Hong Kong's roadmap of replacing coal with wind energy by 2020｜Greenpeace

HONG KONG’S ROADMAP OF REPLACING COAL WITH WIND ENERGY BY 2020: Greenpeace’s Response to “Future Development of the Electricity Market in Hong Kong: Stage II Consultation”

Highlights of the Position Paper 1.

The “Future Development of the Electricity Market in Hong Kong: Stage II Consultation” (Stage II Consultation) opens the time window to phase out coal and develop wind energy for Hong Kong (HK);

2.

By 2020, wind energy in Guangdong (GD) can reach an installed capacity of 20 GW which can generate as much as 35,000 GWh of clean electricity (a volume roughly equals HK’s TOTAL SUPPLY in 2005). Just about half of the 35,000 GWh of wind energy, if imported to HK, will be adequate to replace ALL coal-fired electricity in HK by 2020;

3.

Greenpeace presents in this position paper the Hong Kong Wind Energy Roadmap which outlines the strategies necessary for achieving the 2020 wind energy target in HK: Phase 1 (2006-2008): Formulation of vision; strengthening institutions

a)

At HK local level:

• • •

Set HK’s wind energy vision and targets; Ensure the post-2008 Scheme of Control Agreements (SCAs) have forceful terms to encourage renewable energy (RE) development and de-motivate coal burning; Set up HK Sustainable Energy Authority (a unit at local level to coordinate the Renewable Energy issues in HK).

b)

At GD-HK regional level:

•

Strengthening local and GD-HK regional institutions to facilitate the development of wind energy. New institutions to be established included:

• •

GD-HK Wind Energy Coordination Office; GD-HK Wind Energy Advisory Group.

Phase 2 (2009-2012): Power Sector Reform

• •

Establish Hong Kong Energy Bureau; Formulate Hong Kong Electricity Ordinance to replace SCAs after 2018.

Phase 3 ( 2013-2018): Market Liberalisation and Full Interconnection

• •

Ensure full interconnection with GD power grid; Complete market liberalization of HK’s power sector.

By 2020: 20 GW wind energy in HK 4.

In response to the Stage II Consultation Paper,

a)

b) c)

Greenpeace supports the following proposed regulatory measures in the Stage II Consultation Paper:

• •

Rewarding RE infrastructure with a higher permitted rate of return; Reducing the permitted rate of return of any power company which fail to meet the statutory emission caps as financial penalty;

Greenpeace, however, is of the view that the Stage II Consultation document has failed to seize the opportunities to steer HK’s power sector towards a more sustainable one.

Greenpeace therefore calls for:

• • •

A holistic approach to develop wind energy in HK with a regional perspective and long-term planning as suggested in Greenpeace’s HK Wind Energy Roadmap Not allowing any investment of the anti-pollution measures including flue-gas-desulphurisation facilities be entitled to any permitted rate of return, so as to uphold the “polluter-pay-principle”; and An explicit timeframe to phase out coal-fired electricity in HK.

Table of Contents Highlights of the Position Paper

1

Table of Contents

2

Introduction

3

Section A: HK’s Roadmap of Replacing Coal with Wind Energy by 2020

4

1. Phasing out coal-fired electricity with wind energy in HK by 2020

4

1.1 Why replacing coal with wind in HK?

5

1.2Why is phasing out coal an achievable goal for HK?

6

1.3 Why take action NOW?

6

2. What are the Barriers for GD-HK Regional Development of Wind Energy?

9

3. HK Wind Energy Roadmap

9

3.1 Features and Overview of HK Wind Energy Roadmap

9

3.2 Key Components & Action Plans of HK Wind Energy Roadmap

12

4. Elaboration of the Key Components of HK Wind Energy Roadmap 4.1 Key Components in Phase 1

14 14

4.1.1 Components for the formulation of market

14

4.1.2 Components for creating a conducive institutional setting

16

4.2 Key Components in Phase 2 and Phase 3

Part B: Greenpeace’s responses to the Stage II Consultation Paper

20 26

1. Failure in imposing strong terms in post-2008 Scheme of Control Agreements (SCAs) to 26 facilitate wind energy in HK 2. Lack of a holistic approach to facilitating wind energy development

26

3. Anti-pollution measures should not be entitled to any rate of return

27

4. No time frame to phase out coal

28

5. Lacking the political will to introduce carbon tax to rectify the market failure

28

Conclusion

29

Abbreviations

31

References

32

List of Tables Table 1: External costs of coal-fired electricity and external benefits of wind energy

5

Table 2: Projected fuel sources of electricity consumption in HK

6

Table 3: Recent supporting measures for wind energy in China and GD

8

Table 4: Proposed GD-HK regional networking institutions for wind energy

18

Table 5: Misconceptions and facts of wind energy in GD-HK region

19

List of Figures Figure 1: The three phases of HK Wind Energy Roadmap

10

Figure 2: Key components of HK Wind Energy Roadmap

11

Appendix 1: Definitions of RE

30

2

INTRODUCTION: OBJECTIVES AND BACKGROUND OF THE ROADMAP The objectives of this position paper are: 1

In Section A, to lay down a strategic framework in HK Wind Energy Roadmap (The Roadmap), which outlines the goals, barriers, strategies, actions and timescales necessary for achieving an ambitious, but achievable goal of REPLACING ALL COAL-FIRED ELECTRICITY WITH WIND ENERGY by 2020 in HK;

2

In Section B, to present Greenpeace response to the HKSAR Government’s “Consultation Paper on Future Development of the Electricity Market in HK: Stage II Consultation” (the Stage II Consultation Paper);

The Roadmap is intended to complement “Wind Guangdong” (2005), a study commissioned by Greenpeace and undertaken by an internationally renowned wind energy consultancy Garrad Hassan, which concludes that the installed capacity of wind energy in Guangdong (GD) could reach 20 GW. As energy planning is no longer a short-term domestic issue (and this is especially true for RE), this Roadmap takes a vintage point of HK, yet with a vision of integrating HK into the south China power system. The Roadmap proposes a framework that promotes GD-HK regional energy planning and looks ahead to 2020 to set the overall context.

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SECTION A: HK’S ROADMAP OF REPLACING COAL WITH WIND ENERGY BY 2020 1. Phasing out coal-fired electricity by introducing wind energy in HK by 2020 1.1. Why Replacing Coal with Wind in HK? Coal is the most polluting fossil fuel used for large-scale power generation in HK. Every stage of the coal fuel cycle has serious environmental and social effects. Electricity generated from coal damages the environment and human health, incurring huge social costs and having the problems of energy security (Table 1).

Wind, as a superior power to the polluting coal-fired electricity, offers the potential of pollution-free electricity in large volume. Wind energy also brings a range of economic and social benefits such as employment and social harmony.

According to a European Commission’s trans-national study on the socio-environmental damages due to electricity generation, the external cost of coal-fired electricity is Euro 7.58 cent per kWh in average – about 50 times higher than that of wind energy (European Commission, 2003).

Despite the huge social benefits of wind energy, coal remains the dominant fuel in both GD and HK. At present, GD has about 75% of its electricity generated from coal with less than 1% from wind energy. By the end of 2004, the total installed capacity of wind farms in GD was 86 MW consisting of three wind farms (Greenpeace, 2005). HK also relies on coal as the major fuel for power generation, with about 40% of electricity coming from coal. Wind development in HK is minimal: a single wind turbine of 800 kW, a first wind turbine of large-scale ever in HK, has just been erected by a local power company in February this year for demonstration purpose.

