Clear The Air Energy Blog Rotating Header Image

March, 2010:

Environment questions for Undersecretary of the ENB remain uinanswered

3d human with a red question markClear the Air says:

This week we had the dust cloud from China sending our already high pollution levels off the scale.

An EPD spokesman on 22nd March stated that they had instructed the power companies to burn gas to try and alleviate the air quality. The statement was made by Mr Mok Wai Chuen, Assistant Director of Environmental Protection.

On 23rd March 2010 Mr James Middleton from Clear the Air’s Energy Committee called the Backchat program and asked why, if the EPD can direct CLP and HKEH to use gas this week, could the EPD not dictate to the power companies to use gas all the time instead of polluting coal. ‘Well, we do not have enough gas’ was Mr Mok’s reply.

Listen to the program here:

http://programme.rthk.org.hk/channel/radio/programme.php?name=/backchat&d=2010-03-23&p=514&e=105932&m=episode

Look at our (unanswered) query to EPD below in October 2008.

From: James Middleton [mailto:dynamco@netvigator.com]
Sent: Tuesday, October 21, 2008 10:08 AM
To: ‘enquiry@enb.gov.hk'; ‘katharinechoi@enb.gov.hk’
Cc: ‘hrmrajh@hkucc.hku.hk'; ‘chair@cleartheair.org.hk'; ‘Mark Hunter'; ‘communications@cleartheair.org.hk’
Subject: Environment questions for Undersecretary of the ENB

Dr. POON Kit, Kitty, JP

Under Secy for the Env

2594 6703

enquiry@enb.gov.hk

Dear Ms Poon

It seems your predecessors did little for HKG’s environment.

We agree we need to burn more gas. The numbers below showing CLP’s decline in gas use from 1999 are horrendous as is the massive increase in coal use.

So Ms Poon, where will the gas come from ? We need 6 billion m3 to produce 50% of what is now generated. More would be better so the additional product could be sold to Guangdong power net to reduce the use of high sulphur backup generators used over the border. Having an MOU is great ; we believe CLP is currently negotiating to take 80% of Daya Bay output instead of 70% but the gas supply will leave a void until the proposed pipeline supply and LNG terminal appear. That means more coal.

Please see our queries below that unfortunately were not read out today on Backchat.

We totally agree with Professor Hedley’s letter below. To use the recommended WHO non developed entry levels adopted in the Democratic Republic of Congo are hardly appropriate for Hong Kong and a sham. It should not even be considered as a starting level.

If this morning’s program had run for 3 hours we would have still been out of time as the emotive statements showed clearly that the people have had enough and Government should act now, not have a consultation as to whether another consultation on the proposed consultation is required.

People want action not words and a non N-A-T-O administration – No Action Talk Only.

Our major environment problem is summed up simply –

– locally burning coal with the ESP in the stacks incapable of catching the PM2.5 emissions unless they fit agglomerators – for the price of 17 days’ coal CLP could add a further 15 agglomerators at Castle Peak and catch the PM2.5. HK Electric is even dirtier than CLP.  Simply – enact a new PM2.5 AQO to at least USA standard if WHO standard is deemed currently beyond reach for whatever reason.  Once you make the AQO standard the power companies will comply. The technology is there. Only now are our local  power companies fitting FGD and NOx burners to meet the 2010 standards.

– local inefficient old diesels – well taxation should get the message across that they need to scrap these vehicle and replace them with at least Euro 4 machines.

Yes we can say we get pollution blown in from PRD for half the year but a vast amount of pollution is created locally and the cure is available.

regards

James Middleton

The toxic legacy of Texaco-Chevron in Ecuador – Sign the petition

chevron-toxico

Support justice for the rainforest communities of Ecuador!

Over three decades of oil drilling in the Ecuadorian Amazon, Texaco (now Chevron) dumped more than 18 billion gallons of toxic wastewater into the rainforest, creating an environmental tragedy experts call “the Amazon Chernobyl.” This systematic contamination has left tens of thousands of local indigenous people and campesinos suffering an epidemic of cancer, miscarriages, birth defects and other ailments. The residents of the rainforest region, known as the Oriente, have filed a monumental lawsuit to hold Chevron accountable, and an international solidarity campaign is supporting their demand for justice.

