1. A22 NEWS FEATURES
F R I D A Y , A P R I L 15 , 2 0 0 5 S O U T H C H I N A M O R N I N G P O S T
E
lectricity is something we take for
granted. It powers our computers
and mobile phones. It transports us
up and down and across town. It
keeps our food fresh, our drinks cold and it
keeps the concrete boxes we live in warm in
winter and cool in summer. Without it, even
forashorttime,lifeinthecitygrindstoahalt,
and soon becomes untenable.
Such was the case in the United States on
August 14, 2003, when some trees interfered
with some power lines in Ohio, triggering a
power failure that cascaded throughout the
eastern North American grid.
More than 50 million people in the US
and Canada were affected as entire cities, in-
cluding New York, were blacked out, in some
cases for up to four days. Initial losses were
said to be in excess of US$6 billion. Major
events like this are few and far between, but
they are illustrative of the reliance we have
developed for this commodity. So it is not
surprising then that when it comes to tinker-
ing with the way electricity is generated and
supplied in this most modern of cities, the
government is fairly cautious.
Hong Kong has one of the most depend-
able electricity supplies in the world – within
spitting distance of 100 per cent reliability.
The government is now reviewing if, and by
how much, the arrangements that helped
bring this about should be changed.
Stage one of the public consultation ends
this month.
Those arrangements, cemented through
what are known as scheme of control agree-
ments have been in place for 40 years and
have seen the city’s two power companies –
CLP Power in Kowloon and the New Terri-
tories and Hongkong Electric on Hong Kong
Island – develop their electricity network ca-
pacities along with the ever increasing de-
mands of the city.
The scheme of control agreements are
15-year deals that require the utilities to pro-
vide power at reasonable cost to consumers.
To enable them to build capacity to accom-
plish this, the government allows them a
maximum 15 per cent return on fixed assets.
Tariffs and technical and financial perfor-
mance are reviewed annually and there are
allowances for periodic reviews of the agree-
ment every five years.
“This is one of the pictures that we need
to look at. But we have to look at the tech-
nical standards and the levels of perfor-
mance and reliability in terms of the system
we are going to interconnect with.
“And Guangdong’s situation is that in
2003-2004 it experienced phenomenal
growth and in turn it has suffered in terms of
power supply shortages.”
Most analysts agree that given the long
lead times required for building infrastruc-
ture, southern China’s electricity shortages
are not likely to disappear in the next five to
10 years.
“If it turns out that we do interconnect
with them and they do not have a stable sup-
ply, then Hong Kong will suffer dramati-
cally,” Mr Chan says. “They are taking power
from Hong Kong already and in the future if
they can’t balance demand and supply it will
always only be one way.”
Another concern is that in other places
where deregulation and market integration
have taken place, it has usually been be-
tween jurisdictions with a similar regulatory
and reliability environment.
“But Guangdong, China and Hong Kong
are operating under entirely different re-
gimes,” says Mr Chan. “Guangdong still has
state-owned utilities and is still controlling
the end-user tariff, not to mention the level
of political intervention.
“That is why this poses problems and
constraints in the short to medium term. In
the long term, perhaps the concept may
work. But it will involve a big market with a
lot of players.”
In the meantime, Hong Kong must de-
cide which road it wishes to follow. “Is there
any need for change?” asks Professor Wu.
“It’sfairlycheapandreliabilityisveryhigh.Is
there any reason to change now, or will there
be any reason to change in the next five,10 or
15 years, because we have to look ahead. We
cannot just look at today.”
Hongkong Electric refused to comment
for this article.
The South China Morning Post will host a
seminar on electricity market reform at the
Island Shangri-La’s ballroom on Monday,
April 18. For more information visit
http://conferences.scmp.com
The 2003 North American blackout –
caused by a deregulated environment that
failed to encourage modernisation of the
transmission network – and rolling black-
outs and brownouts in California during
2000 and 2001– caused by a shortage of gen-
eration capacity and a regime that forced
utilities to import power at highly volatile
spot prices – are the most high-profile exam-
ples of what happens when deregulation
doesn’t go right.
