Date
22 September 2017
Hong Kong's electricity market has been monopolized by CLP and Power Assets for many years.
Hong Kong's electricity market has been monopolized by CLP and Power Assets for many years.

After water, will it be electricity import next for HK?

CLP Power, one of Hong Kong’s two main electricity suppliers, has raised its tariffs again. The company will charge consumers 3.1 percent more from next year. People living in Kowloon and New Territories will have to pay HK$1.142 per kilowatt-hour for electricity.

The power producer said the tariff increase became necessary due to new emission caps imposed by the government, and as the company has to double the proportion of natural gas, which has a higher cost than coal.

Coal is still the main fuel for power generation; however, it is also the leading source of air pollution.

In 2012, coal accounted for 53 percent of the overall fuel mix in the city, followed by nuclear electricity (23 percent) imported from the Daya Bay Nuclear Power Station in the mainland. Natural gas (22 percent), and oil and renewable energy (2 percent) took up the rest.

As the existing coal-fired generating units will start to retire from 2017, the government — in order to meet the future electricity demand and to improve the environment – has rolled out two proposals on the future fuel mix. The proposals were put up for public consultation during the first half this year.

One is the ‘grid purchase’ plan, which is about buying electricity from China Southern Power Grid Company (CSPG) in the mainland, just like we buy water from Guangdong province. The other option is ‘local generation’, under which more natural gas will be used to produce electricity in the city.

Under the ‘grid purchase’ option, Hong Kong could import up to 50 percent of electricity needed from the mainland.

The idea has met with huge criticism from the two power companies and some non-governmental organizations. They worry that buying electricity from mainland would further diminish Hong Kong’s bargaining power.

However, some academics have said that such worry does not make sense at all.

Chow Chuen-ho, senior lecturer & director of Hong Kong Energy Studies Centre at the Hong Kong Baptist University, said all kinds of natural resources are scarce in Hong Kong.

“The coal and natural gas we use to generate electricity are imported from mainland, dependency is actually not an issue here,” Chow noted.

Power stability is said to be another major concern of the two power companies in Hong Kong. Opponents say that if 30 percent of local power is supplied by the mainland and if there is a blackout, it will have a great impact on Hong Kong.

It was reported that Power Assets, Hong Kong’s other main power supplier, has provided data to illustrate the problem. Hong Kong Island saw less than one minute of blackout, and Kowloon and New Territories less than two minutes a year in average. This compares with one hour, six minutes in Shenzhen and one hour, forty-eight minutes in Guangzhou.

Hong Kong government later said it was inappropriate to compare the blackout times between Hong Kong and the mainland cities. Blackouts in the mainland were mainly caused by the regional grids and had nothing to do with the main grid. But power exported to Hong Kong would be from the main grid, the reliability of which can be assured, the government argued.

Although the government, especially the Environment Bureau, said it is open to all of the fuel mix options, its comments suggest that it is clearly standing firm behind the power import plan.

So is grid purchase a good idea? For answers, we can take a look on our neighbor Macau.

Ip Kam-wing, senior manager of Companhia de Electricidade de Macau, said the city had set a policy years ago to rely on the mainland for its energy needs. In 2004, Macau imported only 7.1 percent of its electricity from the mainland, but the figure jumped to 92.1 percent last year.

Being fully dependent on imported power means Macau doesn’t have much say on the pricing issue — the tariff has risen 36 percent since 2006. Ip, therefore, urged Hong Kong to think twice before changing the fuel mix.

The terms of the contract did not guarantee the stability of the power supply, and Macau is not put in the first place if a blackout occurs, Ip noted further.

So the case would be similar to Dongjiang water we buy from Guangdong province. So, why does the Environment Bureau still want to buy electricity from mainland? Is Hong Kong unable to generate enough electricity for local use?

Actually, Hong Kong’s electricity market has been monopolized by CLP and Power Assets for many years. The government has tried to force the two to further interconnect their power grids to enhance efficiency but failed. That’s why the Bureau tends to introduce CSPG as a way to open up the market.

Meanwhile, the Scheme of Control Agreements, which were contracts signed between the government and the two power companies, have made the whole problem even more complicated. According to the scheme, the permitted return of the two companies shall be 9.99 percent of the total value of the average net fixed assets for the year.

In simple words, return could be higher when the company owns more assets.

Thus, a company can maximize its profit by investing more in fixed assets.

It is reported that CLP had over-invested in the power generators back in 2012 as a way to boost its profit. The electricity that the company generated was much more than the market demand; the electricity surplus reached 30 percent to 40 percent each year.

CLP then sold the electricity back to mainland. Meanwhile, the firm still has to buy 10 billion kilowatt hour electricity from Daya Bay Power Station, in which CLP is one of the shareholders.

This is exactly what happens when monopoly exists in a certain industry.

Overall, there is the risk of loss of bargaining power if Hong Kong chooses to import electricity from China, but it may not be so bad as 50 percent of the power will still be generated locally under the ‘grid purchase’ option, which will be a lot higher than that of Macau.

So, introducing competition into the local energy market still appears to be the most feasible plan in breaking up the energy monopoly in the city.

There will be a new round of public consultation on the topic next year.

– Contact us at [email protected]

RC

EJ Insight writer

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