Considering the power mix in GD and HK, replacing coal power with wind energy does not simply replace some fraction of generation; rather, it will replace the most environmentally damaging load. This is a crucial mean for HK of meeting HK’s emissions commitments. In the regional context, HK’s demand for GD’s wind energy will trigger further wind energy industrial and technological development in GD, hence improving regional air quality, as well as enhancing energy security and diversity.

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Table 1: External Costs of Coal-fired Electricity and External Benefits of Wind Energy External Costs of Coal

External Benefits of Wind

Environmental Aspect Coal Mining: • subsidence from coal mining destroys extensive area of land

Offers the potential of pollution-free electricity in large volume: •wind energy avoids emissions of major pollutants

• disposal of mining waste and coal ash

including CO2, SO2, NOx and particulates and is

• releases of coal-bed methane which is an important

therefore an effective way to tackle local and regional

source of greenhouse gas emissions

air pollution, as well as global climate change

Production Processes: • coal combustion is the key emitters of major gaseous pollutants including CO2, SO2, NOx and particulates • large demands on the fresh water resources Economic Aspect Transportation of Coal incurs substantial economic costs: Energy security enhanced because: • Train accidents

• energy diversity increased

• Land requirement for new rail lines and related

• in the case of GD, the role of wind energy in

facilities

enhancing energy security is particular remarkable

• Competition between coal transport and other rail

because the main wind energy resource of GD is

users for rail services

located close to where most of the province’s demand lies. GD’s heavy reliance on coal imports from other provinces would be reduced, and it would also be less affected by fluctuation of international oil prices Employment promoted as renewable energy technologies are often labour-intensive. A strong domestic industry would grow where new jobs would be created. l

In Europe, the European wind industry employed more than 72,000 people by the end of 2004. In particular, growth in employment in Danish wind turbine has increased from 2,900 people in 1991 to 21,000 in 2002, much faster than any other manufacturing sector. The prediction of European Wind

Energy

Association

of

wind

industry

employment would reach 200,000 by 2020.1 New income sources can be created as new industry: income generation from the export of new technologies R&D • business-led or government-led R&D of wind energy enhance human capital Social Aspect Social instability resulted from coal miners accidents2

Promote social harmony by addressing both environmental problems and energy demand for economic growth Offer a new paradigm for international cooperation, e.g. emission trading, Clean Development Mechanism

Source: www.ewea.org In the wake of a serious coal-mine accident in GD in August 2005 in which about 100 miners died, a host social problems incurred in the coal industry, including collusion between local government

1

2

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1.2. Why is phasing out coal an achievable goal for HK? GD is an alternative source to provide adequate wind energy to HK by 2020. Wind Guangdong (2005), a study commissioned by Greenpeace and undertaken by Garrad Hassan – an internationally renowned wind energy consultancy - concludes that wind energy in GD can reach an installed capacity of 20 GW by 2020. If achieved it is possible that this could generate as much as 35,000 GWh of clean electricity, equivalent to HK’S TOTAL ELECTRICITY SUPPLY in 2005.

HK’s estimated electricity consumption in 2020 is not available in previous studies. A study (CH2M, 2002) jointly commissioned by the GD and HK governments, however, can be used to provide a reasonable estimation. The study estimates that the electricity consumption in HK will be 41,700 GWh by 2015, in which 19,400 GWh will be produced by coal or oil (Table 2). Given the latest forecast of HK electricity demand indicates an annual growth rate of 2% to 3% over the next 10 years; it is a reasonable prediction that HK’s electricity consumption by 2020 will be much the same as the 2015 situation. Hence, just about HALF of the 35,000 GWh of wind energy which GD can develop by 2020 will be adequate to replace ALL coal-fired generation in HK by 2020.

Table 2: Projected Fuel Sources of Electricity Consumption in HK (100 million kWh) Fuel Type

2000

2005

2010

2015

Coal/ Oil

165

175

184

194

Gas

105

112

118

124

Nuclear

83

89

93

98

Subtotal

353

376

395

417

(Source: adopted and modified from CH2M, 2002)

1.3. Why take action NOW? a)

10 More Years to Suffer Bad Air if Time Window in 2008 Missed The expiry of the current Scheme of Control Agreements (SCAs) in 2008 will open up a time window for HK to phase out coal and introduce wind energy in our energy mix. If the time window in 2008 is missed, the general public in HK will have to suffer the air pollution from coal-fired electricity for 10 more years until the next SCAs expire.

b) Regional Integration of HK and GD Power Systems: an Irreversible Trend GD and HK have more than 20 years of partnership in regional energy planning since CLP’s investment in Guangdong Daya Bay Nuclear Plant in 1985. In fact, HK being part of the south China power system is an irreversible trend given the following recent developments:

i) Several important initiatives of regional cooperation, including the Closer Economic Partnership Agreement signed in 2003, and the Pan Pearl River Delta Cooperation and Development Forum kicked off in mid 2004, have built up complementary platforms to intensify GD-HK regional integration;

officials and coal-mine owners were unveiled (經濟日報， 《礦工賣命 私企日賺 10 萬》 ，2005 年 8 月 9 日； 經濟日報, 《央視揭礦難涉官商勾結 中央調查組徹查腐敗 粵官場料「地震」 》 ，2005 年 8 月 12 日)

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ii) The ongoing power sector reform in China which aims at promoting regional interconnection and open competition which will create a level-playing-field for independent power producers, these two elements have also created a conducive environment for the GD-HK regional power integration.

iii) The sale of electricity from CLP Power (CLP) to GD has been experiencing a skyrocketing growth since 1999, with the sale volume growth of about 400% from 1999 to 2004 (Census and Statistics Department, 2005).3 In fact, the sale of electricity from CLP to GD is sizable. In 2005, a record-breaking sale of 4,497 GWh, which is more than 40% of the total electricity sold by the Hongkong Electric Company Ltd (HEC) in 2005, was made (CLP, 2006; HEC, 2006);4

iv) China Southern Power Grid, which is the sole electricity provider of Guangdong Province, has shown strong interest in penetrating into HK’s power market by: • Becoming a share holder of China Hong Kong Power Development, a joint venture formed in 2005 by China Power International Holding and second board-listed media firm Vertex Communications & Technology Group. In an unprecedented challenge to the century-old duopoly of CLP and HEC, the joint venture in January 2006 applied to lay down cables in Shataukok, in northern HK, to supply electricity in HK (Denise Tsang, 10 Feb 2006).

• Announcing “regional development” with the key interests in the HK-Macau region, and the Mekong River Region as the enterprise’s business strategy at the 2006 annual working meeting.5 c)

A growing body of supportive regulations and policies for wind energy in China has created a much more favourable market conditions for wind investors in Guangdong The enactment of China’s first renewable energy law, the Promotion Law for Renewable Energy Development and Utilization (the RE Law) in February 2005, together with the implementation of a host of supplementary regulations (such as the “Implementation Details of Renewable Energy) and supportive policies for wind energy have greatly boosted market confidence of wind energy in GD (Table 3).

The exports of electricity from CLP to GD have grown from 2279 terajoule in 1999 to 11,112 terajoule in 2004.

