Hong Kong's electricity market prides itself on its safety, reliability and affordability. However one final energy policy objective – environmental performance – is less than satisfactory. An overestimated electricity demand and the use of carbon-intensive fuels has resulted in a situation where electricity generation has become the largest contributor to local carbon emissions.

Hong Kong's electricity market prides itself on its safety, reliability and affordability. However one final energy policy objective – environmental performance – is less than satisfactory. An overestimated electricity demand and the use of carbon-intensive fuels has resulted in a situation where electricity generation has become the largest contributor to local carbon emissions.

The government has just kicked off a three-month public consultation on the future development of the electricity market. As of right now, we do not see any clear direction from the consultation paper on the two main concerns expressed by green groups: (i) encouraging power companies to save energy and (ii) connecting renewable energy to the grid.

We believe that finding solutions to these two issues will impact significantly on Hong Kong’s ability to combat climate change. In order to make our electricity market more sustainable, the government and the power companies need to promote energy saving and fully utilize the potential of renewable energy in the post-2018 landscape.

The current Scheme of Control Agreements (SCAs) claim to promote energy efficiency by providing the power companies with incentives. In reality, these incentives have minimal impact. Now, when the power companies achieve a certain energy saving target (CLP: 12 million kWh and HEC 3 million kWh) – equivalent to less than 0.1 per cent of the city’s electricity total consumption – they enjoy an additional rate of return. On the contrary, when they fail to achieve these targets the power companies are neither penalized nor punished.

In addition, when investing in the electricity market, the returns for the two power companies are guaranteed by the SCAs; but investments made by the private sector in renewable energy are not protected by such agreements. Interested parties have to negotiate directly with the power companies for the terms of connecting their power with the grid – a complicated process which ultimately hinders the development of renewable energy.

We request that the government adopt the following two measures when reviewing the Scheme of Control Agreements (SCAs):

1. Improve the incentive/penalty scheme:

More ambitious energy saving targets need to be adopted, namely: (i) increase the annual electricity consumption reduction target to one per cent; (ii) set a peak demand reduction target of a four per cent drop in five years, with the aim of controlling the expansion of the utilities’ investment in fixed assets. Instead of an incentive-only mechanism, we suggest that an incentive/penalty scheme be implemented: if the power companies achieve a target, they can enjoy an extra rate of return on newly-built units; and if they fail to meet a target, then a certain rate of return would be deducted.

2. Open up the grid to distributed generation:

The current capacity of the installed solar power system in Hong Kong, by both the public and private sectors, is 1,500 kW. To promote investment in small-scale renewable power installations for distributed generation, the government and the power companies should liaise with interested third parties and set a fair agreement and a fair price for distributed generation and grid connection. Small-scale solar power installations (with a capacity lower than 50 kW) should be prioritized and given fair terms which include technical, financial, legal and safety arrangements.

We hope that today’s unhealthy electricity market can become healthier and “fitter”, offering fair opportunities for Hong Kong’s citizens, corporations and power companies, while promoting energy saving and the development of renewable energy.

Online petition page: http://apps.wwf.org.hk/electricitymarket/indexen.php

Signatories (in alphabetical order):
Clean Air Network
Friends of the Earth (HK)
Green Power
Green Sense
Greeners Action
Greenpeace
Produce Green Foundation
The Climate Group
WWF-Hong Kong

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Joint statement: Hong Kong needs a “fitter” electricity market

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