OREANDA-NEWS. June 24, 2014. HK Electric submitted its response to the public consultation on future fuel mix, calling on the Government to adopt option 2 for increasing local gas generation as the blueprint for Hong Kong's future fuel mix for electricity generation.

Having considered the costs and benefits of the two options in terms of the Government's four energy policy objectives – "safety", "reliability", "environmental performance" and "affordability" - HK Electric is of the view that there is no case for a choice of option 1, as it will endanger Hong Kong’s supply of safe and reliable electricity, increase emissions, with tariff impact much more significant than that under option 2.

Two options on future fuel mix were proposed by the Government to further improve air quality and combat climate change for a 3-month public consultation commencing 19 March 2014. Option 1 calls for the purchase of 30% of total electricity demand from China Southern Power Grid Co. Ltd. (CSG) while option 2 is for increasing local gas generation to 60% of total electricity demand.

Managing Director of HK Electric, Mr. Wan Chi-tin noted: "Hong Kong has enjoyed world class electricity reliability over the years. The increased use of natural gas as fuel in local electricity generation under option 2 is best placed for the high reliability to continue."

Option 1 is untested and highly uncertain, Mr. Wan observed, and there are grave concerns on its possible adverse impacts on Hong Kong’s supply reliability. HK Electric is of the view that grid connection for electricity import under option 1 will only create uncertainties but not benefits.

"On the contrary, option 2 is a flexible and workable option that allows for gradual changes and is proven to be able to maintain Hong Kong’s world class electricity supply record. It is expected to bring about visible and measurable environmental improvements to reduce regional and Greenhouse Gas (GHS) emissions and the tariff impact will be far less substantial compared with that under option 1," Mr. Wan added.

He pointed out that in approaching the consultation, HK Electric's focus was the interests of Hong Kong as a whole going forward and that the company had been in extensive discussions with stakeholders across the community during the past three months.

HK Electric also believes that the engineering complexity and huge land demand of option 1 may lead to unmanageable time and cost over-run. Under option 1, Hong Kong will be in a very poor position to bargain for fair, reasonable and competitive import prices. Option 1 is also a very rigid choice in adapting to changes in future demand, due to its huge infrastructure investment and the long lead time required for the construction which can easily take more than 10 years.

In respect of environmental performance, Mr. Wan dismissed option 1 as merely a transfer of emissions from Hong Kong to the mainland, or the typical "not-in-my-backyard" (NIMBY) approach. "On the other hand, option 2 which is to increase local gas generation to replace coal generation, will bring visible and measurable benefits to emissions reduction not only in Hong Kong but also in the Greater Pearl River Delta region," he said.

In fact, in order to meet the emissions control requirements under the Air Pollution Control Ordinance, the proportion of natural gas in Hong Kong's fuel mix will in any event be increased to 40% by 2015, not far off from the target under option 2. This means that the required increase in local gas generation is expected to be less than 20 percentage points to meet the 60% target set out by the Government for 2023.

Responding to concerns on the volatility of natural gas prices in the future, Mr. Wan expected that the rapid gas infrastructure development along the Guangdong coast, the increasing gas supply to Asia and the commencement of off-shore gas field production in the South China Sea all have the effect of increasing natural gas supply. "Gas prices have come down from their historical peaks and will likely be stabilized at the present level with room for further reduction," Mr. Wan maintained.

HK Electric also believes that option 1 does not assist in diversifying Hong Kong's fuel mix. Based on CSG's fuel mix, the fuel to generate the electricity for supply to Hong Kong is most likely to be coal, and any notion of tapping into cleaner fuel sources is no more than illusory.

If Hong Kong is to go for option 1, it will be reducing the scale of local generation. Jobs and businesses will be sent to Guangdong at the expense of local employment and the economy. On the other hand, engineering and technical skills specializing in the safe operation of generation units will be retained in Hong Kong under option 2 to ensure high supply reliability that is expected of Hong Kong as Asia's world city.

On suggestions for Hong Kong to follow in the footsteps of Macao which imports 90% of electricity from CSG, Mr. Wan noted that Hong Kong has outperformed Macao in terms of reliability, environmental performance, diversification and affordability.

"The Macao model presents a convincing case against option 1," Mr. Wan remarked.