4 HEC’s total electricity sale in 2005 was 10,755 GWh. 5http://www.csg.net.cn/news/compnewscon.aspx?id=5557&Itemcode=002001000000.

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Table 3: Recent Supporting Measures for Wind Energy in China and GD Supporting Measures Details of the Measures Significance of the Measures China’s RE Law and the supplementary administrative measures • Enacted in Feb 2005, has become effective • Provision of a law-based Renewable Energy Renewable Energy Law (RE since Jan 2006 (RE) vision and policy in China Law《中華人民共和國可再生能 • The RE Law has been regarded as a key 源法》) contributing factor to the nearly 500 MW of new capacity installed in 2005, more than double the 2004 figure. This brings China up to 1,260 MW of capacity, thereby passing the 1,000 MW benchmark which is often deemed critical for sustained market growth Implementation Details of • Stipulated in Jan 2006 • The details of implementation of the key issues Renewable Energy of RE development ranging form grid 《可再生能源發電有關管理規 connection, to pricing-setting mechanism and 定》 sanction mechanism clarified. 《可再生能源發電價格和費用 • Stipulated in Jan 2006 • Provision of further details of the price-setting 分攤管理試行辨法》 and cost sharing of wind energy.

RE/ Wind Targets China’s National RE Targets • The national RE targets are raised to 15% • Demonstrates Chinese government’s growing of consumption by 2020 – up from 10% at commitment on RE the Beijing International Renewable Energy Conference held in November 2006 Allocation of the national • Allocation of wind energy targets to • Designates responsibility for wind energy wind targets to provinces provincial governments (including GD) development to provincial governments.

• GD’s allocated wind target is 260 MW, 750 MW and 1500 MW by 2010, 2015 and 2020 respectively RE Policies “Feed-in –tariff” policy “Feed-in-tariff” policy, which has been GD’s feed-in-tariff is the first of its kind in China; adopted in GD since the summer of 2004, enhance market predictability guarantees the minimum selling price of wind energy at 0.528 in GD Concession A wind farm of 100 MW under the Lower wind price through competition; boost local concession model in Huilei, Guangdong, is manufacturing industry of wind turbines currently under construction (GWEC, 2006; Website of National Reform and Development Commission; Greenpeace, 2005; Lewis & Wiser, 2005)

d) GD’ power system will regain balance in the coming years With the implementation of new power projects and power conservation programmes, electricity balance in China is expected to be restored by 2007.6 GD will then have a favorable market conditions to export wind energy to HK e)

The expiry of Daya Bay Nuclear contract creates opportunities for introducing wind energy into HK

The 20-year contract signed between CLP and GD Daya Bay Nuclear Power to buy 70% of the power produced by the nuclear plant, i.e. importing 14 billion kWh of nuclear electricity per year to HK, will expire in 2014 (Legislative Council Secretariat, 1999).

If the contract of nuclear power, which is a non-renewable (as the decommissioning and waste disposal incur substantial environmental problems), costly and unsafe power, will 6

明報， 《從外國經驗看港開放市場》 ，2006 年 2 月 6 日。

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not be extended, the nuclear phase-out will create opportunities for wind energy in GD to enter into HK’s power market.

2. What are the Barriers for GD-HK Regional Development of Wind Energy?

Despite the potential of wind energy development in the GD-HK region, the barriers are identified as follows: a) Market Barriers • Wind energy is less cost-competitive • Less financing options for wind farms • The limited interconnection limits the use of wind energy • Inadequate government policies to support wind energy b) Institutional Barriers • Lack of long-term RE vision in HKSAR Government • Lack of consumer awareness • Inadequate codes, standards, and accreditation • Weak network within industry (the industry fails to influence policies) In view of the barriers identified, phasing out coal and developing wind energy for HK will need the two governments across the border to work together, as suggested in the HK Wind Energy Roadmap in the following section, to overcome the many market and institutional barriers mentioned above that keep the opportunities from being fully exploited.

3. HK Wind Energy Roadmap: Ready for Immediate Implementation 3.1 Features and Overview of HK Wind Energy Roadmap 3.1.1 Aims of the Roadmap From the vintage point of HK, yet with a vision of regional energy planning that integrate HK into the south China power system, HK Wind Energy Roadmap aims to: • articulate a unified vision of wind energy development in GD-HK region; • shape the strategic direction; and • lay down a set of coordinated activities and projects that GD and HK should pursue in achieving the goal of replacing coal electricity with wind energy in HK.

3.1.2 Three Phases of Implementation With the ultimate target to deliver a wind target of 20 GW in HK by 2020, HK Wind Energy Roadmap has three phases of implementation with the following milestones:

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Phase 1 ( 2006-2008): Formulation of Vision; Strengthening Institutions a)

At HK local level: •

Set HK’s wind energy vision and targets

•

Ensure the post-2008 SCAs have forceful terms to encourage

renewable

energy

(RE)

development

and

de-motivate coal burning •

b)

Hong Kong Sustainable Energy Authority

At GD-HK regional level: • Lay down GD-HK wind vision and targets • Strengthening local and GD-HK regional institutions to

facilitate the development of wind energy.

Phase 2 (2009-2012): Power Sector Reform •

Establish Hong Kong Energy Bureau;

•

Formulate Hong Kong Electricity Ordinance to replace SCAs;

Phase 3 (2013-2018): Full Market Liberalization and Full Interconnection with GD Power Grid •

Ensure full interconnection with GD power grid;

•

Complete the market liberalization of HK’s power sector

Figure 1: The Three Phases of HK Wind Energy Roadmap

Goal Meeting 20 GW Wind Target

Phase 3 Full Market Liberalization and Full Interconnection with GD Power Grid

Phase 2 Power Sector Reform

Phase 1 Formulation of Vision; Strengthening Institutions

2006

2008

2012

2018

2020

10

The Roadmap, on the other hand, classified the key components into 2 broad categories, i.e. “the formation of a GD-HK regional wind energy market” and “formation of a conducive institutional setting”, and 12 subgroups according to their nature (Figure 2).

Figure 2: Key Components of HK Wind Energy Roadmap

Formation of a Conducive Institutional Setting

Formation of Market Vision & Targets Grid Access

Market Liberalisation

Supportive Policies

HK’s Wind Target: 20 GW by 2020

Pricing Reform

Energy Bureau

Electricity Ordinance/ RE Legislation

Networking

GD-HK Regional RE Institutions

Planning

Outreach & Education

Codes & Standards

3.1.3 a)

Key Messages Brought by HK Wind Energy Roadmap Take Action NOW

To bring wind energy into HK’s energy mix does not need any further delay. Most of the proposed measures in the Roadmap are READY FOR IMMEDIATE IMPLEMENTATION to bring wind energy into HK’s energy mix BEFORE 2008. These measures include: • Wind energy can be imported from GD with the two power companies separate their generation and transmission accounts to allow independent power producers (IPPs); • HK’s wind energy targets to be set up; • GD-HK Wind Energy Coordination Office to be set up.

• HK’s Sustainable Energy Authority to be set up. b)

Long-term Planning together with a Regional Perspective is a Prerequisite

Achieving the wind energy target of 20 GW by 2020 will not be achieved through any single strategy. Instead, it will need to be shaped in stepwise phases and driven by a host of complementary elements in a dynamic manner over the next 15 years as showed in Table 4.

