Numerous countries around the world have introduced far-reaching policy measures to switch their electricity supply to 100% renewable energy, most of them by mid-century. Countries such as Iceland, Paraguay and Costa Rica are already on target, while many others have made enormous progress and have been able to greatly increase the share of renewables in the electricity mix. This is important because the switch from fossil to renewable energy plays a crucial role in achieving international as well as national climate targets. In Hong Kong, this is especially important considering how wasteful the city is, but how can it take full advantage of renewable energy sources?
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Hong Kong has set a target of carbon neutrality by 2050, but is only at the very beginning of its transition to renewable energies. In Hong Kong today, renewable energies account for only 0.2 % of the total electricity supply. Although topographical reasons make it unlikely that Hong Kong will be able to become completely self-sufficient in clean energy in the near future, a strong expansion of locally produced renewable energy is an important element in decarbonising the power sector, which is responsible for 70% of Hong Kong’s greenhouse gas emissions and today consists of 50% gas, 25% coal and 25% nuclear. With the growing number of new buildings, the electrification of appliances in buildings and the increase in electric mobility, total electricity consumption and its share of total energy consumption will continue to grow. Decarbonising the power sector is therefore of highest priority.
This article takes a closer look at the renewable energy landscape in Hong Kong: How is the expansion of renewables being supported today? What barriers exist and what possible solutions could accelerate the expansion?
The electricity landscape in Hong Kong is primarily made up of three players: the state and the two utilities (Hong Kong Electric Company responsible for Hong Kong Island and Lamma Island, and CLP Power Hong Kong Limited responsible for Kowloon, New Territories and all outlying islands except for Lamma Island). The three players signed a ground-breaking Scheme of Control Agreements (SCAs) in April 2017, which among other things contained measures to support the expansion of renewable energies in Hong Kong. The two most important elements of the Scheme of Control Agreement in relation to the promotion of renewable energies are the feed-in-tariff and the renewable energy certificates.
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The FiT helps encourage the private sector to consider investing in renewable energy by allowing electricity generated under the FiT scheme to be sold to the utility at a higher rate than the normal electricity tariff. This helps to cover the cost of investment in the renewable energy project and thus improves the profitability of such projects.
The RECs, which are sold by the two utilities, help raise public awareness of renewable energy and enable individuals as well as businesses to support renewable energy in Hong Kong by turning their personal electricity consumption completely renewable by purchasing certificates in the amount of their personal electricity needs. The revenue from the renewable energy certificates (one unit of renewable energy certificate, which is equivalent to 1 kWh of electricity, currently costs HKD 0.5) helps to finance the additional costs caused by the FiT system.
Let’s take a more detailed look at the FiT system in Hong Kong:
Projects of up to 1 megawatt (MW) that are connected to the grid of one of the two utilities are eligible to apply for the FiT. The FiT then pays a certain amount for each kilowatt hour produced, depending on the size of the project. This “contract” is fixed until 2033. The FiT rates in Hong Kong are as follows:
- 5 HKD per kWh for projects of less than 10 kW,
- 4 HKD per kWh for projects between 10 kW and 200 kW,
- 3 HKD per kWh for larger projects (up to 1 MW).
From 2033 onwards, the project owner will be able to manage the generated electricity themselves, use it themself and, if necessary, store it. For this intelligent use of electricity, Hong Kong is planning a mass introduction of smart meters from 2020 to 2025.
Back to FiT amounts: converted into USD, FiT amounts in Hong Kong range from 0.39 USD/kWh to 0.64 USD/kWh. This is much higher than, for example, FiT amounts in other Asian countries (e.g. 0.06 to 0.014 USD/kWh in Indonesia to 0.2 USD/kWh in Thailand or 0.15 USD/kWh in Vietnam). This suggests that the authorities in Hong Kong generously support locally produced renewable energy. A first evaluation also shows that more than 8 500 applicants have been granted FiT support, which corresponds to an approval rate of approximately 85%. Although wind as well as solar photovoltaic (PV) projects are eligible for support under the FiT, almost exclusively solar projects have been realised so far. However, as mentioned above, these 8 500 projects only account for a marginal share of the total electricity supply in Hong Kong- the potential for solar installations in Hong Kong is many times greater.
Calculations show that if all building roofs were covered with solar panels, solar systems could produce between 2.66TWh – 5.98TWh of electricity, equivalent to 5.9% – 13.4% of Hong Kong’s electricity consumption. Other calculations, which also include the potential of solar projects on facades, even assume a potential of 11.64TWh, about 25% of annual electricity consumption. In other words, Hong Kong could completely replace the coal share of the current electricity mix with locally generated renewable energy.