“The issue is if there is anything to be
gained by having an open market in Hong
Kong,” Professor Wu said. “If the answer is
yes, potentially there is a big benefit, then we
need to look at how to achieve that. First we
have to look at the policy issue, then the eco-
nomic analysis and then the engineering
solution.
“If you’ve answered those questions then
the next ones are, change to what? What are
the alternatives? Are they cost effective and
worthwhile?”
One of the options being discussed is the
introduction of limited competition through
strengthening the interconnection between
Hongkong Electric and CLP Power, allowing
them to sell electricity to consumers in the
other’s territory.
The two are already interconnected, but
that connection is for emergency purposes
only and is unsuited to full-time use.
Another option being considered is the
separation of generation and transmission,
allowing new entrants to sell power – most
likely imported from the mainland – through
existing infrastructure.
As reported recently, several entities are
lobbying for the right to access the network,
although where they will buy their electricity
and how they plan to transport it to the city
remain up in the air.
A third option is complete integration
with the southern China electricity network.
CLP Power admits the third option is most
likely, but it is a long way down the track.
“A lot of experts are advising us that it is
difficult to have meaningful competition un-
less we introduce some more players,” says
CLP Power planning director Chan Siu-
hung, “for example, incorporating us into
the regional market in Guangdong or south-
ern China.
The current agreement expires in 2008,
and what shape the market will take after
thatisatopicofhotdebate.Shoulditstaythe
same? Should the terms of the agreements
be shortened to allow more flexibility? Can
the market be opened up to competition? If
so,howmanyplayerswillbeneeded?Should
Hong Kong join southern China’s electricity
market?
“We’re here, we’re doing very well so far.
But in the future, if there is a need to change,
then what are we going to change to?” asks
Felix Wu, of the University of Hong Kong’s
Centre for Electrical Energy Systems. “If you
don’t do it right, then you can end up in a
situation that is even worse.”
The general rationale for opening a mar-
ket to competition is that more players
means more choice, better service and lower
prices for consumers. But experience has
shown that when electricity markets are
opened up, these outcomes are by no means
guaranteed.
While opening the market to new en-
trants may well lead to lower prices, the util-
ities and the government argue that lower
prices mean smaller margins for producers
and that means less money for investment in
new or upgraded generation and transmis-
sion equipment.
Conversely, guaranteeing returns based
on asset value can lead to overinvestment,
which can lead to the price skyrocketing as
consumers pay for equipment built to satisfy
non-existent demand.
“The risks are significant either way, be-
cause we don’t know the future,” Professor
Wu said. “If you maintain the status quo and
if a few years down the line you find this is
not working out, then consumers get
screwed. If you change, there’s a risk that
things won’t go right.”
BEHIND THE NEWS UTILITIES
As a review of the agreement governing Hong Kong’s power duopoly draws nearer, some analysts fear
unfettered change and deregulation could prove disastrous for the city’s supply, writes Nick Gentle
Static electricity
Springtime in Hong
Kong marks the start of
an eight-month battle
between your air-
conditioner and the sun.
Your air-conditioner
usually wins, leaving you
to pick up the power bill.
But why not turn the
sun’s rays into fuel rather
than a furnace? Every
year, 1,000 sq km of
Hong Kong soaks up 2.2
billion megawatt-hours
(MWh) of clean energy –
from the sun. Last year,
the city chewed its way
through 42 million MWh,
just 2 per cent of the
solar energy supply.
Until recently, high
costs meant solar power
was restricted to niche
applications such as
remote transmission
aerials and lighthouses,
or experimental units.
But the price of solar
generating systems has
fallen substantially.
Many developed
nations, especially Japan,
Germany and the US,
have programmes to
encourage the use of
renewable resources.
Farmers sell power from
windmills or biomass
generators, while
factories use waste heat
to drive turbines.
Households can
install photovoltaic (PV)
panels on their roofs.
