcapacity, the actual breakdown is different.

The power firms are also in the process of fitting scrubbers to their coal-fired units, which reduce emissions of pollutants such as sulphur dioxide and nitrogen oxides but increase carbon dioxide emissions since they use more fuel.

It is clear that Hong Kong does not need the additional capacity of wind farms and that replacing coal with gas or nuclear power would be significantly more effective than wind in cutting carbon emissions.

Some analysts say the scheme of control should have been restructured to give power firms a higher rate of return for using gas instead of coal. Hong Kong-based think tank Civic Exchange said in its analysis of the current scheme of control that the government has failed to deliver an integrated energy policy. “As a result, it is unclear how the revised scheme of control will support other policy initiatives,” Civic Exchange said. “This represents a missed opportunity in terms of ensuring that the electricity companies are rewarded for supporting goals that are important to Hong Kong society.”

But radical changes to the scheme of control and the way power firms operate are difficult for the government to enact since they involve taking on vested interests such as the Kadoorie family that controls CLP and Li Ka-shing, who controls Hongkong Electric.

Barron is unimpressed with the government’s commitment to renewable energy and emissions reduction. He says green credibility is much easier to get via the power firms than by, for example, requiring lower plot ratios or spaces between buildings for land sales. “I don’t see them, for example, planning infrastructure for a warmer climate and more expensive energy,” he said. “That’s too big a step for them because they can’t be bothered yet to be doing that.”

Lamma Island power station cleans up its act to meet pollution-reduction targets

Austin Chiu, SCMP

Hongkong Electric (SEHK: 0006) has installed new equipment at its Lamma Island power station, marking the completion of the first phase of a HK$1 billion project aimed at reducing emissions of gases that contribute to smog and acid rain.
The first phase of the project included the installation of a flue-gas desulfurisation system, which cuts sulfur dioxide emissions, and a burner system designed to produce less nitrogen oxides. The new kit is expected to reduce emissions of sulfur dioxide by 45 per cent and of nitrogen oxides by 23 per cent.

Two more desulfurisation systems and another low-nitrogen-oxides burning system are to be installed by April.

The new desulfurisation equipment, using German technology, can remove 92 per cent of the sulfur dioxide content from coal smoke. The low-nitrogen-oxides burner system, from the US, cuts production of the gases by 60 per cent.

The firm also expects to boost the proportion of its power output produced by burning liquefied natural gas to 30 per cent by January, after the conversion of an oil-fired generating unit. It already has one LNG-powered generator.

Burning LNG does not produce sulfur dioxide or respirable suspended particles, so increasing its use would mean lower emissions, said Tso Che-wah, the company’s general manager for projects.

“With the emission-reduction programme, together with our plan to increase gas-fired generation to around 30 per cent, we are confident of achieving the government’s 2010 emissions targets,” Dr Tso said.

The government has set a target of cutting sulfur dioxide emissions by 45 per cent from 1997 levels. It wants to reduce emissions of nitrogen oxide by 20 per cent and of respirable suspended particles and volatile organic compounds both by 55 per cent.

Dr Tso also said the company was working on the environmental- impact assessment for its proposed wind farm off Lamma Island, which would comprise 35 wind turbines with a generating capacity of 100 megawatts. The proposal would be ready for public consultation by the end of the year, he said.

Meanwhile, the Advisory Council on the Environment yesterday approved CLP Power (SEHK: 0002)’s proposal to build a wind farm off Sai Kung on the condition that it increase fisheries resources, maintain close contact with the fishery industry and strengthen environmental monitoring.

Can China Clean Up Its Act?

BusinessWeek by Adam Aston – May 14, 2009


Beijing has big plans to curb pollution and start a cleantech industry. But the global recession and looming trade frictions will test its resolve

China’s unprecedented growth in recent years has come at a terrible price. Two-thirds of its rivers and lakes are too polluted for industrial use, let alone agriculture or drinking. Just 1 in 100 of China’s nearly 600 million city dwellers breathes air that would be considered safe in Europe. At a time when arable land is in short supply, poisoned floodwaters have ruined many productive fields. And last year, ahead of most forecasts, China passed the U.S. to become the world’s largest source of greenhouse gases.

The immensity of these troubles has produced a result that may surprise many outside China: The nation has emerged as an incubator for clean technology, vaulting to the forefront in several categories. Among all countries, China is now the largest producer of photovoltaic solar panels, thanks to such homegrown manufacturers as Suntech Power (STP). The country is the world’s second-largest market for wind turbines, gaining rapidly on the U.S. In carmaking, China’s BYD Auto has leapfrogged global giants, launching the first mass-produced hybrid that plugs into an electrical outlet. “China is a very fast follower,” said Alex Westlake, a director of investment group ClearWorld Now, at a recent conference in Beijing.


