Balance of power

On Hong Kong and Lamma Island, with the new tariff increases at 6.3 per cent for this year, consumers pay Hong Kong Electric about HK$1.31 per kWh of electricity. In Kowloon and the New Territories, with CLP's tariff increase of 4.9 per cent, it's 98.7 cents per kWh, so just under a dollar can buy you an hour of warmth from a 1,000-watt heater.

Meanwhile, electricity users across the border in Shenzhen pay HK$1.05 per kWh, even though their living costs are generally lower overall. And Hongkongers still pay significantly less for electricity than people in London, Tokyo, New York, and Singapore.

So why is it that the tariff increases this year spurred so much public pressure, leading CLP Power in particular to eventually lower its tariff to almost half the original proposed rise of 9.2 per cent?

It may be an old power story newly alight with the momentum of other anti-corporate protests at Occupy Central and Dolce and Gabbana in the past several months. And at least in this case, the protests of the public clearly influenced the outcome.

But Hongkongers shouldn't bask in this win, warn environmental groups and policy gurus. Under our current schemes of control, agreements between our two power companies and the government first set up in 1968 and revised in 2008, the power companies can still legitimately raise their tariffs in the coming years under a profit clause that grants a certain percentage of return on their investment. For now, it's 9.99 per cent, down from the original 13.5 per cent to 15 per cent of guaranteed profit.

Actually, according to industry experts, the recent lowered tariff increase means that the power companies are not even getting their full 9.99 per cent quota this year, though of course they are still seeking - and getting - rebates on rent and costs from the government.

This is to make up for their purported loss after recently switching from coal-burning to more environmentally friendly natural-gas-burning plants - which are twice as expensive - and renewable energy. These costs are passed onto the user in increased electricity prices. And in Hong Kong, the power companies themselves have no incentive to promote energy efficiency because they profit regardless.

In the past few years, power plants have also been accused of being built above the levels of energy consumption. Reports say average demand is around 40 per cent of energy capacity in general, so much of the plants' capacity is not being used. But power plants must consider peak demand: those summer nights when everyone's air conditioner is blasting.

If you look at it that way, according to government statistics, CLP Power's local maximum demand in 2010 was 6,766MW of energy, out of a total installed capacity of 6,908MW. This means at peak times, 97.9 per cent of capacity was being used. For Hong Kong Electric the maximum demand in 2010 was 2,510MW, or 66.8 per cent of its capacity of 3,756MW.

If at peak consumption there was not enough capacity to meet demand, the power system would become overloaded, which is how power outages happen.

'The reliability of Hong Kong's power system is about 99.999 per cent - that's five nines,' said Chung Chi-yung, an associate professor and director of the Power System and Renewable Energy Research Lab at Polytechnic University.

That sounds impressive, but electricity reliability deals in the nitpicky 0.1 or 0.001 factors. US reliability is 99.9 per cent, France's is 99.984 per cent and Shanghai Power and Gas is at 99.982 per cent.

Even 0.1 per cent makes a difference. Hong Kong had one of the most reliable power systems in the world, with a blackout record second to none, Chung said. A typical HKE customer would have experienced less than a minute of unplanned power interruptions in all of 2010.

Hong Kong's last major power outage was almost two decades ago; in the US, a blackout that affected 1.4 million people occurred in San Diego last September.

According to the Galvin Electricity Initiative, power outages annually cost Americans an estimated US$150 billion in lost productivity and other costs.

'Everyone wants to have lower electricity bills,' Chung said. 'We have to understand that reliability is also important. We cannot afford to not have electricity. In Hong Kong, the reliability is very high, so we complain about the price.'

Some groups such as think tank Civic Exchange still suggest opening the market for competition, or having the government buy the energy grid.

But Chung says: 'Now we have a highly reliable power system. If we want to change it, it affects the reliability and if we have a blackout, who should be responsible for that?'

Chung admits this doesn't mean we shouldn't change, or evaluate carefully, the schemes of control, but the issue is complex and unique to Hong Kong.

Even traditional monopoly-opposed environmental groups, from WWF to Friends of the Earth, don't want to overhaul the entire energy infrastructure They suggest revising the tariff system so those who consume more electricity pay a higher price, providing an incentive for energy conservation.

They also want the Hong Kong government to educate the public, and to regulate the business sector in areas like when advertising billboards should be turned off.

Perhaps instead of everyone getting an energy subsidy of the same amount, families who use less energy should get a larger one, especially if they are poor.

'Every family, no matter if it's Donald Tsang or someone in a poor estate, gets the same amount, which doesn't help much,' said Janet Fok, development manager at Friends of the Earth Hong Kong and the organiser of its Power Smart energy saving contests. 'People use more energy if they know they will get HK$150 per month in return.'

Hong Kong would not be the first to implement these forms of managing demand instead of simply the supply from the power companies' side. In Taiwan, residential users can get a 5 per cent to 20 per cent discount on electricity if they have cut their consumption compared to the same period the year before.

In Singapore in 2008, residents who reduced their electricity consumption by 10 per cent in a contest period could enter a lottery.

Hong Kong's new building code coming into effect this September is a start, but to truly move to a low-carbon economy and a better environment, Hongkongers themselves will have to choose the price they're willing to pay.

Steve Wong, manager and founder of Billiongroup Technologies, an energy consulting firm, says that due to the profit clauses in the schemes of control, power companies in Hong Kong actually fare better than most in trying to find more expensive but environmentally friendly energy, and in developing energy-saving technologies. They know they'll get their investments back anyway.

'If there was no such agreed profit-protection clause, there would be no incentive to invest in renewable or other less-polluting energies,' he said.

Wong is also president of a non-profit organisation made up entirely of volunteers called the Hong Kong Energy Conservation Association, which goes into public places like schools for free energy-saving consultations.

According to Wong, Hong Kong's potential for developing renewable energy supplies is pretty modest, based on its geography and the fact that it is so densely populated.

'It's saving energy that really matters,' Wong said.

Wong considers himself an environmentalist first and a businessman second.

'The environment is such a big topic. You can't be a Superman,' he says. So he chooses to keep his focus narrow, on energy conservation.

And although his was the first energy consultancy in Hong Kong, starting up in 1991, his consultancy fees have lately run into eight figures. He is clearly not just a do-gooder.

The thing about the schemes of control, Wong says, is that they need to strike a balance between allowing Hong Kong to be a green city by using more green power - which means increasing tariffs - while also allowing the city to be competitive in business, which means keeping tariffs low enough that commercial enterprises will stay.

'If we had the lowest tariffs in the world, but disregarded being a green city, we'd be competitive, but our reputation would pay the price.'