Response to “future development of electricity market in Hong Kong stage I consultation ”｜Greenpeace

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation” Foreword 1. While the energy and electricity industry powers prosperous social and economic gains, it inevitably brings disastrous result as well. At present the power plants burn large amounts of fossil fuels (oil, coal and gas) for energy production, which is the direct cause of global warming and regional air pollution. With rapid economic growth, the government and the power companies should not turn a blind eye to public health, environmental protection and ignore the responsibilities of the global citizenship.

2. The two power companies, namely China Light & Power and the Hong Kong Electric Company, are the major emitters of greenhouse gases and other air pollutants in Hong Kong. Greenhouse gases and other air pollutants are largely emitted from power plants owned by two power companies, namely China Light & Power and the Hong Kong Electric Group.

2002 Total 2002 Public Electricity Generation 2003 Total 2003 Public Electricity Generation

Carbon Dioxide 35,300Gg

Sulphur Dioxide 67,300 Tonnes

Nitrogen Oxides 86,400Tonnes

Particulate Matters 7,280 Tonnes

Approximately 62%

Approximately 89%

Approximately 46%

Approximately 37%

37,600Gg

90,900 Tonnes

96,600 Tonnes

7,380 Tonnes

Approximately 65%

Approximately 92%

Approximately 57%

Approximately 46%

（Source：Environmental Protection Department http://www.epd.gov.hk/epd/tc_chi/environmentinhk/air/data/emission_inve.html）

Greenpeace China

Page 1 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

3. The above-mentioned gases, including the major contributor of greenhouse gases -CO2, and the major air pollutant Sulphur Dioxide, have obviously been increasing since 2000, especially between 2002 and 2003. People’s lives and health, as well as environmental, social, economic and political development will inevitably be adversely affected by global warming and air pollution.

4. The government has neither requested the power companies to take measures preventing global warming and air pollution, such as setting threshold for CO2 emission, and deploying the permitted rate of return to cover the cost for installing desulphurisation system. Nor the power companies are ready to bear the social responsibilities for their huge profit returns. The Hong Kong citizens as well as the government are inevitably forced to bear the risk of burning coals by the power companies and its harm to our next generations.

5. The future development of electricity market, therefore, has not to be only providing reliable and reasonably charged power supply, but also to take into account of social and environmental cost, as well as sustainable development. It is necessary to set out an energy policy with incentive for energy efficiency, rather than merely focusing on the guaranteed asset-based returns under the Scheme of Control Agreement.

6. This paper presented by Greenpeace intends to underscore the principles and mechanism of the electricity market reform in the future.

Principles of Electricity Market Reform 7. I: An energy policy with incentives for renewable energy technology 7.1 Why Renewables?

7.2 Devastative effects of coal-burning emissions: Climate change – Global warming is the worst environmental problem we face today as a result of climate change. Serious greenhouse effect brings extreme weather, and the ecosystems as a whole will be interrupted, becomes unpredictable, devastative and catastrophic. Climate change will not only have severe impacts on social and economic losses, but increase existing risks of species extinction and biodiversity loss. Scientists agree that abnormal climate change is induced by human activities, particularly to our reliance on fossil fuels such as oil, coal and gas for energy needs during industrialization. Emitting large amounts of greenhouse gases, particularly CO2, is the major cause of damage to the climate.

According to various surveys conducted by different local, national and international agencies, the evidence of climate change were found coincidentally: （a） It has been estimated by WHO that 160,000 people died annually from diseases directly attributable to global warming. The number of deaths doubles by 2020.

Reinsurance Company Munich Re said that the coming summers would be hit by the heat wave as in 2003. Within a decade potential financial losses as a result of climate change will amount to US$150 billion, excessively exceeding what insurance companies can indemnify.

Greenpeace China

Page 2 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

（b） According to the Hong Kong Observatory, the average temperature recorded last year was 0.4°C higher than its usual value. Very likely the temperature would exceed 28°C at night during summers and above 12°C during winters in the future. （c） In June 2004, China Meteorological Administration issued a study report and estimated that between 2020 and 2030, the average temperature in China would increase by 1.7 Celsius degrees. By 2050, the temperature would increase by 2.2 Celsius degrees. Drought would be intensified at the northern and northeast regions, while the Guangdong Province has encountered the most severe drought in 50 years, resulting adverse and lasting impact on agricultural, social and economic development.

