Sylvia Chang.
More than half the volume of pollution in Hong Kong is from burning coal for electric power. That also accounts for 68 percent of the city’s greenhouse gas emission in the government’s Hong Kong Climate Change Report 2015. In the 2013 mid-term review, the fuelmix for electric power stood at 57 percent coal-fired, 21 percent natural gas and 22 percent nuclear power (imported from the mainland).
Electric power supply in Hong Kong is franchised to a duopoly of HK Electric and CLP Power, at a rate of return of 9.99 percent on assets invested. The 10 year term of the current Scheme of Control Agreement (SCA) ends in 2018. That arrangement has served Hong Kong well in power reliability, and in one of the world’s lowest tariff rates to consumers.
Both companies invest in and own the power plants, transmission gear and distribution grids in their franchises: Kowloon, Lantau, Cheung Chau, Outlying Islands and New Territories (CLP Power), and Hong Kong Island, Ap Lei Chau and Lamma (HK Electric). That gives them enormous bargaining power with the government, while locking-in profits.
The power duopoly, guaranteed a high rate of return with no business risk, no market competition, and no accountability for negative externalities, have triggered a clamor for revision of the next SCA, from consumer watchdogs, legislators and competition advocates. There are no incentives in the SCA for the power suppliers to reduce the negative consequences of using coal as their primary fuel.
The SCA does not hold the power companies accountable for pollution damage, or the health and economic costs to the community. Business risk is also transferred to the public via the fuel price adjustment mechanism, which insulates the companies from raw material price fluctuations.
Air pollution cost the community HK$27 billion in healthcare in 2015, according to the School of Public Health of the University of Hong Kong (HKU), using the Hedley Environmental Index. Reduced coal prices gained the two companies a windfall surplus of nearly HK$4.43 billion into the Fuel Clause Recovery Accounts and the Tariff Stabilization Funds — even after their rebates to consumers.
Only a smartly revised SCA can bring a fairer deal for the community in the interests of current and future generations. That may require all stakeholders — the power companies, the public, and commercial users, to share the costs of renewable energy use, reduced pollution and a lower rate of return on investment. Above all, it requires effective leadership from the next Chief Executive, for a sustainable SCA. Use renewable energy to reduce coal pollution. New clean energy suppliers should be allowed access to power grids %