They can sell any
surplus, often produced
when homes are empty,
to their utility company.
Utilities buying power
from small-scale
generators and
customers is known as
distributed generation
and is used in many
developed countries and
at least one developing
one, Thailand.
Ontario, Canada, is a
typical example. Small-
scale power producers
such as wind farms are
called retail generators
and sell their power to
the utility grid.
Household generators
(usually with capacities
of one kilowatt to 5kW)
do not sell their surplus
power but use a net-
metering system. For
each kilowatt-hour of
power fed into the grid,
1kWh is subtracted from
their bill.
Distributed
generation is efficient as
little energy is lost during
transmission. Japan, the
world leader in PV
power, started its PV
programme in 1994 with
a 50 per cent
government subsidy to
help householders and
businesses install PV
systems. Solar News
reports that this subsidy
fell to 10 per cent by
2002. Japan had 167,500
units installed by 2003,
producing 603MW of
power – enough to meet
peak demand from
172,000 households.
Not wishing to be
outdone, California’s
governor Arnold
Schwarzenegger last
month announced an
ambitious one-million-
roof programme.
One objection many
power producers have to
distributed generation is
that utilities are stuck
with systems that turn
out a constant amount of
power and cannot adjust
this hour by hour to
compensate for changes
in solar radiation, wind
speed or demand.
But Colorado-based
power systems engineer
Dan Bihn, who runs
consultancy Bihn
Systems, says large-scale
producers prefer, but do
not have to, run their
plants at full capacity, as
the fuel is relatively
cheap. As long as the
volatile input from solar
or wind systems is less
than 10 per cent of
capacity, it should be
able to accommodate
such suppliers.
Mr Bihn says Japan’s
PV system probably
crossed the one gigawatt
(1,000MW) capacity mark
this year, and the
government hopes
capacity will reach
4.8GW by 2010. This is
enough to supply 1.3
million households, but
will still be just 0.5 per
cent of Japan’s overall
capacity.
But these systems are
still expensive. Mr Bihn
says a small residential
system (with a 3kW
capacity) would cost
about US$20,000.
Assuming it took 15kWh
per day off a Hong Kong
household’s power bill,
they would have to wait
28 years to recoup the
purchase price of the
system, never mind
cover maintenance costs.
Ted Sargent, of the
University of Toronto,
has developed a soluble
material that can be used
to create generators that
theoretically convert 30
per cent of the sun’s rays
into electricity by
harnessing infrared solar
radiation. The generators
would be extremely
flexible and could be
applied to surfaces as
paint or incorporated
into clothing.
Professor Sargent
hopes this new
technology will be
available commercially
within five years.
Mr Bihn says that
despite such high hopes,
fundamental
breakthroughs are hard
to predict and even
harder to take to the
bank. He warns that in
the short term, prices for
systems may increase as
demand rises sharply,
then decline from next
year as more factories
come on stream.
Ed Collis
HARNESS THE SUN
AND POWER UP
Hongkong Electric’s
impression of its
proposed wind turbine on
Lamma Island.
Planes take off almost every day
over Thailand’s dried-out rice pad-
dies with a chemical cocktail that
scientists – guided by Thailand’s
king – hope will wring the clouds
dry and ease a drought that has
scorched Southeast Asia.
The propeller planes are packed
with up to seven people including
the pilot, scientists and techni-
cians, all squeezing in around large
containers of chemicals ranging
from silver iodine to ordinary salt
and dry ice.
Flying about 3,000 metres over
parched fields, dusty dams and
thirsty rivers, the planes fly directly
into clouds that most pilots avoid,
so the scientists can dump their
loads and wait for rain.
Thai agricultural officials say
those rainmaking efforts – known
ascloudseeding–haveworkedand
eased the toughest drought in sev-
en years by 80 per cent.
The reported success has led
countries from Oman to Cambodia
to ask Thailand if the method used
there could ease periodic droughts
in their countries, but scientists
warn that cloud seeding works only
in certain circumstances.