Glaciers would shrink 27% and the Pearl River Delta would encounter serious flooding, with the water level of in the region likely to rise by as much as 26-28 cm by 2100.

Coal-burning power generation definitely led to such a global crisis.

7.3 Developing renewable energy is the global trend – The clean and safe renewable energy is the solution to avert climate change, minimizing the damage caused by burning fossil fuels. While the technologies for renewables have been developing rapidly, energy analysts agree that wind energy is the most economical renewable energy, evidenced by 20% cost reduction in last 5 years on wind power generation, making it as competitive as conventional coal burning plants. Wind energy is clean, free of emissions of CO2 and other greenhouse gases blamed for global warming. Statistics released by European Wind Energy Association shows that during the last 6 years the EU wind energy market has cumulative wind power capacity increased by 20% to 34, 205 MW at the end of 2004, representing a wind turbine manufacturing turnover of some €5.7 billion. In early January, the international climate change task force of the Group of Eight leading industrial countries proposed to their national leaders that all G8 countries should set a lead by adopting national targets to generate at least 25 per cent of electricity from renewable energy sources by 2025 to achieve large emissions reductions.

7.4 Hong Kong People Support Renewable Energy: The following are the results of 3 latest opinion surveys: （a） In July 2003, Greenpeace commissioned the Centre for Social Policy Studies of the Hong Kong Polytechnic University to launch the Opinion Survey on Renewable Energy. Over 1000 people were interviewed successfully by random sampling.

Greenpeace China

Page 3 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

61.4% of the respondents have heard of “global warming”. Most of them understood the impact of global warming includes: thawing of the two poles (80.5%), worsening climate change (75.2%), rising the sea level (67.6%) and air pollution (62.7%).

Over 90% supported the development of renewable energy in Hong Kong so as to reduce air pollution (85.5%) and stop climate change (58.6%). Furthermore, 60% thought that developing renewable energy would provide employment opportunities (58.6%) and lower the electricity tariff (57.9%).

73.9% agreed that the SAR Administration as the largest electricity consumer, was accountable for implementing renewable energy policy. 63% agreed that the two power companies had responsibility to develop renewable technologies.

（b）The Census and Statistics Department of the SAR Administration launched the 《Thematic Household Survey Report No. 17》in April 2004. 2,172,600 households were interviewed on the opinions on electricity supply in Hong Kong. (See p. 9-38 of the report) -

63.6% supported the government launching renewables such as solar power and wind power; 45.8% thought that all the households should choose renewable energy and bear the related costs collectively, while 38.6% thought the costs should be borne by those who used renewable energy.

（c）The Council for Sustainable Development launched the Responses to the "Invitation and Response" Document on public opinion on developing renewable energy on 13 December 2004.

86% thought the SAR government should start planning to generate electricity from the renewables; - Even though renewable energy might be more expensive than using fossil fuels, 82% agreed the citizens to pay more, of which 40% thought the government should bear the out-standing costs, while the remaining 42% thought it should be the consumers 73% did not object to having the renewable energy facility in their neighborhood, depending on the type of facility.

7.5 The Council for Sustainable Development suggested that the SAR Administration should formulate concrete guidelines and policy with clear directions. That includes: Opening the electricity market for power utilities generating electricity from renewable energy sources by 2008; providing incentives for power companies to generate electricity from renewable energy by 2006 such as installing Renewable energy facilities in the governmental buildings, appropriate town planning; producing certain percentage of Renewable energy by the power companies by 2008.

7.6 The legislative councillors support renewable energy: the Legislative Council endorsed Greenpeace China

Page 4 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

the motions on 17 January 2001 and 30 October 2002 respectively, urging the SAR administration to provide support and incentives to facilitate the research and application of renewable energy resources. Furthermore, the administration should collaborate actively with the Guangdong Provincial Government and the Pearl River Delta authorities in studying the feasibility of developing and introducing renewable energy resources.

