Why Hong Kong remains robust amidst energy woes

INTERVIEW Why Hong Kong remains robust amidst energy woes

Lantau Group expert says Hong Kong has secured energy from nuclear to gas-fired power.

Unlike the rest of the world, Hong Kong has a secured and diverse energy supply, making it robust to brownout threats and rising energy costs. For example, the region’s nuclear electricity supply from Daya Bay Nuclear Power Station is extended up until 2034. This can help Hong Kong keep up with the energy crisis, Mike Thomas, a founding partner at energy consultancy firm, The Lantau Group, told Asian Power.

Comparing Hong Kong to other markets, Thomas cited California, which has the highest demand for electricity due to the massive heat wave that is currently sweeping the state. European countries are also suffering from energy woes because they are reliant on imports, according to data analytics firm, GlobalData. The UK even bought an excess supply of liquified natural gas (LNG), according to a news report.

Thomas also talked about how Hong Kong could speed up its transition to renewable energy even as the market currently lacks solar and wind power.

In this exclusive interview, Thomas brings in over 30 years of energy consulting experience to share his insights on why Hong Kong’s energy supply is faring better than other markets amidst rising costs.

Why is the Hong Kong energy sector in better shape than most markets in the Asian region?

Based on a fuel mix in Hong Kong, it is taking some nuclear power, which is not exposed to coal or gas markets. It is taking some natural gas, which comes from Kazakhstan or Turkmenistan. It’s not the same as the global LNG that Europe, Japan – everybody is fighting over. This is pipeline gas. That’s kind of a different dynamic. Then there is coal, which is still part of the Hong Kong mix.

Hong Kong has a very diverse energy mix. To some extent, it will benefit Hong Kong compared to Singapore, which has over 98% imported natural gas.

Singapore keeps the lights on, making sure that it gets enough gas. It doesn’t have quite the problems and the stresses that Europe has been experiencing.

For example, Europe going into the winter and California, on the mainland in August, when there was the heatwave, all point to the bigger and more complex systems – being stressed by the conflict between Ukraine and Russia and its effect and or climate or heat or temperature, unexpected or extreme. They are stressing the big systems.

At the moment, Hong Kong really doesn’t have that same kind of issue or problem so that’s good. Let’s just recognise that this fact is a product of all of the things that got us to this point, which is a reasonable regulatory regime and very well-run power companies.

Can you expound on what makes Hong Kong’s energy more resilient than California’s?

It’s 103°F [on 7 September in California], which is pretty hot by any standard, almost 40 degrees. Until the electricity demand shoots up from the air conditioning load. Recently, we are wondering whether the lights will stay on for all Californians, Northern California, in the next week, the next 24 hours, we’ll probably see some action. This is partly temperature driven.

When the temperatures are extreme, like what happened in the mainland in August, the most extreme heatwave experienced yet today, and low rainfall, then complex systems start running out of what they’re used to.

They lose their diversity and security of supply, and they can’t meet their demand at any price so we’re seeing more of that. People will probably have to revise their planning factors, what kind of reserve margins are needed, and what that does to the supply, the technology mix, and storage.

Tesla is advertising that California should get power wall batteries to make it through the next couple of weeks. I think just every system has a different starting point. But that’s not the situation in Hong Kong.

Most anything to do with temperature and water these days is a problem. The European problem is a little bit more tied to these shifts such as the sudden loss of Russian imported gas and the change in the market. But everywhere else, it’s been related to temperature and drought.

What Hong Kong has in terms of electricity and infrastructure is a particularly good mix of resources and technologies (Photo: Mike Thomas, Founding Partner, The Lantau Group)

Hong Kong has a very diverse energy mix, taking some nuclear power and natural gas

Why is Hong Kong better at mitigating rising costs and brownouts than other markets?

It’s the same issue as before, the diversity of fuel resources and technologies that Hong Kong has.

There’s a saying you go to war with the army you have. What Hong Kong has at this moment in terms of electricity and

infrastructure just happens to be a particularly good mix of resources and technologies to deal with.

Hong Kong is not dependent on hydrology and rainfall. Hong Kong is not as dependent on imported LNG. Hong Kong has some different kinds of capacity that can be used, if one thing is not available, something else can be made available.

There’s a bit more flexibility for the energy war that’s going on right now, so to speak, the Hong Kong army is well situated.

But in the case of energy transition, moving away from some of the coal that’s in Hong Kong will still be a challenge that will push us more towards depending on natural gas. Then, moving away from natural gas to renewables will be even more challenging because we don’t really have the obvious resource candidates to support that goal.

We don’t have vast tracts of solar or wind resources. It’s not clear what you can do with offshore wind yet to scale or for Hong Kong, so that challenge we haven’t started facing quite yet.

CLP, one of the largest power firms in the Asia Pacific region, revealed that it is ramping up its natural gas as it prepares to phase out coal-fired generation in Hong Kong amidst carbon neutrality goals. It is also seeking to shift to renewable energy.

With these goals, do you think it would pose risks to Hong Kong’s resilience to mitigate rising costs?

I don’t think anybody has an absolute answer on that. Willingness to pay is always going to be important here. There’s a balance between what has generally been called affordability or reasonable pricing, or acceptable tariffs, and the timing and of building new things to display solid tech.

If you’ve got a perfectly good functioning, existing, generating unit that’s almost paid for, and turning it off and replacing it with something that costs a lot of money, that will probably make your tariff go up.

What we’re thinking might start happening more now in many countries exposed to such volatile and high fossil fuel prices is people’s appetite for renewable energy. Even if it’s a little bit higher, but a lot more predictable, people may start putting a premium on certainty and reducing exposure to fossil fuels, which are both volatile in price and sometimes have difficulties obtaining them.

Maybe people will start rethinking how much they’re willing to pay for a different kind of power source, and Hong Kong doesn’t have a lot of solar and wind resources available. But the region can speed that up a bit and begin to test how fast more can be incorporated into the system.

This is where I don’t really have any visibility over what’s possible, but elsewhere in the region. That’s what we’re expecting. We do a lot of work with commercial and industrial customers that put high premium uncertainty.

Hong Kong doesn’t like it when their budgets get blown out because electricity prices have become unpredictable. The market has complex supply chains they need to fit into, they need to contract ahead, and they need that certainty.

Hong Kong is much happier paying a premium for certainty than to take the market swings. The region is much more interested commercially, just from a fundamental business sense in lacking in electricity prices, which is easier to do with renewable resources so we’ll see where it goes.

Do you think Hong Kong is least attractive in driving energysector green foreign direct investments (FDI)? How can the region improve on this and should they do improvements to drive more FDIs?

Hong Kong is attractive for FDI in the sense that the regulatory regime supports investment in projects agreed to meet the energy needs of the region.

To drive more FDI would require that Hong Kong find even more projects to do. Hong Kong is limited by size and resource base. Also, there is a question of timing and cost.

If you invest more today to stop using something you already have then, you may increase your price of electricity by more than if you waited and retired existing capacity resources as they aged.

You can have a one-time “surge” in investment if you are doing a capital turnover situation, but that may not be an equally attractive situation when viewed from the different perspectives of cost, performance, sustainability, and investment.

It’s better to not look at just FDI. More FDI is not necessarily better if the FDI is going into things that are not needed yet or that would raise costs more than they are considered to be worth.

Hong Kong is much happier paying a premium for certainty than to take the market swings

To drive more FDI would require that Hong Kong find even more projects to do