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3.2 Key Components & Action Plans of HK Wind Energy Roadmap

Key Components

Action Plans

Category 1: Formation of a GD-HK Regional RE Market GD-HK Regional RE • GD-HK RE Vision Statement to be laid down # Vision GD-HK Regional Wind • HK Wind Energy Targets (at local level) : Energy Targets •wind targets (short-term, medium term and long-term) for HK to be set # •HK’s definition of RE to be clarified: excluding energy-from-waste and nuclear power # •

Grid Connection & Market Liberalisation

GD-HK Wind Targets (at regional level): •Ground work: building up consensus of a GD-HK wind targets # •Definition of RE: excluding energy-from-waste and nuclear power # l GD-HK wind targets to be set ##

• Vertical integration remained; but protocol of grid access by wind energy suppliers has to be developed # • Partial market liberation by Vertical Segregation: e.g. separate accounts/ separate functional units to allow IPPs, and enhancing interconnection with GD power grid ## • Preparing groundwork for full market liberalization ## • Full market liberalization: issues such as how to finance the regaining of the asset will have to be settled ###

RE policies to create a •RPS and Feed-in-tariff to be introduced # larger wind market •Premium given to wind energy # •Carbon tax to be introduced ## •Green Pricing and Green Certificate to be introduced ## RE Codes and Standards

• Codes of practices of the design and applications of wind energy in GD-HK region to be formulated # • Licensing procedures of wind energy to be standardized # • Accredited centers/ authority for testing turbines and components to be established # • Participation in international standards and certification activities #

R&D

• Grants for a range of R&D projects executed by research organizations, universities and agencies #

Category 2: Formation of a Conducive Institutional Setting for RE Sustainable Energy • HK Sustainable Energy Authority to be set up # Authority/ Energy Bureau • HK Energy Bureau to be set up, with HK Sustainable Energy Authority as a sub-unit ## RE legislation

•Post-2008 SCAs should contain new conditions such as setting a

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minimum percentage of RE in the power mix of each regulated power company # •GD-HK RE White Paper # •Lobby for Electricity Ordinance # • Electricity Ordinance to replace SCAs ## Regional Institutions for • GD-HK Regional Institutions to be set up including: • GD-HK Wind Energy Coordination Office Regional Cooperation on RE • GD-HK Wind Advisory Group # • Specific issues to be addressed include regional balance of supply and demand of wind energy # • HK Energy Bureau develops close working relationship with counterparts in GD ## Planning

•Wind farm location to be planned via regional and local land-use plans # • Planning and EIA guidelines of Wind farm #

Networking to create •Support networking among stakeholders # knowledge and exert •Support Industry Associations # policy influence Outreach & Education •Funding for outreach projects, training, public awareness programmes # •Advisory groups (get local people and local authorities’ inputs, so as to avoid constrains, e.g. environmentally-protected area, heritage area # *Milestones of the Roadmap are bolded. # Measures to be taken in/ start from Phase 1 ## Measures to be taken in/ start from Phase 2 ### Measures to be taken in Phase 3

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4. Elaboration of the Key Components of HK Wind Energy Roadmap 4.1 Key Components in Phase 1 4.1.1 Components for the Formation of Market a)

RE Vision A view takes a long-term view based on informed predictions of social, political, economic and cultural trends into the future of the likely effect and impact of the policy.

The governments in HK and GD should take a forward-looking approach and formulate a GD-HK regional vision of wind power to catalysing the policies, management and institution structure that are essential to HK’s phasing out coal and develop wind targets.

A vision statement of wind power in this region is important to demonstrate the political will of the two governments across the border for regional cooperation, and build up consensus among all stakeholders.

The key components of a GD-HK vision statement of wind power should include: • The vision is for wind energy as a superior alternative to coal for serving energy needs in GD and HK; • By this, wind energy will replace coal in HK by 2020.

b) RE Target Wind energy target with an enforceable time table, on the other hand, is a clear policy direction that will create strong incentives to both established power companies and new entrants to invest in wind farms. The importance of a RE/ wind target to the wind development in HK is underscored by a comment recently made by the managing director of HEC, Mr Tso Kai-sum. When asked whether HEC had any plan to build wind farms, Mr Tso was quoted in a local newspaper as saying “the HK government has not set a time table for RE development. We will only give some thought to building wind farms.”7 c)

RE Definition Another key issue of RE targets is the definition of RE. Renewable energy is renewable sources that are inexhaustible energy from the nature such as wind, solar, biomass, wave and tidal energy. Energy-from-waste, and nuclear power are not renewables because:

7 Original wordings in Chinese: “不過，港燈董事總經理曹棨森則唱反調，指海上風車成本太高，「每台風車 也要3條樁支持，3條樁20多米深，很貴」，又指港府沒有發展再生能源的時間表，只會「考慮一下」興建風力 場。”(明報，建海上風力發電場官商分歧 - 廖秀冬﹕要付代價 港燈﹕成本太高, 2006年2月24日)

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• Energy-from-waste: municipal or industrial waste contain a mixture of biomass and fossil-based energy. Unless the waste is purely biomass-based fuels, such as wood waste or agricultural waste, energy-from-waste is NOT renewable. • Nuclear: nuclear is not a renewable energy source, as it needs scarce uranium to fuel its reactors, consumes large amount of fresh water during its production process, and produces radioactive waste.

Clarification of the legitimate renewable energies is of paramount importance in building up credibility of RE targets, policies and programmes. A credible RE target is the only way to secure community-wide support for RE development.

(Please refer to Appendix 1 for the definitions of RE adopted by different countries/ international organizations) d) RE Policies The existing energy policies in HK cannot deliver the wider policy objectives such as achieving environmental and social goals. Since the social and environmental costs of coal-fired electricity and the benefits of wind energy are not fully reflected in our power market, it is perfectly legitimate for the HKSAR Government to formulate supportive policies for RE so as to counter the socially and environmentally undesirable outcomes of the existing energy policies.

The key functions of HK’s RE policies should include providing a guaranteed market with premium prices for RE, and mandating electricity purchase for a certain time period so as to create and a conducive environment for wind power to develop.

Therefore, the HKSAR Government should in the near term implement supportive policies such as Renewable Portfolio Standard (RPS), feed-in tariffs which have been increasingly used in other economies.

Renewable Portfolio Standard: The RPS is a quantity-based policy that establishes a target quantity of renewable energy to be included in the electricity mix by a specific date. RPS policies are being considered and implemented throughout the world, from Sweden, Italy, and the U.K., to the United States, Japan, and Australia (Wiser et al., 2002). 8

Twelve U.S. states have now adopted an RPS. What is evident from experience in Maine, Texas, Arizona, and Wisconsin is that the design is critical to the success of the policy. Where designed appropriately, as in Texas, an RPS can create a large and vibrant market for renewable energy and integrate renewable energy supply into the overall competitive electricity system. (Wiser et al., 2002) 8

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Feed-in tariffs A feed-in tariffs is a price-based policy that specifies the price to be paid for renewable energy. Feed-in tariff policy offers renewable energy developers a guaranteed power sales price (the feed-in tariff), coupled with a purchase obligation (a guaranteed market) by electric utilities. In combination with standardized costs for grid connections and consistent application procedures, this pricing system has made it possible for developers to easily obtain bank financing for investments in wind power stations (Meyer, 2003). e)

Code and Standards Issues which are peculiar to Chinese applications, e.g. design of turbines for typhoons and other extreme winds which do not occur in the established wind energy markets should be addressed so as to build up market confidence.

