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Hong Kong Power Forecast Scenario

Fitch Solutions Sector Intelligence  


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    Hong Kong Power Forecast Scenario

    • 15 Apr 2021
    • Hong Kong
    • Power

    Key View: The overarching growth outlook for Hong Kong's power sector remains subdued with minimal growth in total generation anticipated over the course of the forecast period (2021 to 2030). There are, however, some significant changes taking place in the domestic power mix as Hong Kong continues to reduce the role of coal-fired thermal power by transitioning to gas-fired thermal power. There is also a small renewable energy sector and though the pipeline is currently narrow there is scope for the development of rooftop solar and off-shore wind over the next decade.

    Total electricity generation decreased by an estimated 4.2% in 2020, a reflection of weaker consumption and therefore lower thermal output due to the disruption caused by the Covid-19 pandemic. The special administrative region (SAR) has been subject to several lockdowns as case numbers rose with the most recent round of restrictions in place until at least April 2021. Further disruption from the pandemic is a possibility in 2021 and combined with elevated political risks this will weaken Hong Kong's economic recovery, in turn dampening consumption rates. We therefore expect total electricity generation to decrease by a further 0.7% in 2021 to reach just short of 33TWh.

    The switch to natural-gas fired power from coal-fired power will also contribute to the short-term contraction in total electricity generation, as the increase in natural-gas output will not be fully sufficient to offset the loss of coal-fired output in 2021. The role of natural-gas will continue to expand over the course of the forecast period as Hong Kong works to reduce its elevated reliance on coal-fired power and comply with emissions reduction targets. The additions of gas turbines to both Black Point and Lamma Power Station, coupled with the development of LNG import capacity (although now delayed until 2022), will ensure that gas steadily pushes coal out of Hong Kong's power generation mix over the coming decade. Based on the expected rise in gas and fall in coal, as well as the addition of limited renewables output, we expect total electricity generation in Hong Kong to reach 36.4TWh in 2030, reflecting average annual growth of 1.1% from 2022 onwards. This modest growth will leave Hong Kong increasingly reliant on energy imports from mainland China.

    Thermal Generation And Capacity Forecast

    Key View: Hong Kong has long been reliant on coal-fired thermal power to meet domestic energy needs with coal output contributing almost 50% to electricity generation in 2020. This role is however set to diminish over the course of the forecast period as Hong Kong pivots to gas-fired thermal power in order to meet emission reduction targets. By the end of the forecast period in 2030, coal is expected to account for around a quarter of total generation with gas-fired thermal power making up almost 73%.

    Latest Updates

    • The Covid-19 pandemic, as well as elevated political risks, caused a delay to the launch of Hong Kong's LNG import plan. The Hong Kong Offshore LNG Terminal Project, a joint-venture (JV) between Castle Peak Power Co. (CAPCO) - owned by CLP Group - and HK Electric, is now expected to come online in 2022.
    • The switch from coal to gas will contribute to a 0.8% contraction in thermal generation in 2021, to total 32.9TWh. While coal output will continue to decline over the course of the forecast period, gas-fired thermal power will increase and as a result by 2030 total thermal output is forecast at 35.8TWh.
    • CLP Group has committed to completed removing coal-fired power from its energy mix by 2050, in its latest Sustainability Report for 2020. This could spur development of new gas-fired capacity (or renewables) but is also likely to increase Hong Kong's reliance on energy imports.

    Structural Trends

    Coal-power's share of total power generation in Hong Kong will fall substantially during our current forecast period (and likely beyond) due to Hong Kong's intensifying efforts to reduce carbon emissions by transitioning towards relatively cleaner natural gas-fired power. A core part of government aims of reducing per capita carbon emissions from 6.2 tonnes in 2014 to between 3.3 and 3.8 tonnes per person by 2030 will be centred on reducing the power sectors heavy reliance on coal-fired power. As a result, our forecasts show coal-fired thermal generation decreasing from an estimated 16.5TWh in 2020 to 14.7TWh in 2021 and declining further to reach 9.4TWh at the end of the forecast period in 2030.

