Option one, option two, options too few: the energy consultation

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Already Hong Kong is relying on the Mainland for water and economic growth but we might soon adopt a policy that would see us relinquish control of energy. The consultation on our future fuel mix for electricity generation, which will come to an end next Wednesday, has seemingly driven us to a junction. Either we choose to be self-sufficient in energy or we go the usual way – dependent on China. But there is more to this case than Option 1 and Option 2.

(Photo credit: Peter Steffen/DPA/DPA Picture-Alliance/AFP)

The consultation presents only two options to the public. Option 1 will see Hong Kong import 30% of our electricity from China Southern Power Grid (CSG), one of the two state-owned power grid companies in China responsible for power transmission and distribution for the five southern provinces. Option 2 will see an increase in locally  processed natural gas to raise its percentage of local fuel mix to 60%, from the current 22%.

Part I: Tainted Options
The Government paid $1.3m for the Guangdong Electric Power Design Institute (GEDI) to study the importation of electricity from CSG this January and rolled out the consultation papers after two short months. There was no tendering procedure.

Option 1 came under fire soon it was out.

In April, local media exposed close ties between the Institute and CSG. The Institute was formerly owned by CSG’s subsidiary, Guangdong Power Grid Corporation, until 2011 when it was sold to China Energy Engineering Group. Concerns were raised about the conflict of interest, but the issue died out shortly thereafter. The Government explained procurement under$1.43m did not require tendering under the Stores and Procurement Regulations.

Not willing to let it lie, Mr Kenneth Leung (梁繼昌, FC- Accountancy) on Wednesday (June 11th) asked the Secretary  for the Environment Mr Wong Kam-sing (黃 錦星) to explain their pick. His response:

“We consider GEDI an appropriate consultant given its years of experience in power system planning in the Mainland, and its knowledge of the planning and development of CSG. GEDI is independent of CSG in terms of organisation structure and operation.”

Some policy experts didn’t see a problem. Both Chairman of the Energy Advisory Committee Prof Raymond So (蘇偉文) and Prof William Chung (鍾兆偉), Director of CityU’s Energy and Environmental Policy Research Unit, thought the hiring was reasonable and normal to select a consultant who knows CSG best if we were to consider CSG.

Prof Chung is more concerned about whether the Government has the expertise to verify the consultant’s findings. In other words, trust, but verify (Доверяй, но проверяй – doveryai, no proveryai).

The Energy Advisory Committee and LegCo members were kept in the dark. When HT asked about the issue, Dr Lo Wai-kwok (盧偉國, FC- Engineering) said he knew nothing about the hiring of the consultant. Option 1 came under fire soon it was out. Stakeholders claimed the consultation papers lacked implementation details. Deputy Secretary for the Environment Mr Vincent Liu (劉明光) explained that the Government will carry out a feasibility study and  create plans when they enter the next stage. This meant that questions regarding who will invest in or build the necessary infrastructure, lay cable, and connect CSG to Hong Kong remain unanswered. It is awkward that the Government is consulting the public on an important policy and yet has only presented conceptual documents for consideration.

Part II: Lights out
Only recently, Secretary Mr Wong stepped up to defend Option 1 as opposition came from new quarters: the two local power giants – CLP and HK Electric. Last Thursday, Environment Bureau hosted a meeting with media to  counter the arguments put forward by the power companies.

Quoting CSG data in 2013, the two power companies cast doubts on CSG’s reliability as the annual power outage of the cities receiving electricity from CSG stands around at 138 minutes. The number is staggering when one considers CLP and HK Electric outages are below 3 minutes a year.

The Government argued failures in regional grids were to be blamed for the reported numbers. If Hong Kong  connects with the main grid of CSG without going through the regional grids, the outage problem would be resolved. “From 2009 to 2013, the reliability of SCG to the major cities in the south has increased 70%”, said Secretary Wong
when defending Option 1 from criticism. Deputy Secretary Mr Liu pointed out that Macau, which imports 90% of its electricity from CSG, experienced around 30 seconds of outage in 2012, a record better than Hong Kong

However, there are problems other than power outages. In 2008, a severe snowstorm caused major breakdowns in CSG grids. A city in Hunan province lost power supply for almost two weeks. The incident illustrates the risk Hong Kong is facing when natural catastrophes strike. It will remain to see whether CSG is reliable.

In the meantime, a more imminent danger is inherent in Option 1.

The Energy Advisory Committee and LegCo members were kept in the dark. When HT asked about the issue, Dr Lo Wai-kwok (盧偉國, FC- Engineering) said he knew nothing about the hiring of the consultant.