4.1.2 Components for Creating a Conducive Institutional Setting a)

Setting Up a HK Sustainable Energy Authority In addition, the establishment of a government body designated for sustainable energy, such as the Sustainable Energy Development Authority in the New South Wales in Australia (Good Practice 1 below) will also facilitate RE development in HK. When the proposed HK Energy Bureau is set up in Phase 2 (Section 4.2 b), the HK Sustainable Energy Authority can become a sub-unit of the bureau.

Good Practice 1: Australia: Sustainable Energy Development Authority The NSW government’s sustainable energy development authority (SEDA) regulates green power schemes in that state: since inception of these schemes in April 1997, approximately 15,000 domestic customers and 800 businesses have joined and there has been an investment of 26 M (A$) in renewable energy projects associated with the schemes (IEA, 1998).

b)

Setting up a GD-HK Wind Energy Coordination Office New GD-HK cooperation institutions on wind energy such as GD-HK Wind Energy Coordination Office, can be created both by setting up new units or groups designated for wind energy development in the existing GD-HK crossborder institutions such as the GD-HK Sustainable Development and Environmental Protection Cooperation Committee and Pan-Pearl River Delta Environmental Protection Agreement, or by establishing new institutions.

The proposed GD-HK Wind Energy Coordination Office should be comprised of representatives from the GD Provincial Reform and Development Commission, Guangdong Meteorological Bureau; HKSAR’s Economic Development and Labour 16

Bureau, and the Environment, Transport and Works Buruea; Research institutions in GD and HK; and other key stakeholders.

Good Practice 2: Establishing Partnership among government units at regional and local level, and with the private sector, UK The South West Regional Development Agency and Government Office in the Region have, with local Government and business, drawn up a Strategic Framework for the Development of Renewable Energy in the South West. The framework addresses issues such as skills and awareness, markets for renewable energy and planning.

The partners have subsequently set up a not-for-profit company ‘Regen SW’ to guide the development of renewables in the region and to help deliver action under the strategic frameworks (DTI, 2005a).

The proposed GD-HK Wind Energy Coordination Office is a critical institutional setting to serve two important functions, namely integrating planning policies across the region and networking: i) Integration with Planning Policies across the Region Policy integration between RE policies and planning policies is the key to successful development of wind power.

Regional planning policies and guidelines which provide guidance to GD provincial authorities and developers about the best way to develop wind farms through the planning system should be encouraged. Agreeing the location plans for wind farms in GD with provincial authorities will be particularly useful.

Public consultation with the regional and local authorities, as well as local people, starting from the early stage of the planning process is also important so to ensure any constraints on the proposed development are taken into account.

Good Practice 3: Regional Planning Guidance in UK The UK Department of Environment, Transport and Regions have issued planning guidance for England on renewable energy (PPG 22). Similar guidance has been issued by Regional Departments in Scotland, Wales and Northern Ireland (IEA, 1998).

Good Practice 4: Planning Policy supplemented by Technical Advice Note in Wales In Wales a Technical Advice Note (TAN8) has been developed to supplement the policy set out in Planning Policy Wales and the Ministerial Interim Planning Policy Statement on Renewable Energy. TAN8 refers to the land use planning considerations of renewable energy, however UK and national energy policy provide its context. The Assembly Government has a target of 4TWh of electricity per annum to be produced by renewable energy by 2010 and 7TWh by 2020. In order to meet these targets the Assembly Government has concluded that 800MW of

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additional installed capacity is required from onshore wind sources and a further 200MW of installed capacity from offshore wind and other renewable technologies. Delivering these targets through the planning system is therefore at the core of TAN8 (DTI, 2005b).

ii) Network Networking promotes synergies between public institutions, think tanks and the private sector to facilitate the exchange of ideas, capacity and skills for the development of wind power in the GD-HK region.

The networking institutions or activities can vary in format, membership, target groups and resources. Some existing examples of such networking institutions in other countries include the European Wind Energy Association, Danish Wind Industry Association, and Energy Efficiency and Renewable Energy Network. In China, institutions such as China Wind Energy Association and New Energy Network have been carrying out important networking functions.

At present, there are no networking institutions focusing on facilitating wind energy development in the GD-HK region. The advisory groups in HK such as the Energy Advisory Committee and the Advisory Council on the Environment, on the other hand, only deal with issues within the geographical boundary of HK. We therefore propose that the following GD-HK regional institutions to be established: Table 4: Proposed GD-HK Regional Networking Institutions for Wind Energy Proposed Networking Institutions GD-HK Wind Energy Advisory Group

GD-HK Regional RE Information Office GD-HK Regional Wind Energy Meetings

Proposed Functions/ Membership/ Formats • An advisory group with key stakeholders such as the developers, investors, financial sector, the manufacturing sector, consumer groups, NGOs as members • A communication network including a monthly email update on major international, national and regional developments • An NGO-led institution to organize regular and structured meetings for stakeholders in this region to share information and experience

Good Practice 5: RE Information Office, Ireland The Irish Energy Centre established a regional RE Information Office in Bandon, Co. Cork in 1995, which provides advice and information nationally on RE as well as supporting the Irish Energy Centre’s initiatives at a regional level (IEA, 1998).

Good Practice 6: “Wind Meetings”, Denmark The Wind Meetings, organized by the Risoe research centre in Denmark, aims to facilitate

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knowledge exchange among turbine manufacturers, owners and researchers. The paradigm at the Risoe research centre was more hands-on than science-based, especially in the 1980s. This made knowledge transfer between Risoe and the other factors very effective. Gradually, this tight network of actors succeeded in building up a strong knowledge base and industry, one of the leading wind industries in the world.(Kamp, 2005).

c)

Education and Outreach

Education and outreach are needed to increase awareness and promote scientific and unbiased understanding of RE for business, policy-makers, and consumers in PRD region.

Issues tabulated in Table 5 are particularly of concern.

Education and outreach can be by means of public service ads, provides logos and carries out consumer awareness programmes. Recognition programs, on the other hand, can be used to acknowledge early significant users of wind power in the GD-HK region.

Table 5: Misconceptions and Facts of Wind Energy in GD-HK Region Wrong Perceptions/ Irrelevant Issues

Facts

Since there is power shortage in GD, no RE can be • GD has started to export electricity to Vietnam since Sep 2004 even though exported from GD to HK GD was still experiencing power shortage at that time. By the end of 2004, the electricity exported from China to Vietnam had reached 50 GWh (5千萬千瓦 時). New agreements are under negotiation to expand the trading volume. 9 As the power grids in GD and HK are not fully • Interconnection between GD and HK has already been in place for more than interconnected, HK cannot import RE from GD a decade. Worldwide there are also years of experience of connecting wind energy into power grids. There should be no unsolvable technical problem for HK to import wind energy from GD. • Linking RE trading with GD-HK EMISSION TRADING pilot scheme, which is planned to be implemented by the end of 2006, will also make green power trading feasible without involving any grid connection issues.

RE also incur substantial environmental impacts, • GD has a much larger land resource and provides more choices of wind farm e.g. noise pollution and visual intrusion sites. Proper planning guidance on wind farm sites, environmental impact assessment and construction will avoid may of the problems.

