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December, 2014:

Time to debate a fairer energy market

10 December, 2014

SCMP Editorial

Hong Kong is often hailed as one of the freest economies in the world, with free competition and market access for everyone. But the truth is that certain sectors are still off limits to new players. The energy market is an example. All households and businesses are customers of either CLP Power or Hongkong Electric under a long-standing duopoly system. The companies’ profits are further guaranteed by a rigid scheme of control. There is neither competition nor choices.

The problems have been put into perspective in a comprehensive study commissioned by the Consumer Council. It noted that while the business agreements ensure reliability and growth, the companies can also transfer fuel cost increases to consumers and make high risk-free profits. The scheme lacked transparency and put consumers in an unfair situation, it said.

The watchdog rightly called for breaking up the dominance of the power giants in a gradual reform. This includes liberalising the power generation market, importing more electricity from the mainland and developing regional gas-fired stations. It also called for better protection for low-income users. But the council is not in favour of introducing more competition at the retail level, saying consumers may not necessarily benefit because of high switching costs; and that market players can get around the issue through reconsolidation, as in the case of Britain.

The recommendations follow an 18-month long study by three prominent experts from overseas, taking into account the special circumstances in Hong Kong and foreign experience. Technical as they are, the issues are crucial to the development of a fair and sustainable regime. As the watchdog admitted, the energy sector is one that deals with conflicting goals, such as consumer’s interest, commercial gains, green environment and economic competitiveness. No single model can perfectly address all the issues involved.

But that does not mean the current regime should be left untouched. With the scheme of control expiring by 2018, the government is to consult the public on the way forward next year. Credit goes to the council and the experts for tabling a 170-page report on an industry that has so big an impact on people’s livelihood and economic vitality. The study has set the stage for an informed debate on the way ahead.

http://www.scmp.com/comment/insight-opinion/article/1659133/time-debate-fairer-energy-market

Hong Kong must break firms’ tight grip on electricity market to help consumers, says study

04 December, 2014

Denise Tsang and Ernest Kao

Expert report calls on government to overhaul its regulation of power suppliers, branding it unfair to consumers and lacking transparency

The Hong Kong government should break up the dominance of electricity suppliers CLP Power and Hongkong Electric and revamp its regulatory framework, which is “unfair” to consumers, a study has concluded.

The Consumer Council report also calls for the development of renewable energy, the importation of electricity and more nuclear power from Guangdong, and greater use of natural gas to meet the government’s goal of supplying reliable, safe, sustainable and affordable energy.

Compiled over 18 months by three overseas experts, the study effectively sets the agenda for a public consultation next year on the post-2018 regulatory road map and the mix of fuels in the city’s electricity market.

“The goals are conflicting,” said Consumer Council chief executive Gilly Wong Fung-han. “But the reform can be done step by step.”

The 170-page report comes as CLP and Hongkong Electric prepare to reveal next year’s planned tariffs. CLP is reported to be considering a rise of 5 to 6 per cent, while Hongkong Electric may retain current charges.

For over a century, CLP has served households in Kowloon, the New Territories and Lantau, while Hongkong Electric provides power on Hong Kong Island and Lamma.

The council said the scheme of control agreements which allows CLP and Hongkong Electric to tie their earnings with investments in power assets and requires them to meet certain emission reduction obligations, was unfair to consumers.

It criticised the existing regulatory mechanism for allowing power firms to pass business risks on to consumers and lacking transparency.

The scheme of control agreements permits CLP and Hongkong Electric to earn a 9.99 per cent return annually on their average net fixed assets in use in the 10 years to 2018 – cut from 13.5-15 per cent before 2008. The scheme has triggered controversy in recent years, with the government under public pressure for a review to avoid a monopoly.

The Environment Bureau said next year’s public consultation would consider public expectations on having the power companies make returns that are commensurate with business risks in the power market.

CLP said it was “open-minded” on any future talks on market reform, but warned that “any effective discussions should be based on clear objectives, and future development should be based on a thorough understanding of the subject matter and relevant issues”.

Hongkong Electric declined to comment until it had read the council’s study.

Citigroup analyst Pierre Lau said the renewal of the scheme of control agreements with “high returns” could be politically sensitive and he did not expect any renewal to happen before the chief executive election in 2017.

The Consumer Council said the Hong Kong government should create competition in power generation by encouraging investors to invest in small-scale, gas-fired electricity generators in a commercial or a residential district to feed local needs.

Any excess supply could be sold to CLP or Hongkong Electric.

However, this would be viable only if the pair were willing to allow third parties access to their power grids.

World Green Organisation chief executive William Yu Yuen-ping said small-scale, gas-fired generation facilities were worth considering.

“The worldwide trend is the decentralisation of distribution,” he said, adding that it would be more ideal for large buildings or complexes to have their own waste-to-energy facilities.


Call to empower public over electricity supply

The public should get a greater say in where the city draws its power from and how the electricity is generated, the consumer watchdog says.

Energy-efficiency measures should also be targeted at those in the lower strata of society to alleviate the effects of rising power bills, advisers to the Consumer Council said.

The council saw the need for a regulator over the power sector, one that would be an independent institution open to public participation.