Understanding they are in a global race, China’s leaders are supporting green businesses with policies and incentives. Beijing recently hiked China’s auto mileage standards to a level the U.S. is not expected to reach until 2020. Beijing also says it will boost the country’s share of electricity created from renewable sources to 23% by 2020, from 16% today, on par with similar targets in Europe. The U.S. has no such national goal.

While most environmentalists applaud these developments, China watchers are voicing two very different sets of concerns. Some question whether China will really stand by its ambitious targets and are worried by signs of backsliding as the recession in China’s key export markets drags down economic growth. Another group, interested mainly in America’s own industrial future, fears that China’s growing dominance in certain green technologies will harm budding cleantech industries in the U.S. After all, China’s emergence comes just as the Obama Administration is trying to nurture these same types of ventures, hoping to generate millions of green jobs. Many of these U.S. businesses will have trouble holding their own against low-price competitors from China.

Beijing’s green intentions will soon be put to the test. China is in the midst of the biggest building boom in history. A McKinsey & Co. study estimates that over 350 million people—more than the U.S. population—will migrate from the countryside into cities by 2025. Five million buildings will be added, including 50,000 skyscrapers—equal to 10 New York Cities. And as quickly as new offices and houses multiply, they are filled with energy-hungry computers, TVs, air conditioners, and the like, sharply increasing demand for electricity, which comes mainly from coal-powered plants.

Environmental groups say it is therefore critical that Beijing promote rigorous, greener standards. And to some degree, that’s happening. A government mandate states that by the end of next year, each unit of economic output should use 20% less energy and 30% less water than in 2005. Portions of Beijing’s $587 billion economic stimulus package are earmarked for cleantech. On top of that, in March the Finance Ministry unveiled specific incentives to spark solar demand among China’s builders. Included was a subsidy of $3 per watt of solar capacity installed in 2009—enough to cover as much as 60% of estimated costs to install a rooftop solar array.

Steps like these will help Himin Solar Energy Group in Dezhou, Shandong Province. Founded in 1995 by Huang Ming, an oil equipment engineer turned crusader against the use of fossil fuels, the company is the world’s largest producer of rooftop piping systems that use the sun’s rays to heat water. Its eye-catching headquarters, the Sun-Moon Mansion, showcases these heaters, which Himin cranks out in immense volumes—about 2 million square meters’ worth each year, equal to twice the annual sales of all such systems in the U.S. Because its water heaters sell for as little as $220, they are becoming standard in new housing complexes and many commercial buildings across the country.

Broad Air Conditioning, based in Changsha, Hunan Province, is also set to profit as Beijing pushes toward its green targets. By using natural gas and so-called waste heat from other machines and appliances instead of electricity, Broad’s big chillers can deliver two to three times more cooling per unit of energy than a conventional unit. In a similar fashion, Haier, headquartered in Qingdao, Shandong Province, combines low-cost manufacturing and a variety of advanced technologies to create affordable, energy-sipping refrigerators and other appliances. During the 2008 Beijing Olympics, Haier supplied more than 60,000 such devices for visiting athletes and tourists to use.

As these and other domestic players bump up against technological obstacles, they can draw on the expertise of many of the world’s top multinationals. In return for access to its domestic market, Beijing asks such companies as General Electric (GE), DuPont (DD), 3M (MMM), and Siemens (SI) to share their technology, help upgrade their China-based supply chains, and spread industrial processes to make manufacturing more efficient. These aren’t simply green practices, says Changhua Wu, Greater China director of the Climate Group, a consultancy in London that partners with companies to combat climate change. “They’re best practices.”

GE, for example, has transferred expertise to Chinese partners in everything from wind turbine construction to the building of low-pollution factories. At the Beijing Taiyanggong power plant, waste heat from the combustion process is recycled, resulting in around 80% efficiency, more than double the rate of most conventional power plants in the U.S. The bulk of GE’s sales of turbines for power plants in China are the ultra-efficient models. David G. Victor, a Stanford University professor who has studied China’s electric grid, says some of the coal plants being built there are “much more advanced than those we see in the U.S.”