    Our bullish growth outlook for natural gas-fired power generation in Hong Kong is premised on the government's commitment to implementing a cleaner energy mix, as illustrated in the Climate Action Plan 2030, published in January 2017. Instructively, the plan outlined the government's intention to substantially reduce coal-fired generation in favour of gas over the coming year, from 58.0% we estimated for 2017 to 25.0% in 2020 and further by 2030. We currently forecast gas-fired power to make up 51% of total power generation in 2020, falling to 27% by 2029. Crucially, we highlight that Hong Kong's LNG import terminal is only slated to come online in 2020, informing our relatively cautious near-term outlook. Crucially, Hong Kong does not produce any gas, the anticipated surge in gas demand will drive comparable growth in imports.

    Gas Taking Over From Coal
    Hong Kong - Power Generation By Type, TWh (2020-2030)

    e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

    In order to support the increasing use of natural-gas fired thermal power, Hong Kong is working to reduce its heavy reliance on piped gas from China, particularly given mainland China's own push to ramp-up gas usage for power generation and heating in order to curb coal consumption growth. The Hong Kong government had aimed to develop its first floating storage and regasification unit by 2020 however these plans were delayed by the Covid-19 pandemic and the project is now expected to come online in 2022. The development is being led by a consortium of the biggest domestic utilities and electricity firms, Castle Peak Power Co. (CAPCO) - owned by CLP Group - and HK Electric, which signed an agreement with Japan-based Mitsui O.S.K (MOL) to charter a floating storage and regasification unit (FSRU) for the duration of 10 years. The FSRU will have LNG send out capacity of about 8.1bcm per annum, or more than twice Hong Kong’s estimated gas demand in 2019. The first LNG supply deal has been signed with Royal Dutch Shell, which will supply about 1.2mtpa (1.6bcm) from its global portfolio.

    Despite the disruption to the project, the outlook for Hong Kong’s LNG plan continues to be constructive due to strong financial backing and a favorable outlook for global LNG prices. Hong Kong’s LNG development offshore enjoys ample financing backing due to support from local billionaires Li Ka-Shing – who owns a 33.37% stake in HK Electric via his utility firm Power Asset Holdings, and Michael Kadoorie, owner of the city's biggest electricity firm CLP Group. HK Electric also boasts ties to Qatar through a 19.9% stake held by state-owned investment vehicle Qatar Investment Authority, which could potentially serve as the foundation for future LNG-related arrangements with Qatar. In addition, the long-term outlook for global LNG prices favors LNG newcomers such as Hong Kong as a crowded liquefaction projects pipeline out to 2024 – led mostly by projects based in the US – look set to keep the market amply supplied and price gains modest. Even factoring in the agreement with Shell, some 80% of Hong Kong’s LNG import capacity still remains available to be contracted out to buyers, leaving Hong Kong in a strong position to negotiate new term deals and/or capitalise on competitive spot prices.

    Import Diversification Will Support Expansion Of Gas-Fired Power
    Hong Kong - Net Natural Gas Exports (2020-2030)

    e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions

    The addition of new gas-fired capacity at both the Black Point and Lamma Power stations means that natural-gas fired thermal generation increased by an estimated 9.2% in 2020 and is forecast to increase by 8.9% in 2021 followed by 12.5% growth in 2022. Hong Kong utilises gas at three power stations:

    • CAPCO’s 2,500MW Black Point gas-fired power plant comprises eight combined-cycle gas turbines. Another two units of 500MW each are planned by 2023; each unit will be capable of processing 0.48mtpa of LNG.
    • CAPCO also owns a 4,100MW power plant in Castle Peak, which currently primarily runs on coal. The plant’s current gas-fired generation is small at 240MW, but CAPCO is in the process of converting the plant’s main fuel source to gas as part of its aggressive clean energy targets to 2050.
    • About a third of the electricity generated from HK Electric’s 3,200MW Lamma power plant comes from burning gas. The share of gas is set to be increased further over the coming years, with one 380MW gas-fired units in line added in 2020 and another two due 2022 and 2023.

