Hong Kong mulls future role of costly gas

A new public consultation on Hong Kong’s fuel mix for power generation – set to be launched before the end of the year – could see gas downplayed in the island’s future, potentially nullifying a previous government proposal that envisaged it being a key fuel by 2020.

In 2012, the Hong Kong government’s Climate Change Strategy and Action Agenda set targets for reducing carbon intensity in the territory by 50-60% by 2020, compared with levels in 2005. With power generation accounting for two-thirds of greenhouse gas emissions in Hong Kong, its fuel mix was a key component of the plan.

Additional targets were also set for 2012-2020 covering specific pollutants such as sulphur dioxide and nitrogen oxide. Hong Kong’s two power companies, CLP Group and Hong Kong Electric (HKE), each have specific annual reduction targets running to 2017 for these pollutants.

The government’s previous proposal called for a 40% share for gas in Hong Kong’s power generation. This was expected to require the two utilities to double the amount of gas they used to meet the emissions targets.

However, a backlash over proposed tariff hikes to cover the costs of increased gas imports from China has heaped pressure on the government and CLP, the larger of the two utilities. CLP started importing expensive piped gas from PetroChina’s second West-East Pipeline (WEP II) earlier this year.

Both CLP and the government have recently signalled they are looking at alternatives to the extent and pace of the switch from coal- to gas-fired power that was initially proposed.
Revisiting fuel mix targets

Hong Kong’s Environment Bureau – which is responsible for developing policies on environmental protection and also has regulatory oversight of the electricity sector – suggested earlier this year that the initial fuel mix proposal in 2010 calling for CLP and HKE to double the amount of gas they use may now be too high.

Deputy Secretary for the Environment Vivian Lau told lawmakers in January that emission controls following the installation of sulphur scrubbers at some of the power companies’ coal-fired units had been more effective than anticipated, and could mean the two companies could reach the 2015 emissions targets without having to double the amount of gas they use.

Lau’s comments came a day after the Environment Bureau told local legislators CLP and HKE would need to burn more gas to meet emission caps in the coming years, and gas could account for as much as half of locally generated electricity.

The Environment Bureau later confirmed it would be reviewing the emissions targets that had been set in 2010, as well as holding another public consultation on the proposed power generation fuel mix before the end of the year.

“We plan to consult the public on the future fuel mix within 2013,” said Wong Kam-sing, secretary for the environment.

Bill Barron, adjunct professor at the Institute for the Environment at the Hong Kong University of Science and Technology, told Interfax recent developments in the gas sector, closer coordination on environmental policies within the Pearl River Delta (PRD) region, and the prospects for nuclear power, had all changed the context for setting Hong Kong’s fuel mix.

Arguments have been put forward about alternative ways to meet emissions targets, as well as how Hong Kong’s fuel mix might be coordinated with others in the PRD region to attain a better regional optimum, said Barron, who works for the Environment Bureau.

Cost pressures

CLP has also indicated it is exploring options to limit the amount of gas it is using, despite the start of deliveries from WEP II in the second quarter to replace diminishing supplies from its existing long-term contract with China National Offshore Oil Corp. (CNOOC).

The company has faced a backlash from legislators and the public over suggestions the power tariffs it collects will need to rise by as much as 40% to cover the costs of the new gas, which is nearly three times as expensive as the older contract for gas from CNOOC’s offshore Yacheng 13-1 field.

CLP has defended the tariff rises, arguing more gas is needed to meet the government’s emissions targets, and that a 2008 memorandum of understanding signed between China’s National Energy Administration and the Hong Kong government locked the territory into sourcing gas exclusively from the mainland.

However, Paul Poon Wai-yin, CLP’s managing director, suggested last month the company would limit the amount of gas it used from WEP II to control fuel costs.

“We will use less of the natural gas from WEP II, which is more expensive, and purchase more low-emission coal,” said Poon Wai-yin, in the context of controlling fuel costs.

A spokesperson for CLP told Interfax the company planned to work with CNOOC to optimise the use of the Yacheng 13-1 gas field to reduce use of the more costly replacement gas from WEP II, and that the company would also purchase more low-emission coal to reduce gas consumption.

CLP also plans to enhance the operational performance of emissions control equipment and the efficiency of its coal-fired generator units to help meet its emissions requirements even with a lower proportion of gas in its fuel mix, the spokesperson added.

Figures published by CLP in November indicate gas accounted for 21% of the company’s fuel mix for generation in September.

CLP told Interfax this was broadly aligned with the company’s current fuel mix of about 50% coal, 30% nuclear and 20% gas.

The share of gas is relatively unchanged from the company’s fuel mix in the two previous years, and is lower than the 30% in 2010.

C W Tso, adjunct professor at the School of Energy and Environment at Hong Kong’s City University and a former general manager of projects for HKE, previously told Interfax CLP was expected to have to increase the proportion of gas in its energy mix to 30-35% in 2013, and to 45% in 2015, to meet its licence emission caps by that time.

The nuclear factor

Although the cost pressures associated with gas have seen enthusiasm wane among power producers, the future of imported nuclear power may also influence the share of gas in any revised fuel mix for Hong Kong.

The outlook for nuclear power in Hong Kong has changed in the wake of the 2011 Fukushima disaster, and it remains unclear if there is appetite among the public and government for nuclear energy to be the territory’s main source of electricity.

Imported nuclear power from the Daya Bay station in nearby Shenzhen provided roughly a quarter of Hong Kong’s electricity needs in 2012.

The original 2010 fuel mix proposal envisioned imported nuclear power from mainland China providing half of Hong Kong’s electricity supply.