1. business and industrial
2. energy
3. renewable energy

Electricity Market Consultation
Renewable Energy Forum
A Consumer Perspective
May 11th, 2015
Prashant Vaze
Chief Planning & Trade Practices Officer
1
Consumer Perspectives on Role of Renewables Post 2018

How Much Renewables and At What Cost

Policies to Support Renewables

Are We Doing Enough on Energy efficiency?
2
A Cleaner Environment is Worth Paying For
…But a Move to Gas Is Not a Free Lunch
Price Japanese LNG
• HEC’s 2014 fuel costs
• gas 31k TJ @
HK$88,900 / TJ
• coal 80k TJ @
HK$24,500 / TJ
0.500
0.450
0.400
LNG price HK$/kWh
0.350
0.300
0.250
• A switch to 50% gas / 23%
prices up 25%
0.200
0.150
0.100
• Cost new gas investment
0.050
0.000
1987
1992
1997
2002
2007
2012
• EU rising electricity prices
since 2000
3
Hong Kong has better solar resources than countries like
Germany that have deployed solar PV at scale
1350
kWh/m2
4
Price PV modules three fold fall…however the cost of
installation has not. Location matters
5
Characterising local wind’s speed and reliability…..again
location matters
• China’s 62
GW wind
• 24x
increase
since
2006
6
Merit in again exploring the potential for
renewables in Hong Kong
• Cost of renewables technologies has dropped
• Lots of good international experience in deploying energy
from waste, solar PV and increasingly off-shore wind
• But, also need for the right policy framework
– Provide investors price for renewable energy sales
– Visible access prices & terms and conditions to use
networks
– Payment on results – so the risk of non-performance of the
technology is borne by project sponsor, not the customer
– Firewall protecting revenue from renewables from
volatility of world fossil fuel markets
7
Support for renewables in the SCA
• Under SCA renewables are incentivised by
– an 1% additional RoR (11%) for project.
– Energy efficiency, renewables and incentive payments
• Like any other capital spend Government agreement is
needed before the project can commence.
• Project should meet the “lowest cost which is reasonable in
the light of financial and other considerations” test
• Singapore, South Korea and Taiwan have much faster growth
in renewables, is our current policy effective?
8
Let’s Not Forget Distributed Generation
• Offer standardised grid connection arrangements for
distributed generators, but no offer of export tariff or feed-in
tariff for electricity spilled onto incumbent’s distribution
network system
• No well-defined account of the network charge of the
incumbents distributed network
• Result: only a low number of small generators have applied
for grid connection
9
Limited renewables investment under SCA over the past 6
years
• Offshore wind (US$5600/kW) and solar PV (US$3400) have
substantial capital costs
• CCGT (around US$900/kW) but fuel costs are substantial
• Capital investment is rewarded under SCA while operating spend
is simply passed through to consumers
• Expensive way of rewarding renewables project for consumers
– Greatly increases the company’s Net asset
– Has poor energy output per unit capital spend (offshore wind
high CAPEX and low utilisation rate compared to CCGT)
– Risks of obsolete renewable technology borne by consumer
US Dept. of Energy (2014) “Capital Costs for Electricity Plant” http://www.eia.gov/forecasts/capitalcost/
10
Consumers are right to be concerned solar PV add to
their bills…but with right framework could reduce costs
8,000
25
7,000
MW peak demand
5,000
15
4,000
10
3,000
2,000
5
1,000
0
0
Jan
Feb Mar Apr May Jun
HEC
CLP
Jul
Aug Sep Oct Nov Dec
Sunlight
daily mean radiation MJ/m2
20
6,000
• Under the SoC
distributed
generators donate
electricity to their
suppliers
• But solar power is
produced when most
needed
• Solar PV could shave
peak demand and
reduce system costs
11
Cost of supporting on-shore wind and solar PV in other
countries
Increase in customer bill HK$/customer
700
• Customer bill is
HK$8000/year
600
500
400
• Feed-in tariff for
5% renewables
• +3% to customer
bills
300
200
100
0
United
Kingdom
Germany
California
Solar
Australia
Taiwan
South Korea Singapore
Wind
• Consumer Council’s analysis of current feed-in tariffs for solar PV and onshore wind
12
We shouldn’t lose sight of energy efficiency – the most
important renewable resource
160000
• Investment in
improvements to heating,
ventilation and airconditioning & insulation
• Higher energy performance
standards on appliances
• Advice e.g. zonal
temperature controls,
thermostats & timers
140000
Electricity consumed, TJ/yr
120000
100000
8.5% growth in consumption
over 5 years, 1.3% per annum
80000
60000
40000
20000
0
2008
2009
2010
Domestic
2011
2012
2013
2014
Commercial
13
The current SCA framework and energy efficiency
• A reduction in energy use has a negative effect on the
company’s bottom-line.
– Firstly, revenue is cut. Recovery of fixed costs from
customers?
– Secondly, any excessive investment in new capacity is ‘fined’
• There is also a weak ‘all-or-nothing’ incentive of a 0.01% boost
in the ANFA if a modest target is reached
• Responsibility for energy efficiency doesn’t have to sit with
energy companies
• Alternative energy service companies (ESCOs) that sell
consumers services like well lit and comfortably chilled office
space. Profits from negawatts
14
Setting hard targets for energy efficiency
• In many countries energy companies have targets to deploy
EE
• Some territories have used stand alone agencies to deploy
energy efficiency
The California Public Utilities Commission directs the
electricity companies to install energy saving technologies in
customer homes. Tough penalties are imposed for missing
targets and rewards for over achievement.
Efficiency Vermont is an energy efficiency utility funded by
electricity customers in Vermont. Electricity customers are
charged $35 per year but it has typically installed
technologies with pay back of two years
15
Other low cost opportunities for improved savings
• The EU fridge is in the second band
of performance and uses
280kWh/yr
• The HK fridge is a first tier
performer and consumer 346
kWh/yr.
• The EU fridge is twice the volume of
the HK fridge
Ever tightening energy efficiency standards
Grants for retiring “G” rated equipment
16
Summary
• There is significant evidence that the costs of solar has fallen,
and some evidence wind costs are falling
• It is time to revisit the potential in Hong Kong
• More investment and regulation is needed to develop energy
efficiency and reverse the growth in commercial demand.
• The current policy mechanisms to deploy renewables and
energy efficiency are ineffective and deployment has been
slow
• Incentives are either weak or too expensive
• Contestability to ensure renewables and energy efficiency are
introduced at least cost to customers
17