7.7 Central Government’s objectives on developing renewable energy: China has the third largest wind energy reserve in Asia. It is targeted that by 2010 at least 10% of the electricity would be generated from renewable energy source, of which wind-generated electricity has an average growth of 21.8% during the past three years, making the wind industry in China listed top 10 in global wind energy markets. (《Wind Force12》, Greenpeace/EWEA, 2004 p.19-20). The Central Government has been actively drafting the “Renewable Energy Promotion Law”, expecting to take effect next year pushing the nation toward renewable energy and addressing the issues of energy shortages and environmental protection. Preliminarily there will be 3 underlying principles in the Renewable Energy Law: 1. Each province should formulate guidelines on renewable energy on their own merits; 2. “Fixed Electricity Tariff”: The grid companies should stipulate a long-term and stable electricity tariff so as to reinforce the electricity suppliers’ confidence; 3. “Tariff Apportionment”: Government, grid companies and consumers respectively should bear part of the initial capital costs of RE. 7.8 To provide incentives for developing renewable energy in the electricity market in the future is to allow Hong Kong to: a) bear the responsibility as a “Global Citizen” to reduce CO2 emissions; b) respond to the public opinion, and allow citizens rights to opt for renewables; c) Follow the global trend and China’s development of renewable energy, and to grab the opportunities generated from this new industry.

8. Principle two: Sustainable Development in the region 8.1 The risk of global climate change- The biggest-ever drought in Guangdong Province in the last 50 years as well as the rise of coastal water level are the best examples of global warming. The Pan-Pearl River Delta area is sharing the common threat with the Guangdong Province. Based on the existing power grid arrangement between China Light & Power and the Guangdong Province, The Hong Kong SAR government can speed up the integration of the local electricity network with the power grid in the Guangdong Province, developing the energy supply strategy for the region.

8.2 The importance of acquiring a regional perspective- Environmental protection is one of the 10 major issues discussed in the “Pan-Pearl River Delta Regional Co-operation and Development forum”. This demonstrates that the members in the Pan-Pearl River Delta area agreed that sustainable development is a common responsibility. In the area of electricity reform and the development of renewable energy, Guangdong province is taking the lead amongst other provinces. Measures taken include enhancing the freedom and competitiveness of the electricity market, like the separation of the plants from Greenpeace China

Page 5 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

power grids. In addition, it tackled the serious problems of air pollution, acid rain and abnormal climate, The Development and Reform Commission of the Guangdong Province set a “standard rate” for wind power. It also requires electricity companies for buying the wind power from wind power generating companies. The price is set at RMB 0.528 Yuan per unit ( in 2004), which is higher than that of the price of electricity power which comes from burning coal. This measure not only gives confidence to wind power generating companies for the initial investment but also promotes business development of renewable energy, thus increasing the competitiveness in the market of renewable energy. The Guangdong Province and Hong Kong, can grasp such opportunity of electricity reform in both regions, moving towards the direction of sustainable development.

8.3 With the network between Guangdong province and Hong Kong getting more mature, the mainland increases the transmission of electricity to the neighbouring countries.

8.31 Starting from 1996, China Light & Power is selling electricity to the mainland. For the year ended 31 st December 2003, a total of 3,008 million units of electricity, or 3billion kilowatts/hour were sold to the mainland, which represents an increase of 38.3% than the previous year. The customer includes Guangdong Guangdian Power Grid Co., Ltd. and Shekou Indsustrial zone.

8.32 In 1982, the Central Government gave the go-ahead on the construction of nuclear plant at Daya Bay. China Light & Power now owns 25% of the Daya Bay Nuclear Plant.

Starting from 1994, the Daya Bay Nuclear Plant began transmitting electricity to Hong Kong. About 70% of the electricity generated at the Daya Bay Nuclear Plant are transmitted to the power grid of the China Light & Power. According to the 2004 Annual Report of CLP Holdings, nuclear power accounts for 27.8% of CLP power total generation capacity, which supplies electricity to more than 1.5 million HK citizens for a year. In other words, one out of five HK citizens is using nuclear power and it is a huge capacity. During the last decade, the co-operation between China Light & Power and Daya Bay Nuclear Plant does not affect the stability of electricity supply.