Help us pressure Chevron to do the right thing in Ecuador. For a good, informative background on the issue, watch this watch this 60 Minutes investigation called “Amazon Crude.” Then, join me by signing the petition to incoming CEO John Watson, urging him to do the right thing in the Ecuadorian Amazon by funding a full-scale environmental clean up.

You can also this recent article in influential Washington news outlet Politico, detailing the ways in which Chevron’s aggressive attempts to evade responsibility for its mess in the Amazon are increasingly backfiring.

The Clean Up Ecuador Campaign at Amazon Watch is working hard to secure justice for the rainforest communities of Ecuador. Check out ChevronToxico.com to learn more about how you can help.

(more…)

Finding the American Dream in China

ObamaoFirst published: February 5, 2010

Source: Foreign Policy Journal

Why China is leading the green revolution and taking the rest of the world with it.

US Secretary of Commerce Gary Locke and Energy Secretary Steven Chu returned from China last July with a sober understanding of the degree to which China had advanced in green technology. Sino-US clean energy cooperation reached a milestone later in 2009, when the two presidents signed various bilateral agreements, including the establishment of the US- China Clean Energy Research Centre in Beijing to improve research and development in the field. But clean energy was caught in the political firestorm of the health care debacle. As the recent New York Times article on China’s advancements in green technology reinforced, the Chinese have made exceptional progress in this field and are the leaders of our green revolution.

But more than a desire to compete with the rest of the world, China is looking for collaboration with foreign powers like the United States. In the few weeks I spent in Shanghai speaking with various individuals in academia and renewable – mainly solar – energy, I discovered that expats of various professional backgrounds and nationalities have become ensconced into the Chinese green economy. Solar, more so than other energy sources – hydro, wind, nuclear, biomass – has attracted not only high-salaried expats to serve as executives for Chinese companies, but also eager entrepreneurs who presciently identified the market potential in China during the financial crisis.

(more…)

Sign up for Earth Hour

earth-hourFrom the Earth Hour website:

SHOW THE WORLD WHAT YOU’RE MADE OF


You only have to look around our map to see that people all over the world are pledging their commitment. Join them now by signing up, and help to work towards a sustainable future. And remember to switch off your lights for Earth Hour, 27th March, 8.30pm.

Make sure to sign up before the deadline!

Earth Hour website

(more…)

Clearly inadequate

wind farm

Last updated: March 14, 2010

Source: South China Morning Post

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


Updated on Mar 14, 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 CO2 emissions 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.”

Written by Howard Winn and Vivian Kwok

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.

(more…)

Prototype Solar Power-Assist for Buses

solar powered busFirst published: March 10, 2010

Source: Alternative Energy News

Sunpods Inc. is California-based manufacturing company. They produce modular, fully integrated and tested solar power generation systems. Recently they have come out with an idea of the first solar power-assist system for buses. They should be applauded for developing it in a mere six weeks. Their partner is Bauer Intelligent Transportation. The system developed by Sunpods will help Bauer to meet strict anti-pollution standards laid down by the State of California. California state law since 2008 has disallowed diesel vehicles to remain idle for more than five minutes. Now more than 25 states across the United States have anti-idling laws.

Gary Bauer, founder and owner of Bauer’s Intelligent Transportation says, “We support the state’s strong commitment to reducing pollution. At the same time, as a transportation provider, we wanted to meet our customers’ requirements for comfort and connectivity. SunPods was able to make our vision a reality in less than 6 weeks. We’ve been testing the bus for the past 4 weeks and we’re impressed with the reliable performance.”
(more…)

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.”

Electric dream set to make us a motor city

Electric Vehicles

First published: March 3, 2010

Source: The Standard

Hong Kong will soon boast an automobile industry – but unlike most motor cities, this one will be green.

In a joint venture with Taiwan and the mainland, Halo Motor plans to set up a small production line in the next two to three years and aims eventually to churn out 10,000 electric vehicles a year.

A research and development center is also to open in the Science Park by the end of this month.
(more…)