• Environmental impacts can also be mitigated by: l artistic design of the alignment of wind turbines l identify remote sites for wind farms in GD l early and thorough public consultation with local governments and local people

9

http://www.ce.cn/cysc/ny/dl/200502/19/t20050219_3110689.shtml

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d)

R&D In order to harness financial resources from the private sector, instead of having the governments on the both side to lead these R&D projects, the governments should provide financial incentives to business-led R&D efforts.

Further R&D should be conducted in the following prioritised areas: In Phase 1: • Wind resources assessment in GD – key areas include how to improve the accuracy and reliability of wind assessment by a) using complementary assessment methods, instruments; and b) producing complementary wind assessments (e.g. good use of macro-regional wind assessments together with micro-local wind assessments).

• Design of Offshore wind farm in GD • Quantifying the system costs of additional renewables, e.g. for 20GW of wind power by 2020 - these costs need to be managed and new ways found to minimise them.

In Phase 2 and 3: • Technical development for RE storage – e.g. fuel cells

4.2 Key Components in Phase 2 and Phase 3 Based on the foundations laid down by Phase 1 of the HK Wind Energy Roadmap, Phase 2 and Phase 3 will further develop a power sector reform with the establishment of HK Energy Bureau and the formulation of HK Electricity Ordinance. The ultimate aim is to achieve full market liberalization which will create and maintain a level-playing-field for all competitors (including RE suppliers). The key components in Phase 2 and Phase 3 are as follows: a)

Grid Access and Market Liberalisation Why is it important?

In general, guaranteed grid access with standardized procedures are essential for wind power as wind energy projects could be unduly delayed if they could not obtain quick, easy, and secure connections to the distribution network. Guaranteed grid access to HK’s power grid, on the other hand, can also facilitate regional green electricity trading with GD which is able to provide alternative supply sources of wind power to HK. Market liberalization initiatives of the power sector therefore put great emphasis on the role of transmission networks as common carriers and try to ensure open access to the transmission network by competitors.

What are the current problems?

The major problem with the existing SCAs is that CLP and HEC bear no 20

responsibility to allow other electricity suppliers (e.g. a wind farm owned by another power company) to connect to their power grids. Worse still, the vertical integration of CLP and HEC, where assets for the entire “supply chain” - generation, transmission and distribution, are owned by one business entity - has created a disincentive to the entry of new market participants. The two power companies are able to find technical problems an easy excuse to create discriminatory access to RE sources.

Market liberalisation as the genuine solution In fact, measures can be taken in short-term to guarantee grid access of GD’s wind power into HK’s power system. These measures include a) the formulation of a grid-access protocol which standardize the procedures, requirements and standards of grid access and b) separating the accounts and/ or separating subsidiaries from their holding companies with grid assets as their sole business. But the major drawback of these two measures is that since the ownership of the local grids will still belong to CLP and HEC, grid access of the third-party renewable projects will be subject to the discretion of these well-established power companies which are not keen on developing renewable.

The genuine solution, therefore, lays in market liberalization - breaking down the vertical integration of asset ownership of the power sector, and introducing competition - is essential to open up grid access. By this, suppliers will be prohibited from owning the grid system, and hence cannot impose discriminatory access to wind power sources. Only by doing so, the inherent conflict of interest over access pricing can be avoided.

Key issues to be addressed for market liberalization The keys to market liberalization are a) how to finance the regaining of the asset ownership of the transmission and distribution systems network, and b) how to set up the associated governance framework including the demarcation of the responsibilities.

Different options such as selling the assets by initial public offering of the shares, by legislation or by an outright purchase by the HKSAR Government should be further evaluated.

Prospects of market liberalization in GD China has been undergoing power sector reform, with market liberalization as one of the key objectives. In the long-term, market liberalization in GD will further facilitate wind power development in the GD-HK region. b) Energy Bureau The energy-related policies are now mainly resided in two bureax, namely the Economic Branch of the Economic Development and Labour Bureau, and the Environment, Transport and Works Bureau. Because of the lack of coordination, the current policy-making processes of the two bureax often work against an integrated approach which is essential to renewable energy development.

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Due to the complex nature of renewable energies which often face a range of inter-related issues (from economic issues to environmental issues and planning issues) and market uncertainties, HK needs a new energy agency. The agency’s functions should include: • Undertaking energy planning with a regional perspective; • Coordinating and overseeing the development and implementation of RE policies programmes; • Building up capacity and establishing a daily working partnership with its GD counterparts for the promotion of regional development of renewable energy; • Formulating transparent monitoring rules and procedures for the ongoing assessment of the RE policies in GD-HK region; • Mediating conflicts among stakeholders of the power sector; and • Promoting R&D, education and information dissemination on RE.

In order to protect the interests of all stakeholders, the proposed Energy Bureau should NOT be comprised of representatives only from the government and the utilities. Other stakeholders including consumer groups should also be included. c)

HK’s Electricity Ordinance The Schemes of Control Agreements (SCAs) regulating the two local power companies, the CLP and the HEC, are voluntary agreements signed respectively with the HKSAR Government. The major drawbacks of the SCAs are firstly, there is no regulatory effort in market liberalization, and secondly, there is no incentive to introduce competition and new entrants.

HK therefore needs an Electricity Ordinance which should a) develop a full set of regulatory rules for the power market to ensure fair competition and to police abuse of market power, and b) facilitating market liberalization.

Specifically for the promoting of RE development in HK, the proposed HK Electricity Ordinance should also: • Set RE targets (see Good Practice 7, pp 23) • Ensure favourable buy-back rates for RE (see Good Practice 7, pp 23) • Ensure grid access of RE suppliers (see Good Practice 8, pp 23) • Require utilities to develop RE plans (see Good Practice 9, pp 23) • Define RE (excluding energy-from-waste and nuclear power from RE) It is particularly worthy to note that an Energy White Paper can be used as a transitional tool to a new electricity ordinance to support RE development, as in the case of UK’s Energy Act (See Good Practice 10, pp. 23).

Good Practice 7: EEG, Germany Germany creates powerful support for RE development by the implementation of the “Act on Granting Priority to Renewable Energy Sources, or in short Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG) which has become effective since 1 April, 2000 to replace the former Feed Law on Electricity from Renewables.

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The EEG includes a number of adjustments aimed at promoting the penetration of renewables and at creating equal burden sharing between German utilities in relation to the extra costs in connection with RE. The key features of EEG include:

• A concrete target is at least to double the share of renewable energy sources in total energy consumption by the year 2010;

• The feed-in tariffs are not dependent on the market price of energy but are defined in the law.

• The feed-in tariffs are decreased over the years in order to take into account the technological learning curves.

• The costs associated with connecting installations to the grid shall be born by the installation operators.

• The costs associated with upgrading the grid in order to connect new RES installations shall be born by the grid operators.

• Transmission grid operators shall be obliged to equalize differences in compensation payments to RES-E amongst themselves.

(Meyer, 2003).

Good Practice 8: the Public Utility Regulatory Policies Act (PURPA) of the United States in 1978 PURPA requires utilities to purchase power from RE developers and to pay the utility’s avoided cost, i.e. the cost that the utility would have incurred by generating or otherwise supplying the power itself. As a result of PURPA legislation, more than 12,000 MW of RE projects were developed during the 1980s and 1990s (IEA, 2004).