Given the potential, what are the reasons that progress in the renewable energy sphere remains slow? There are three important barriers that slow down the expansion and present possible solutions:
1. Bureaucratic Hurdles Abound:
At the launch of the FiT system, individuals who wanted to build a solar project and benefit from the FiT first had to register as a company and also pay taxes on the income generated from the FiT – fortunately, this bureaucratic hurdle has been abolished. Nevertheless, there are still numerous bureaucratic hurdles in the process of building solar projects in Hong Kong. A recent population survey shows that besides the lack of information on the technology, the different and complicated safety regulations as well as the non-transparent provider structure are barriers to the further expansion of solar projects in Hong Kong.
Solution approach:
The development of a one-stop-shop solution for the installation of solar projects in Hong Kong by the two utilities could help to reduce the bureaucratic hurdles. This should include all relevant steps for the construction and approval of the system – be it the safety certificate, building insurance or acceptance of commissioning. The aim should be for an electronic dossier to pass from office to office and not for the applicant to have to submit a new form each time, which would simplify the current procedure considerably. In addition, the two utilities could consider making public “trusted solar providers” in order to improve the vague information situation among the population and to ensure transparency and trust. Awareness campaigns for the expansion of renewable energies in Hong Kong, where, for example, reference is made to the solar map, which allows to easily and efficiently assess the technological requirements for a solar installation on a roof or façade, could be rolled out.
2. The Feed-in-Tariff is Designed for Rooftop Installations:
The FiT is, as explained, generous, but designed for rooftop installations. With today’s tariffs, the cost of purchasing and installing a solar rooftop system can be recovered in as little as 5 to 6 years – this is economically very attractive. However, the typical flat in Hong Kong tends to be a high rise building – the immense areas on facades are still completely unused. A recent study shows that the FiT for a typical three-bedroom flat on the 10th floor of a 20-storey building is not sufficient to amortise the solar system (in this case installed on the façade) within an economically viable period (less than 10 years). Thus, despite the generous FiT, the economic incentive for a large part of the population is not given today and inhibits the further expansion of solar energy in Hong Kong.
Solution approach:
In addition to the classic rooftop systems, which are often built on low-rise buildings, the FiT system should be adapted to specifically tailor façade PV in order to exploit the potential on the high rise buildings and its façades. As the current study on the FiT in Hong Kong points out, the costs for façade PV are currently still higher compared to rooftop systems, and the actual electricity production of façade systems is lower compared to rooftop installations due to shading and non-optimal orientation of the panels. A specific FiT for solar panels on façades on an average flat would need to be around HKD 8.5 – 10 per kWh for those projects to become economically attractive – increasing the amount for these types of projects could help exploit the large potential for façade PV and thus help to drive the expansion of renewables quickly.
3. Need for Additional Financial Resources to Compensate for the Additional Costs of the FiT:
In order to realise the full potential of solar in Hong Kong, additional financial resources are needed for the expansion of the FiT system. These funds need to be generated – until now, the understanding has always been not to increase the electricity price as such in order to specifically support renewable energy. Although the FiT amounts are evaluated annually and adjusted to the corresponding price reductions due to technological progress in the field of photovoltaics, a rapid expansion of solar PV in Hong Kong leads to the fact that the financial resources, which are currently generated through the sale of renewable energy certificates, are not sufficiently high to support a rapid expansion.
Solution approach:
The FiT system must grow in scale and ambition to make a significant contribution to decarbonising the power sector. This requires additional financial resources. One way to generate those would be through the introduction of an opt-out system (also known as green default) for all businesses, homeowners and tenants in Hong Kong to offset their own electricity consumption through the purchase of renewable energy certificates (REC). Individuals or businesses who cannot or do not wish to offset their electricity use can exercise their opt-out right – however, experience in other cities shows that such a reversal of the system (today Hong Kong has an opt-in system for offsetting electricity use) is highly effective. This would result in significantly more financial resources being available to adapt and expand the FiT and thus make an important contribution to decarbonising Hong Kong.
If the government were to succeed in addressing these three barriers by implementing the proposed solutions, Hong Kong could take a big step forward in decarbonising its power sector and, accordingly, take a big step towards achieving the goal of climate neutrality in 2050.
Featured image by: Flickr
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