Marching toward a low-carbon economy
In 1996, near Lung Kwu Tan at Tuen Mun in the New Territories, the blades of Hong Kong’s first combined cycle gas turbine started turning, introducing natural gas-fired electricity to the special administrative region.
Roughly a decade later in 2015, natural gas was generating about 27 percent of the city’s electricity supply, while coal-powered electricity dropped to 48 percent, according to the Environment Bureau. The SAR government has set the goal that natural gas will generate about half of the local electricity supply, while the use of coal will dwindle to about 25 percent by 2020.
Mobilized by the government, investors are also becoming increasingly aware of the need for transition to the low-carbon economy. The concept of investing for generating respectable financial returns, as well as a profound social impact, has gained favor among institutional investors and utility companies. They have started carbon reduction by seeking investments in clean energy and new technologies.
CLP Holdings — the larger of Hong Kong’s two electricity suppliers — which brought natural gas to the city for power generation, has already invested in hydro plants and solar plants in Guangdong province.
With the supply of energy resources, gas and power utility firms have emerged from a period of being seen as a part of the problem for the environment and sustainable development. Coupled with the growing awareness of protecting the environment, utility companies are striving to go through a transition and become a part of the solution by increasing the use of clean energy and applying digital solutions.
Last year, CLP invested in En-trak — a Hong Kong energy management and smart lighting solutions provider — on digital energy innovations for business users, together with the Alibaba Entrepreneurs Fund. The company will also discuss with the SAR government how the city’s utility enterprises could import more low carbon or zero carbon energy from Guangdong in future.
“With the agreement we have with the city’s government, there’ll be a significant amount of investments in Hong Kong to lower the carbon intensity of our activity in the city,” said Geert Peeters, CLP’s executive director and chief financial officer.
Hong Kong and China Gas (Towngas) — the city’s sole piped-gas supplier — has also moved toward green financing, issuing a 10-year green bond worth $94 million (HK$600 million and 2 billion yen) in 2017 to fund some environmental innovative technology projects.
By the end of 2017, the green bond had raked in HK$734.4 million ($94 million), which the company has allocated for a landfill gas utilization project in Hong Kong and three other schemes on the Chinese mainland.
Data from audit and advisory firm Grant Thornton revealed that energy and utilities remained a favored sector in Asia last year, with 40 percent of enterprises showing preference for it.
According to Bloomberg New Energy Finance (BNEF), global clean energy investment reached $332.1 billion in 2018, registering the fifth consecutive year of total investments exceeding $300 billion. China was again the largest spender on $100.1 billion.
Barry Tong Piu — Hong Kongbased advisory partner at Grant Thornton — believes that the investment amount will continue to rise this year as “it’s a hot industry with the encouragement of the central government”.
New policies related to clean energy have been rolled out in succession in recent years. The State Council issued a guideline in September last year, focusing on adding natural gas reserves to boost local supplies. Later, in December, a guideline on the country’s clean energy consumption from 2018 to 2020 was issued with the aim of raising both the wind power and hydropower utilization rates to 95 percent by 2020.
The intensive policies have allowed funds to flow in continuously. China’s investment in clean energy reached over $1411 billion in the first three quarters of 2018 with 128 cases, according to PwC’s China Renewable and Cleantech Investment Report.
Both the amount and case number fell in the third quarter compared to the first two quarters. PwC believed it is a normal market reaction, but it may also have something to do with China slashing subsidies for solar projects since June last year.
Solar used to grow the fastest. But, since the subsidies cut, investment in the sector has dropped by more than half. At the same time, offshore wind and new energy vehicles are coming into the spotlight.
“The balance of offshore activity is tilting. Countries like the UK and Germany pioneered this industry and will remain important, but China is taking over as the biggest market,” said David Hostert, head of wind analysis at BNEF. A total of 13 offshore wind farms started construction in China last year.
“These funds, while not exactly ‘impact investing’ funds per se, have the benefits of offering investors attractive growth opportunities, while generating a measurable impact,” said Paul Milon — environmental, social and governance investment specialist at BNP Paribas Asset Management.
BNP Paribas Asset Management was managing $660 billion of assets as of the end of September last year, of which $43 billion was in the specialist socially responsible investment, thematic and impact investing strategies.
Milon introduced three registered funds in Hong Kong which are available for local investors — one investing in shares of green innovative companies, one in shares issued by companies operating in environmental markets, and an in-house equity strategy linked to water and related sectors.
Though clean energy is not the most profitable sector, it’s relatively familiar to investors as the government’s policies and media reports have helped them to understand the concept quite well. Utility companies have also performed well in this sector, said Milon. “They could contribute more by educating their users, as well as showing what they’re doing and how it could be.”
In fact, the social impact brought by clean energy investment is not only on the environment level, but also linked to a nation’s poverty alleviation.
Seleha Lockwood — program manager at International Renewable Energy Agency (IRENA) — cited a project in Mauritius during their collaboration with Abu Dhabi Fund for Development.
The local utility — the Central Electricity Board — put forward the project for 10,000 solar photovoltaic (PV) systems for low-income households. The utility is offering 50 Kwh free of charge per month to targeted households that joined the solar PV home systems program, in which rooftop solar PV devices are installed and connected to the grid.
Similarly, projects of poverty alleviation via solar PV systems are continuing on the Chinese mainland. Though subsidies for distributed stations will be cut, poverty alleviation projects will enjoy even stronger policy support. The project had helped 2.24 million low-income households as of Aug 31 last year.