Good Practice 9: requiring utilities to development RE Plans, Australia A legislation passed in New South Wales (NSW) in December 1995 requires electricity distributors and retailers to develop1, 3, and 5 year plans for purchasing RE as part of the procedure required to obtain an obligatory licence (IEA, 1998, 59).

Good Practice 10: Using a white paper as a transition to an energy act, UK The UK has demonstrated a effective use of a white paper as a transition to a new energy law to support RE development.

The UK government published the Energy White Paper, ‘Our Energy Future – creating a low carbon economy’ in February 2003, which signify a clear intention on the part of a government to pass a new energy law.

The White Paper set out a long term framework for policy development with four key objectives: achieving the four goals of energy policy:

•

cut carbon dioxide emissions

•

maintain reliable energy supplies

•

promote competitive energy markets and

•

ensure homes are affordably heated

Those commitments from the Energy White Paper requiring primary legislation were later met via the

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Energy Act which received Royal Assent on 22 July 2004. The Act provides the legal support to the Government’s commitment to a sustainable energy policy for the future whilst taking responsibility for cleaning up the nuclear legacy of the past. It implements commitments in the 2003 Energy White Paper and the 2002 White Paper “Managing the Nuclear Legacy” (DTI, 2005a)

d) RE Certificates Trading Policies supporting wind energy need to evolve with changes in the market conditions and institutional settings. Hence, in Phase 2 where the market conditions and institutional settings for wind energy are expected to be improved by the groundwork in Phase 1, new policies such as RE certificates, also called tradable renewable energy certificates (TRC), which rely on a market where the consumers value the environment more, can be introduced.

In a RE certificates system, TRC are sold separately from the electricity itself. Thus a renewable energy producer sells the actual electricity to one customer at a competitive price, and then also sells an equivalent amount of TRC representing that electricity to another customer for an additional price (Meyer, 2003). A good example is the Jade Electricity programme in Shanghai (see Good Practice 11, pp24) The HKSAR Government, the business sector (especially the big companies such as Hong Kong Disneyland, HSBC) will have important role in stimulating the development of a RE certificate system in HK by adopting a green procurement policy of wind energy.

Good Practice 11: “Jade Electricity” in Shanghai

Logo of Jade Electricity Implemented since 2005, the Shanghai Green Electricity Scheme offers electricity consumers in Shanghai the opportunity to buy certain amount of green electricity for which a premium needs to be paid. The scheme was developed with the support of the Municipal Government, the electric power company and consumers.

The Municipal Government guarantees that the additional payment for Green Electricity will be used to develop additional renewable electricity generating capacity in the Shanghai Municipality such as wind farms. Participants will be awarded a certificate of participation as a proof of participation and to show that they care about the environment in Shanghai.

To maintain trust in the scheme a transparent mechanism has been developed to verify and certify that all green electricity sold has actually been produced. This is to be done by an independent supervising

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body by auditing the green electricity accounts and by publishing the audit results.

To date, the total amount of about 7 GWh of wind and solar power is sold to fifteen companies. Some 45 GWh from new wind capacity (Chong Ming and Nan Hui wind farms) will become available.

In exchange of their purchase of Jade Electricity at extra costs, customers will receive a certificate.

Moreover, the names of the companies are published on the website (www.sh-greenpower.org). They also can apply for the right to use the Jade Electricity trademark for promotional activities.

(Source: website of Shanghai Greenpower www.sh-greenpower.org)

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Section B: GREENPEACE’S RESPONSES TO THE STAGE II CONSULTATION PAPER Greenpeace supports the government’s initiatives in the Stage II Consultation Paper to integrate environmental considerations into HK’s energy planning. In particular, Greenpeace supports the following proposed regulatory measures in the Stage II Consultation Paper: • Rewarding RE infrastructure with a higher permitted rate of return (Section 2.58); • Rewarding improvements in performance in energy conservation, demand

side management, operational efficiency, or emissions reduction (Section 2.45); and • Reducing the permitted rate of return of any power company which fails to

meet the statutory emission caps as financial penalty (Section 2.45).

Greenpeace, however, is of grave concern about the following issues: 1.

Failure in imposing strong terms in post-2008 SCAs to facilitate wind energy development in HK It is disappointing that the consultation paper fails to seize the 2008 SCAs Review to impose new conditions in the post-2008 new SCAs to stimulate CLP and HEC to develop regional wind energy planning.

We propose that the new SCAs agreements should impose new terms which: • Introduce Renewable Portfolio Standard which set a target quantity of renewable energy to be included in the electricity mix by a specific date; • Guarantee a preferential rate of return for wind energy; • Guarantee grid access; • RE definition is clarified with “energy-from-waste” and “nuclear power” not qualified as RE.

2.

Lack of a holistic approach to facilitating wind energy development As illustrated by our Roadmap, wind energy development in HK is not a domestic and short-term issue. A holistic strategy is the key to overcoming the many market and institutional barriers, and ultimately facilitate RE development in HK as well as in the region as a whole.

While we support the consultation paper’s suggestion on providing a preferential rate of return for RE investment, we are of grave concern that this is a piece-meal measure and will NOT effect genuine RE development in HK. Instead, a holistic strategy as presented by our Roadmap should have regional perspective and a long-term vision. The key components of a holistic strategy

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suggested in our Roadmap are recapped as follows: • • • •

Wind vision and wind energy targets to be set; GD-HK RE cooperation platforms to be established; Market reform with market liberalization as the ultimate goal; Institutional Reform with the establishment of HK Energy Bureau as the ultimate goal; • HK Electricity Ordinance to be formulated; and • Supportive policies for wind energy such as RPS and feed-in-tariffs to be formulated.

It is an issue of particular concern that in the Phase II Consultation Paper the HKSAR Government fails to demonstrate recognition of the urgent need for building up a much closer and dynamic working relationship with its Guangdong counterparts for regional energy planning. The HKSAR Government instead only suggests a passive approach as to “continue to monitor” the developments in GD, “enhance liaison” with the relevant Mainland authorities, and “make preparations” as proposed in Section 2.10 of the consultation paper.

As discussed in Section 1.3 in Part A, the SCAs review in 2008 is the opportune time for HK to foster regional cooperation on energy planning and wind energy development. HKSAR Government should take a much more proactive role working in a partnership with the counterparts in GD, and develop and endorse a GD-HK strategic roadmap with action plan that has time frame to phase out coal and develop wind energy.

In particular, HK being more explicit in planning to import wind power from GD is particularly important because the Mainland authorities plan and develop their power system according to forecast demand in the Mainland. This implies that the HKSAR Government should formulate an explicit wind energy target in HK so that the Guangdong authority can take HK’s demand on wind energy into its provincial RE planning.

3.

Anti-pollution measures including Flue-Gas-Desulphurisation (FGD) plants, are costly, involve years of planning and yet are insufficient to help CLP and HEC meeting the 2010 emission reduction targets set by the government. These anti-pollution measures should not be entitled to any rate of return.

CLP has proposed to retrofit four coal-fired generating units with FGD plant whilst HEC has proposed to retrofit four units with FGD plants in their latest financial plans covering the period up to 2008.

Greenpeace disagrees with the proposed new regulatory arrangements in the Stage II Consultation Paper (Section 2.58) that emission reduction facilities, including FGD plants, will be entitled to the permitted rate of return.