Besides,cloudseedinghasahis-
tory which stretches back more
than six decades and results of ex-
periments around Asia have been
mixed at best, and appear more
likelytocushionadrought’simpact
than break it.
Thailand has used cloud seed-
ing for almost 30 years, led by King
Bhumibol Adulyadej, who has his
own patented rainmaking tech-
nique. Rainmaking begins when
the relative humidity exceeds 60
per cent. Lower humidity makes
the efforts harder, says Wathana
Sukarnkanaset, director of Thai-
land’s bureau of royal rainmaking
and agricultural aviation.
The chemicals are sprayed into
clouds to encourage smaller clouds
to merge and induce rain. The
cocktail causes vapour droplets to
coalesce and the water freezes into
snow which melts as it falls.
The king’s technique uses two
aircraft to seed warm and cold
clouds at different altitudes to
make rain over a wider area than
other methods, Mr Wathana says.
Like much of the rest of the re-
gion, Thailand receives a lot of rain
– more than 1,200 millimetres a
year in most areas and up to
4,000 mm in some coastal prov-
inces. But the rain doesn’t fall
evenlyacrosstheyear,causingacy-
cle of droughts and floods, made
worse this year by the exceptionally
harsh dry season ahead of the rains
that normally begin in mid-May.
In late March, at least 60 of Thai-
land’s 76 provinces were hit by
drought, causing low dam levels
that shut down hydro-electric
plants, forcing farmers to stop irri-
gating second crops and water offi-
cials to restrict supplies to several
hours a day in some areas. The mil-
lions of hectares of ruined fields
cost more than 7.5 billion baht, the
Interior Ministry says.
Afteralmost1,100cloud-seeding
flights from March 15 to April 9,
enough rain had fallen to ease the
drought in at least 80 per cent of the
affected areas, according to the
Ministry of Agriculture.
Sixteen provinces remain
drought-affected, five of them seri-
ously. But measuring how much
rain fell by cloud seeding and how
much fell naturally is difficult.
US-based cloud-seeding spe-
cialist William Woodley, who
worked with Thai scientists on
rainmaking projects in the 1990s,
says that “carefully crafted cloud
seeding has been shown to en-
hance rainfall in Thailand”.
Encouraged by Thailand’s expe-
rience, Cambodia has asked Bang-
kok for help, with 14 of its 24 prov-
inces hit by drought and up to
700,000 people suffering from food
shortages.
Thailand and Cambodia are
among the hardest hit of seven
countries baking in the drought,
but Vietnam and parts of southern
China, Malaysia, Laos and Indone-
sia are also suffering.
Malaysia holds annual cloud-
seeding operations between April
and May, but this year began in
March to boost water supplies in
thenorthernstatesofPerlisandKe-
dah, the country’s “rice bowl”.
The Philippines began cloud
seeding in 1997 in the Visayas, and
today uses the technique in major
farming areas such as northern Lu-
zon and the southern island of
Mindanao. The department of
Agriculture in Manila says opera-
tions have in some areas cushioned
the impact of long dry spells, espe-
cially in Mindanao.
In China, meteorologists com-
bat increasing water shortages,
particularly in Beijing, by pouring
rainmaking chemicals from air-
craft, or shooting them into the sky
using rocket shells and anti-aircraft
guns. Between 1995 and 2003,
China spent US$266 million on
rainmaking in 23 provinces and re-
gions, state press reports said.
Agence France-Presse
King’s chemical cocktail quenches parched provinces
Drought-stricken countries are asking
Thailand for its patented rainmaking
techniques, writes Paris Lord
Several provinces in Thailand have
experienced drought relief thanks
to cloud seeding. Photo: EPA
“Is there any need for
change? It’s fairly cheap
and reliability is high”
Felix Wu
University of Hong Kong
Mainland workmen repair an electricity pylon. Analysts believe the integration of mainland and Hong Kong power networks is an inevitability, but remains a long way off. Photo: AFP