8.33 On 25th September, 2004, Chinese Government transmitted electricity to other countries through the power grid for the first time, from Hekou County of the Yunnan Province to Lo Cai in Vietnam. The transmission is 4billion Watts. The annual sales of electricity is about 200 million kilowatts/hour (or 200 million units). Experts in China reckon that the successful transmission of electricity from Yunnan Province to other neighbouring countries demonstrated that a new economic direction- the “4th economic channel”- is forming. Critics argue that on one hand China is still selling electricity to other neighbouring countries while the power shortage problem remains serious in the mainland. An official of the Yunnan Power Grid explained that the amount of electricity sold to other neighbouring countries is insignificant to the annual electricity generating capacity, which is 30 billion kilowatts/hour (or 30 billion units). It will not affect the electricity supply to the Yunnan Province and the Southern China Region. The “4th Economic Channel” demonstrated that the co-operation of China and neighbouring Greenpeace China

Page 6 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

countries on electricity business project is getting guarantee.1 8.4 To better utilize the wind power resources along the coastal area of Guangdong Province- To set out the development of the wind power project in the Southern China Region with the Guangdong province could bring along several advantages. First, it can reduce the emission of the carbon dioxide and air pollutants from the coal-fired power generating units, thus increasing the amount of investment and employment opportunities. Also, it can solve the problem of electricity shortage problem in the Guangdong Province. Greenpeace and the European Wind Energy Association estimated that, up to 2015, wind power can generate 2 billion kilowatts in Guangdong province. It is equal to 14% of the total electricity needed. According to the estimates from the report “Wind Force 12”, in 2020, the annual wind power generated in China will be 170,000 billion watts, equal to 12% of the total electricity demand. Therefore, it creates a total of 440,000 jobs in the market, new investment of 150 billion Euro dollars and the reduction of emission of carbon dioxide by 325 million tonnes. Wind power generation is the trend, which 50 countries have already joined. More than 100,000 people are working in this industry. Hong Kong is part of the Southern China region, therefore, the joint development of power in the region is helping Hong Kong to retain its competitive advantage, like financing, expertise training, well-established legal system and sound investment environment. In addition, as wind power will not emit carbon dioxide into the environment and it could prevent serious environmental disaster.

As said before, power grid between Hong Kong and Guangdong Province is quite matured and the frequent co-operation between the two parties on electricity projects, the enterprises in both regions can join their hands with the governments on developing renewable energy projects.

8.5 The investment on electricity business in the region from Hong Kong business communities-According to the information from the Bureau of Statistics of the Guangdong Province, Hong Kong has been the biggest investor in the Pearl River Delta.

In 2003, Hong Kong entrepreneurs had a direct investment of US$8.646 billion in the Guangdong Province. Except for the heavy investment on the manufacturing sector, the Hong Kong business consortiums have recently turned their eye on energy business in the Guangdong and Pan-Pearl River Delta region (see the table below). Manufacturing as well as the energy sector have always been blamed as the culprits for environmental pollution. The pollutants can affect everywhere and not confined to the local territories where the pollutants are generated. The table below listed the investment of coal-fire power generating factories from Hong Kong business consortiums.

Consortiums Cheung Kong Infrastru cture Limited

Investment Projects l Zhuhai Power Plant

Facilities l 2 sets of 700MW Coal-burning unit

1 Read related news, please click http://www.ce.cn/cysc/ny/dl/200502/19/t20050219_3110689.shtml and http://www.news.163.com/40926/6/117ISH7C0001124T.html Greenpeace China Page 7 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

NWS Holding Limited

l

CLP Power Asia

l

Hopewell Holding s Limited

l

l

Zhujiang Power Station Phase I & Phase II Shunde Desheng Power Station Anshun II Power Station, Guizhou Province The Shajiao 'B' and 'C' power stations, Shenzhen

l l l l l

2 sets of 600MW coal-burning unit 1 set of 273.5MW fuel-burning unit 2 sets of 300MW coal-burning unit B power station（2 x 350MW） C power station（3 x 660MW）