The general public in HK has been bearing the huge external social costs of the polluting production activities of the two local power companies in a no-choice condition. The power companies should bear the full costs of its pollution acts by

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internalizing the social costs of its power production into its production costs. Hence, FGD plants and other emission reduction facilities should NOT be entitled to any permitted rate of return. The power companies should stop shifting the social costs to consumers.

Among all emission reduction facilities, FGD plants, in particular, should not be counted as regulated assets because:

• The FGD plants are expensive. The investment in FGD plants should be better spent on RE facilities. The estimated costs of retrofitting CLP’s four coal-fired generating units with FGD plants are HK$6.8 billion – an amount adequate to build about 10 wind farms of 100 MW generation capacity in Guangdong. 10CLP should be discouraged to make substantial capital investment to extend the lives of its coal-fired power units.

• The FGD plants involve years of planning and CLP and HEC will still fail to meet

the 2010 emission reduction targets. According to the estimation of CLP and HEC, the two power plants will not be able to meet the 2010 emission reduction targets and will only be able to meet the target at around 2011 and 2012 when their FGD plants are fully implemented.

• The modifications will further delay the retirement of CLP’s coal-fired power units.

Our view is shared by Dr Sarah Liao, the Secretary for the Environment, Transport and Works. In an interview aired on 26th February, 2006 with “Hong Kong Connection” （鏗鏘集）, a documentary programme of Radio Television Hong Kong, Dr Liao makes this comment: “the power companies make profits by running this business. Pollution control is part of their production cost. It should be internalized, and the cost burden shouldn’t be shifted to the consumers.” 11 4.

No time frame to phase out coal Although it is a stated policy that the HKSAR Government will issue no new license for coal-fired power plants after the existing ones retire, this policy by no means can substitute a forceful policy of phasing out coal with clear time frame. This is particularly an issue of concern as there are numerous cases around the world that the lifespan of coal-fired power plants can be substantially extended to more than 40 years with today’s advanced technologies.

5.

Lacking the political will to introduce carbon tax to rectify the market failure Not only does the HKSAR Government wrongly “encourages” the coal-fired plants to extend their life-span by offering the rate-of-return to FGD, the government on the

A new wind farm with a generation capacity of 100 MW is currently being built in Huilai, Guangdong, with an investment of RMB 700 million.

11 the original comment by Dr Liao in Chinese wordings: 「電力公司利用這個行業為自己賺錢，排污就是 他們成本之一，應計算在內，而不應把排污費用轉嫁消費者。」 10

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other hand also fails to use economic measures such as carbon tax to rectify the market failure in the power sector.

Carbon tax is a tax on energy sources which emit carbon dioxide into the atmosphere.

Some European countries including Sweden, Finland, the Netherlands and Norway have introduced carbon taxes in the 1990s. 12 In the long run, the government’s intervention into the market by imposing carbon tax is essential to rectify the power market in which social costs of air pollution are not fully reflected in the market.

CONCLUSION This position paper lays out a roadmap for HK to phase out coal-fired electricity and develop wind energy in HK, as well as identifying the limitations of the proposed regulatory measures in the Stage II Consultation Paper.

HK cannot attain meaningful development of wind energy if we keep limiting the RE potential in our physical boundary. The key to steering our energy system towards a more sustainable one is to reshape energy planning in HK with a regional perspective and with a vision.

In fact, the GD-HK region is already in a position of strength to effect large-scale development of wind energy. Advantages in this region include access to global financial markets, large markets for energy and higher living standards which imply that our population has a higher desire for clear air and is more willing to pay more for green electricity.

As proposed in HK Wind Energy Roadmap, putting vision into action and achieving the 2020 wind energy target will call for a region-wide effort with a holistic approach so as to secure the commitments from governments on both sides of the border, and also harness the input from the private sector and the civil society.

12

http://en.wikipedia.org/wiki/Main_Page

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Appendix 1: Definitions of RE

Country/ Definition International Organisation International Energy Agency

United Nations Environment Programme

European Community

o

“Renewable Energy” is energy that is derived from natural processes that are replenished constantly. In its various forms, it derives directly or indirectly from the sun, or from heat generated deep within the earth. Included in the definition is energy generated from solar, wind, biomass, geothermal, hydropower and ocean resources, and biofuels and hydrogen derived from renewable resources.”

(Source: Renewables Information 2002, International Energy Agency, pp. iii, 2002)

o

The renewable products are: hydro (with no differentiation of large, medium or small), geothermal, solar photovoltaics, solar thermal, tide, wave, ocean, wind, solid biomass, gases from biomass, liquid biofuels, and renewable municipal solid waste. Renewable municipal solid waste consists of the biodegradable part of municipal waste products that are combusted directly to produce heat and/or power and comprises wastes produced by the residential, commercial and public services sectors that are collected by local authorities for disposal in a central location. Hospital waste is included in this category.

(Source: Renewables Information 2002, International Energy Agency, pp. 8, 2002)

o

Sources of renewable energy exist in the form of direct and indirect solar radiation, the heat of the earth (geothermal energy), and the gravitational effects of the moon that creates the tides. Direct solar radiation striking the earth also drives the global weather system and photosynthesis. This, in turn, creates the wind and waves, as well as biomass (plant and animal matter).

(Source: Natural Selection: Evolving Choices for Renewable Energy Technology and Policy, United Nations Environment Programme, pp. 5, 2000)

o

The main sources of sustainable biomass include: industrial and agricultural wastes; organic wastes from animal husbandry; energy crops and residues domestic and municipal wastes (Source: Natural Selection: Evolving Choices for Renewable Energy Technology and Policy, United Nations Environment Programme, pp. 12, 2000)

o

Mixed solid municipal waste contains items such as plastics that can be burned to generate heat, but these plastics are derived from fossil fuels. Municipal waste also includes glass, metals, and ceramics that cannot be combusted. Therefore, mixed municipal waste is not technically a biofuel. Hazardous waste regulations may also prohibit burning municipal solid waste.

(Source: Natural Selection: Evolving Choices for Renewable Energy Technology and Policy, United Nations Environment Programme, pp. 36, 2000)

o

‘Renewable energy sources’ shall mean renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases);

o

‘Biomass’ shall mean the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste; (Source: Directive 2001/77/EC of the European Parliament and of the Council)

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Country/ Definition International Organisation United States

o

Renewable energy resources: Energy resources that are naturally replenishing but flow-limited.

They are virtually inexhaustible in duration but limited in the amount of energy that is available per unit of time. Renewable energy resources include: biomass, hydro, geothermal, solar, wind, ocean thermal, wave action, and tidal action.

(Source: Energy Information Administration, US Department of Energy. http://www.eia.doe.gov/glossary/glossary_w.htm)

o

The renewable energy resources in Renewable Energy Annual 2001, EIA, US DOE include biomass (wood, wood waste, municipal solid waste, landfill gas, ethanol, and other waste); geothermal; wind; wind; solar (solar thermal and photovoltaic); and hydropower.

Abbreviations (according to alphabetical order) : l l l l l l l l

CLP: CLP Power FGD: Flue-Gas-Desulphurisation GD: Guangdong HEC: Hongkong Electric Company HK: Hong Kong SCAs: Scheme of Control Agreements RE: Renewable Energy RPS: Renewable Portfolio Standards

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