Such a regulating body could promote greater transparency and consumer representation, Thomas Cheng Kin-hon, chairman of the council’s competition policy committee, said.

“We believe this regulator needs to have a critical mass in order to match the resources of the two electricity companies,” Cheng said.

“The regulatory system must also be improved to allow greater public participation and a more direct reflection of consumer interests.”

The council report, released yesterday, sets the stage for debate next year when the government is due to gauge public views on how to reform the post-2018 regulatory regime of the city’s electricity market.

A 10-year contractual agreement, known as a scheme of control, lays down rules governing operations, from tariffs to development, of the two power suppliers, CLP Power and HK Electric. The agreement expires in 2018.

The report criticised the scheme as being unfair to consumers as the duopoly was allowed to earn high risk-free profits while passing on business risks to users to an “undue degree”.

At issue was how to protect low-income users, such as subdivided-flat dwellers, from “fuel poverty” – the state of being priced out by rising power bills.

Robin Simpson, a contributor to the report, noted an “in-built tension between environmental policy … which envisages people paying a cost recovery price for energy”. He raised the question “of how consumers, particularly the broader consumers, can afford to pay [these] higher prices”.

An Environment Bureau spokesman said the scheme had been improved over the years to “incrementally improve its operation, promote transparency and ensure consumers’ interests are addressed”.

http://www.scmp.com/news/hong-kong/article/1655344/hong-kong-government-should-break-electricity-supply-duopoly-says

Shock as power pair slammed

Hilary Wong

December 05, 2014

CLP Power and Hongkong Electric have been operating like a duopoly for years, unfairly overburdening consumers with price rises while being allowed to earn risk-free profits, the Consumer Council said.

The consumer watchdog said the existing method of regulation through the Scheme of Control Agreements, which expire in 2018, needs to be reformed.

It also proposed an energy commission that may meet the future challenge of a reform policy.

In its 170-page report released yesterday, the council said the existing regulations will not be flexible enough to adapt to the new environmental policy supporting emission reduction over the next 30 years.

Chief trade practices officer Victor Hung Tin-yau said under the current scheme, “the two power companies are allowed to earn a high risk-free profit while passing on business risks to consumers to an undue degree.” The scheme has “low transparency and lack the engagement of consumers.”

Competition policy committee head Thomas Cheng Kin-hon said reform should take place “incrementally” to ensure the merits of the existing system and meet new objectives.

The study was undertaken with the advice of an expert international group formed to look into the experience of electricity regulatory reform in the mainland, Britain, Australia, Germany and France.

Cheng said liberalizing the retail electricity market “presents no sound solution” since overseas experience has found that it spurs residential users to face higher bills and commercial users to pay less than before.

The report also suggests using diversified energy resources such as power station fuel, natural gas, renewables, nuclear and biomass, which can reduce emissions of greenhouse gas.

As to the cost-effectiveness of having renewables, one of the experts, Stephen Thomas a professor of energy policy and director of research in the Business School of the University of Greenwich in London said it depends on local resources.

“For example, Britain is windy, so wind power is more cost effective. Similarly since Britain is not a sunny country, solar power will be more expensive, so it has to look at the local condition and local resources,” he said. “Hong Kong has its own resources some are good and some are not so good.”

http://www.thestandard.com.hk/news_detail.asp?sid=43485824

Researchers in Belgium turn sawdust into gasoline

December 01, 2014

Researchers in Belgium have found a way of turning sawdust into building blocks for gasoline.

A new chemical process developed at KU Leuven’s Centre for Surface Chemistry and Catalysis converts the cellulose in sawdust into hydrocarbon chains. These hydrocarbons can be used as an additive in gasoline, or as a component in plastics, the university said.

“Essentially, the method allows us to make a ‘petrochemical’ product using biomass — thus bridging the worlds of bio-economics and petro chemistry,” commented Dr. Bert Lagrain, co-author of the research report.

Cellulose is present in all non-edible plant parts of wood, straw, grass, cotton and old paper. A key advantage of cellulose is that it is essentially plant waste and does not compete with food crops in the way that crops grown for bioethanol do.

“At the molecular level, cellulose contains strong carbon chains. We sought to conserve these chains, but drop the oxygen bonded to them, which is undesirable in high-grade gasoline. Our researcher Beau Op de Beeck developed a new method to derive these hydrocarbon chains from cellulose,” explained Professor Bert Sels.

“With the right temperature and pressure, it takes about half a day to convert the cellulose in the wood shavings into saturated hydrocarbon chains, or alkanes,” said Dr. Lagrain.

The result is an intermediary product that requires one last simple step to become fully-distilled gasoline, Prof. Sels added.

As well as its potential use as an eco-friendly additive that can replace a portion of traditionally-refined gasoline, the green hydrocarbons could be used in the production of ethylene, propylene and benzene — the building blocks for products such as plastic, rubber, insulation foam, nylon and coatings.

The researchers currently have a patent pending for this new type of bio-refining.

Details of their discovery have been published in the journal Energy & Environmental Science.

http://www.processingmagazine.com/articles/128283-researchers-in-belgium-turn-sawdust-into-gasoline