At the same time, CLP holdings will sell the ‘excessive’ power supply to the Guangdong Province. Although such measure would help solve the problem of power shortage in the Guangdong Province, however, it neglects the pressing issue of dealing with the global warming and air pollution in the region. In the short run, if CLP will increase the size of investment and the revenue from regions/territories outside Hong Kong and, meanwhile, the permitted rate of return guaranteed by the government could be lowered then customers can enjoy a lowered tariff. In the long run, while the economic integration in the region is taking shape, the local electricity market can be speed up the integration with the electricity market in the Guangdong Province, thus enhancing the diversity and customers could have more choices on electricity services. By doing so, it can lower the cost of power supply and can solve the power shortage as well as the environmental problems in the region.

Details of the recommended scheme 9. The Government set up a unit responsible for electricity and energy development By deploying staff from relevant policy bureaux and departments, this unit can set out new policy. Before laying down the new policy, issues like economic development, environmental protection, regional cooperation, energy efficacy, and the development of renewable energy and sustainable development should be considered. Such arrangement could prevent Economic and Labour Bureau from dominating the energy policy and solve the inadequacy of policy at present.

10. Renewables Portfolio Standard (RPS) During the initial stage of the promotion of the use of renewable energy, countries like England, Australia and several states in the US adopted the Renewables Portfolio Standard. Such mechanism requires electricity companies for making sure that a certain percentage of the power supply is coming from renewable energy sources, thus providing the choice of renewable energy for the market and customers. In such case, the electricity companies can develop its own renewable energy or buy the power from other renewable energy suppliers. According to a consultancy report, issued in 2002, from the Electrical and Mechanical Services Department, the biggest potential for developing renewable energy is the “offshore wind plant” and a joint development on wind power projects in the region. The establishment of RPS demonstrated that the government is determined on the development of renewable source of energy. The government should initiate the Greenpeace China

Page 8 of 9

A Response to the “Future Development of the Electricity Market in Hong Kong Stage I Consultation”

support services (such as leading the discussion with the Guangdong Province on integrating the electricity markets, the issue of technological development and the development of related industry), thus giving confidence to the market and investors.

11. Set up a mechanism to control pollution and emission The electricity generating process would emit gases that affect the air quality and the climate. Facing with such situation, the government should set a standard of maximum gas emission from these power plants and require all power plants to comply with. Its advantages are manifold. First, it encourages the power companies for using more renewable energy or natural gas, which emits less sulphur dioxide in production process than that of coal-fire. Second, it encourages the power companies and customer of high electricity usage to carry out demand side management. They include installing powersaving devices and prevent the use of electricity in peak time. Third, to speed up the emission trading scheme such as to organise activities in the region to promote the reduction of carbon dioxide emission. Moreover, some academics have recommended measures like levying carbon tax so as to punish power plants for emitting ‘too much’ air pollutants.

Summary 12. During the stage I consultation on “Future development of the electricity market in Hong Kong”, the government listed the inadequacies of the present “The Scheme of Control Agreements”-a regulatory regime. They include: “the permitted rate of return are considered too high in the present economic climate”, “perceived to have encouraged over-investment”, “the permitted rate of return fixed over 15 years lacks flexibility” and “the annual tariff and auditing review lacks transparency”. Obviously, “The Scheme of Control Agreements” cannot fulfil the present social needs and the need of the regional co-operation in the long-term. Therefore, reform must be carried out.

13. Greenpeace demands the government to set out a comprehensive electricity and energy policy before “The Scheme of Control Agreements” ends in 2008. By so doing, the Government must actively respond to the wake-up call from the international community which devotes to revert the climate change, fulfil the citizens’ need for renewable energy and to speed up the integration on electricity system between Guangdong Province and the Pearl River Delta region, and to focus on advantages that the renewable energy could bring forth. Facing such a global crisis, the government must also take immediate actions without hesitation.

Greenpeace China

Page 9 of 9