Wal-Mart Stores (WMT), which buys some $9 billion worth of goods in China each year from some 20,000 vendors, infuses its supply chain with the latest ideas about energy efficiency. For example, Chinese factories that work with Wal-Mart are obliged to track vast quantities of data on energy use and make the information available for audits. “Many Western companies can’t track their own energy consumption,” says Andrew Winston, consultant and co-author of the book Green to Gold.

China’s early achievements in cleantech owe a lot to collaborations such as these. The benefits: China cleans up its own pollution, and the government-backed initiatives in solar and wind help drive down the cost of renewable energy systems in countries around the world.

But there is a downside. The rock-bottom prices for made-in-China green technology could make it impossible for cleantech ventures in the U.S., Europe, or Japan to compete. How, for example, will they go up against Suntech Power, based in Wuxi, Jiangsu Province, the world’s lowest-cost manufacturer of standard solar panels? The U.S. boasts plenty of advanced technology. But any efforts by Washington to nurture this sector could be quickly undercut by a flood of Chinese-made solar panels. Such a deluge is likely if there is a big increase in public subsidies for rooftop solar systems. “What [that would] do is create 10,000 Chinese jobs,” says Roger G. Little, chief executive of Spire Corp. (SPIR), a leading U.S. maker of manufacturing equipment for photovoltaics. “If we import all the [solar] modules, it will obliterate U.S. manufacturing” in this area.

A similar scenario exists in the much heralded area of electric vehicles. BYD, headquartered in Shenzhen, started selling its first plug-in hybrid, the F3DM, last year. It beat Toyota (TM) and General Motors (GM), both of which are developing such “plug-ins,” and hit the market with a price tag they probably can’t match: just $22,000. Henry Li, a BYD general manager, says the company will roll out a version of the car in the U.S. in 2011. Chevy’s answer to this car, called the Volt, is expected to cost about twice as much and won’t be out until next year.

How did BYD pull off this coup? Part of it is just being the new kid on the block. Today’s automobiles, with their advanced combustion engines, are the most complex mass-produced goods ever made, assembled from thousands of highly engineered parts provided by a web of suppliers. It’s difficult for a Chinese startup to compete on such a sophisticated playing field. But the emergence of a new, green-vehicle category clears the way. BYD was able to break in by leveraging its background as a battery maker. When it ran into technical hurdles, the company could draw on a deep pool of inexpensive, well-trained talent at China’s top engineering schools. BYD is also a leader in pure electric vehicles, the logical next step. The government is now putting some muscle behind BYD’s push. It is heavily subsidizing electric-car sales in about a dozen cities—in a stroke, making China the world’s biggest market for such advanced vehicles. Its goal is to boost domestic output of battery-powered vehicles to a half million per year in 2011.

How Washington and the beleaguered U.S. auto sector might respond to a wave of inexpensive electric vehicles from China is difficult to predict. And it is also unclear how China’s cleantech efforts in cars, energy, and other areas will be affected if key markets such as the U.S. and Europe don’t recover quickly from the recession. Chinese makers of solar photovoltaics, including Suntech, export about 98% of their production. They have been battered this year by a collapse in demand in Germany, Spain, and Japan, China’s top markets for solar gear. Suntech’s factories are currently running at half of last year’s capacity.

Even inside China, academics and business executives say Beijing needs to do more to bolster cleantech initiatives and make them recession-proof. For example, without better information on how such policies as the current Renewable Energy Law are to be enforced, “many of the terms are meaningless,” complains Himin’s Huang. And even when the terms are clear, companies don’t always adhere, says Zhou Weidong, the Guangzhou-based China director at the Business for Social Responsibility, a global consultancy promoting sustainable business practices: “Paying penalties is cheaper than complying with the law in many areas.”

At times, it seems as though Beijing is pedaling in the wrong direction. Late last year, China’s Environmental Protection Ministry loosened review standards on potentially polluting industrial projects. In an economic crunch, “environmental protection is downplayed to second, or third, or even fourth priority,” observes Guo Peiyuan of SynTao, a corporate social responsibility advisory firm in Beijing.

While acknowledging there has been some backsliding, most China watchers say the government is unlikely to stage a full-throttle retreat. Too much of its export growth is contingent on meeting strict environmental regulations. And Beijing recognizes that Chinese society can’t tolerate much more environmental degradation. The World Bank estimates damage from pollution—everything from decimated fisheries to premature human death—saps nearly 6% of China’s gross domestic product each year as well. For economic reasons alone, it will be difficult for China to turn back the clock.

with Charlotte Li and Pete Engardio

Aston is Energy & Environment editor for BusinessWeek in New York.