Part III: The green fight
A row has also broken out on the eco-performance of CSG compared to the Hong Kong power companies. At an energy seminar this Monday, Deputy Secretary Mr Liu said that the carbon emission of CSG in 2013 was 572 grams per unit (gpu) of electricity whereas power companies in Hong Kong went beyond 700gpu. CLP Vice President Mrs Betty Yuen (阮蘇少湄) fired back immediately and argued that the total carbon emission of Hong Kong was lower or at least similar to CSG. Managing Director of HK Electric Mr Wan Chi-tin (尹志田) agreed with Mrs Yuen’s claim and came up with his own figures. The total carbon emission in Hong Kong, Mr Wan said, was 577gpu of electricity but Macau’s CSG generated power was recorded at 918gpu.

The disparity of the figures is confusing. HT called the Environment Bureau for clarification and was told that their  calculation of carbon emission from local power companies has excluded nuclear power, which accounts for 23% in the current fuel mix. However, the carbon emission of CSG presented by the Bureau was calculated based on the  whole fuel mix of CSG. Mrs Yuen accused the Bureau of unfair comparisons and said if nuclear power was included in the calculation, as the entire fuel mix was used in the case of CSG, the result would be entirely different.

China trying
In recent years, China has tightened emission standards and banned the use of dirty coal. Prof Chung was not surprised at the suggestion CSG outperformed the local power companies on reducing greenhouse emissions. The [Chinese] National Action Plan on Air Pollution, released last September, included some ambitious moves.

Among them was the ban on new coal-fired power plants which cover China’s most significant coal importing regions – the Pearl River Delta and Yangtze River Delta – which are responsible for more than 50% of thermal coal imports in China according to Greenpeace. Data from the China Electricity Council showed a promising future for China’s clean air campaign. Coal-fired power generation growth has fallen from over 9% in 2010 to 5.7% in 2013. Its  use is still rising to meet heavy demand, but at a slower rate than other power sources.

The disparity of the figures is confusing.

PART IV: Liberalisation consideration
Yet another consideration dogging the discussion of how we plan our energy future is the liberalisation of the electricity market. “[…] we consider that the grid purchase option [Option 1] may in principle provide more room to introduce more supply sources to the electricity market, thereby enhancing competition and choices,” Secretary Wong replied to Kenneth Leung in LegCo on Wednesday. The Environment Bureau has also recently announced that
a consultation on opening up the electricity market will be launched within a year.

The consultation papers might have hinted at opening markets in some ways as well. Prof Chung noted the consultation papers mentioned little about the Scheme of Control Agreements and opined broadly on grid-to-grid connection. Through Option 1, he said the power grids owned by CLP and HK Electric can be liberalised and directly connected both to the grids in China and individual households so that electricity can travel freely within and beyond Hong Kong, which will in turn offer Hong Kong people with more choices on electricity.

The question to ask is whether the trade-off is a smart deal.

The current Scheme of Control Agreements signed between the Government and the two power companies will  expire in 2018, suggesting a decision to open the electricity market will have to be made in 2016 to allow time to alter infrastructure to match policy. The clock is ticking and this consultation might see the beginning of the end of the two monopolies of the electricity market. With their core interests being threatened, it is reasonable to assume that CLP and HK Electric might fight against Option 1 if it were to pave way for the liberalisation of the electricity market, unless a new pricing scheme would allow for similar profitability for their shareholders. That being said, all the employees of the two firms breathe the same air and pay the same residential bills as the rest of us – a clean and reliable power source is in their best interests as well. The same could not be said for an offshore power provider.

There is a trade-off to make. Importing power from China may run higher risks of outage downtime, even though the Government claims the reliability of CSG to Macau is an impressive 99.999%. We may also open the door to a competitive and open electricity market which will further improve the efficiency and cost of power. The question to ask is whether the trade-off is a smart deal. Even as an advocate of doing away with our electricity monopolies, Prof Chung held back from embracing Option 1. With a power shortage problem up north and an immature power system in China, he considered surrendering 30% of our fuel mix a choice too risky to make.

Option 2 has as of yet to receive much discussion in the public domain. What discussion there has been muted. No one has questioned the local power companies ability to deliver on their targets and the whole situation seems more manageable given it is a matter of setting up a power plant in Hong Kong and running on our local grid.

While some government officials claim there is no bias towards either option, others have been vigorously defending
Option 1, even though the creation of the consultation document seems tainted.

Another disappointment is that creative solutions like smaller waste-to-energy solutions, popular in environment-conscious Europe, haven’t even been considered. Given our waste management issues, it seems that this international city could have considered international options.

Energy and its byproducts impact on our health, economy and lives. There is a sense that Option 1 from a mainland,
low-budget, untendered, unverified consultation doesn’t cut it. The current situation seems to suggest that a more serious and perhaps ambitious look at potential solutions. If the current acrimony continues, it may be time to go back to the drawing board for a more collaborative look at our options. This issue is big enough to deserve the consideration.

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