    With new capacity due to come online, supported by development of LNG imports, we expect natural-gas fired generation to increase by around 3.4% annually from 2023 to the end of the forecast period in 2030, reaching a total of 26.3TWh and making up almost three-quarters of total electricity generated in Hong Kong.

    Renewables Generation And Capacity Forecast

    Key View: Non-hydropower renewables currently make only a minimal contribution to Hong Kong's domestic energy mix, contributing less than 0.3% of total electricity generated in 2021. The overwhelming dominance of thermal power and ongoing reliance on imports mean there are very few incentives for the development of renewable energy, despite Hong Kong's theoretical suitability to solar and wind power. As a result our forecasts continue to show muted growth in the renewables sector over the next decade.

    Latest Updates

    • Non-hydropower renewables generation is forecast at just 0.09TWh in 2021 and will see minimal growth over the remainder of the forecast period to reach 0.56TWh in 2030 - making up just 1.5% of total electricity generated in Hong Kong.
    • CLP has reportedly started feasibility studies for the development of an offshore wind farm in order to meet Hong Kong's carbon neutrality by 2050 target. The group already operates several large-scale wind farms on mainland China.

    Structural Trends

    The outlook for Hong Kong's renewable energy sector remains subdued. While Hong Kong's government has set out plans to increase the contribution of solar, wind and biomass to around 3% to 4% of the domestic energy mix by 2030, the government has yet to introduce incentive mechanisms and the dominance of thermals (and of the two energy companies) mean private investment is unlikely to be forthcoming.

    Hong Kong's renewable targets do mean there is some upside risk to our current forecasts, which show only minimal renewables output over the next decade to reach 0.56TWh in 2030. Growth is likely to be focused on wind and solar power. The government has identified two sites where offshore wind power farms could be developed, with a potential capacity of 100MW (South West Lamma) and 200MW (South East Ninepin). The Climate Action Plan 2030 states that the development of these projects remains possible within the next 15 years, although the plants would provide only 1.5% of Hong Kong's total power consumption and be more expensive than equivalent natural gas-fired resources. As such, we have not included them in our power forecasts.

    Solar power has long been neglected and typically confined to small-scale and rooftop capacity deployment, as well as solar heaters. We believe there will be limited scope for large-scale solar facilities in the market over the coming, given the high price of land and the limited land availability. Floating PV systems are in place at Shek Pik Reservoir and Plover Cove Reservoir and there is substantial potential to develop distributed solar power capacity. In line with this, utility-led feed-in tariff and net metering schemes will help encourage the deployment of renewable energy, particularly household systems. Specifically, CLP has launched a FiT initiative to purchase renewable energy from energy producers such as local households, private companies, NGOs and schools. HK Electric reportedly rolled-out the same scheme for Hong Kong Island and Lamma Island in January 2019.

    Biomass is another sector which the government aims to develop further. There is already a system in place to collect waste cooking oils and fats and produce biodiesel. A waste to energy plant at Shek Kwu Chau island should become operational in 2024 - adding 480GWh of electricity to the market. The Waste Blueprint for Hong Kong 2035 includes an additional waste to energy plant, though details of the development have yet to be released.

    Electricity Generation And Power Generating Capacity
    Total Electricity Generation Data And Forecasts (Hong Kong 2019-2024)
    Indicator 2019e 2020e 2021f 2022f 2023f 2024f
    Generation, Total, TWh 34.2 33.8 33.2 33.6 34.6 35.1
    Generation, Thermal, % of total generation 99.716 99.722 99.702 99.705 99.710 98.527
    Generation, Coal, TWh 19.274 17.347 14.745 12.975 12.456 11.958
    Generation, Coal, % y-o-y -7.000 -10.000 -15.000 -12.000 -4.000 -4.000
    Generation, Coal, % of total electricity generation 56.379 51.259 44.461


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