Concrete Analysis

Building owners need to pay attention to Hong Kong’s long-term energy plans

Their structures use 90 per cent of the city's electricity and so they need to step into discussions about where to get it from

PUBLISHED : Tuesday, 29 April, 2014, 2:36pm
UPDATED : Wednesday, 30 April, 2014, 2:27am

Of all the electricity sold in Hong Kong, buildings consume 90 per cent.

The government is planning on placing a big bet on where the city's electricity should come from over the next four decades.

Commercial building owners and their tenants are the largest electricity buying group by a wide margin, taking about 65 per cent of the 90 per cent.

So, when considering the government's "Future fuel mix for electricity generation" consultation running until mid-June, that group has the most reason to study the proposals, foresee the implications and voice opinions.

With the generation cost of electricity forecast to double, and the stranded cost of any underutilised or mothballed infrastructure being paid for by the customer - not by the shareholders of electricity vendors - these pending changes will affect future energy bills for building owners and tenants alike.

Should decision-makers ask for more freedom to buy clean energy, perhaps at a premium price?

The government made its first significant move in the 1990s, when it decided that no new coal-fired generating plants would be allowed after 1997.

In 2010, it made a second, putting "50-60 per cent carbon intensity reduction by 2020" on the table. Though it was never made policy, we now know meeting that goal remained the intention.

The current consultation is the third move. The government has offered only two options, although it is fair to expect that additional options and variations from such a significant buying group would be fully considered.

One option presented in the consultation is to connect Hong Kong to the giant southern China grid to supply 30 per cent of total electricity.

The other is to have that slice continuing to be generated in Hong Kong, burning natural gas piped from Turkmenistan and other sources.

In fact, the location of generation is the major difference between the two options. They are similar in the proportion of natural gas, nuclear and coal to be used. They are also very similar on matters of safety, reliability and affordability. They are even not that different in terms of attributable greenhouse gas emissions.

A second difference is the amount of flexibility that each option might allow. Local construction of new gas-fired generation for that 30 per cent will lock Hong Kong into majority dependence on natural gas for many decades. Buying that 30 per cent from the China grid leaves the source of that portion open to at least some flexibility.

Besides wanting safety, reliability, affordability and low emissions, building decision-makers should consider some broader and some deeper questions before deciding whether to support option 1 or option 2, or to ask for more information or different options.

Broader questions might include what their customers and stakeholders want with respect to energy, air quality and climate change.

Do they want low carbon? Energy efficiency? Less nuclear? How might stakeholder desires change over the next 40 years?

The 50-60 per cent carbon intensity reduction is highly commendable in today's eyes. But what about improvement beyond that?

What about clean energy options? Should building decision-makers ask for more freedom to buy clean energy, perhaps at a premium price?

An agreement with the China grid to offer an equivalent to renewable energy certificates might allow building owners to meet their own low-carbon aspirations, and/or to attract high-quality tenants who have their own similar aspirations.

Increasing the demand for clean energy should encourage more supply of it and economies of scale.

Should they ask for more freedom to generate their own electricity on site and enjoy much higher overall efficiency that is derived from using generator waste heat to power their absorption chillers?

Massive amounts of cash would be needed for interconnection systems to the mainland grid or for new gas-fired plants here in Hong Kong.

So building owners and tenants might even ask the government for something more radical: to redirect these large sums into the energy efficiency of Hong Kong buildings.

With enough energy efficiency, the need to replace some retiring coal-fired plant with either option one or two would be eliminated. And it would hand Hong Kong a long-term competitive advantage at the same time.

And if Hong Kong does decide to connect with the mainland grid, what will be the terms and conditions? If demand growth fails to materialise, is it possible Hong Kong building owners and tenants will be required to pay for electricity they don't use?

The choice made by the government will affect Hong Kong for many years to come. Building decision-makers whose energy use is significant would be wise to join this important discussion.

Robert Allender is a director of Hong Kong-based energy management advisory company Energy Resources Management