Legislative Council Panel on Economic Services Paper : Implementation of Demand Side Management
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INTRODUCTION
This paper seeks Members' views on revised arrangements for implementation of the demand side management (DSM) programmes.
BACKGROUND
2. At the meeting of the Legislative Council Panel on Economic Services held on 24 May 1999, the Administration informed Members about the arrangements made to implement DSM programmes including their related costs and benefits. A copy of the paper issued to Members for that meeting is at the Appendix.
3. At the above meeting, some Members expressed concern in several areas of the proposed programmes, including their administrative costs, the payment of incentive earnings to the power companies as well as the need for the public to pay a DSM charge. We agreed to consider the views expressed and revert to Members on the DSM programmes before implementation. We have since consulted the two power companies and other relevant parties with a view to addressing Members' concern as far as practicable.
REVISED ARRANGEMENTS
Reduction of Administrative Costs
4. Having reviewed the administrative costs for the original DSM programmes, we decide to adopt a modified publicity package which would result in some cost savings. Government is planning to produce new television and radio announcements of public interest (APIs) on energy efficiency and broadcast them at Government airtime to help promote the concept and benefits of DSM. This would enable the power companies to cut back some of their advertising costs. They expect that if the broadcasting of these new APIs could be timed with the launching of the DSM programmes, comparable audience coverage could be achieved to maintain the effectiveness of the original publicity plan. It is estimated that this could save about $12 million for the three-year programmes.
Abolition of Incentive Earnings
5. In the light of Members' concern, we have urged the two power companies to consider foregoing the incentive earnings, totalling $76 million for the two companies. After much discussion, the two power companies accepted this suggestion to show their goodwill and commitment to the project. However, both companies are firmly of the view that if they are not getting any return from the DSM programmes, it is only fair that they should not be penalized in shortfall in target savings.
6. To address possible concern about whether they would proceed in earnest with the DSM programmes without penalty arrangements, the power companies agree to review with the Government the performance of the DSM programmes against some interim target savings in generating capacity at the end of each programme year and to step up their efforts as necessary. On balance, we feel that this alternative arrangement could be considered having regard to the significant savings to customers through abolition of the incentive earnings.
Reduction in DSM Charge
7. We estimate that the two measures explained in paras. 4 to 6 above would be able to reduce the DSM charge by about 20%. For a typical household, the new DSM charge would be about $27-$63 over the three-year programmes, or around $1 to $2 per month.
8. The overall tariff impact of DSM charge is small in percentage terms - well below 2% over the three-year programme period. However, in the light of concern expressed by Members at the last meeting, we have also obtained the agreement of the power companies to waive the DSM charge for customers registered with the power companies for concessionary tariff. Customers aged 60 or above who live either alone or with other similarly qualified elderly, and who are relying on or entitled to Comprehensive Social Security Assistance (CSSA), are eligible. This should address Members' concern regarding the application of the DSM charge to non-participants particularly those elderly people receiving public assistance.
ALTERNATIVES CONSIDERED
Deferral of the Rebate Scheme for the Residential Sector
9. The Hong Kong & Kowloon Electrical Appliances Merchants Association Ltd. has expressed concern that launching of the rebate scheme for domestic appliances would make it difficult for its members to sell their stock of electrical appliances without energy labels. It is concerned that this would severely affect the trade. The Association has suggested that the rebate scheme should not be introduced and we should leave it to the trade to gradually put more energy efficient appliances on the market.
10. The Economic Services Bureau and the Electrical and Mechanical Services Department (EMSD) have had several meetings with the Association in the past few months. We explained to its representatives the rationale behind the DSM programmes and the various efforts of EMSD in assisting the trade in obtaining energy labels for their appliances. The Association has advised that while it supports the objective of promoting energy efficiency and environmental protection, its members would like to have more time to reduce the old stock. The Association has advised that the percentage of energy-labeled products among imported room coolers and refrigerators has been on the rise, as follows-
| Ratio of room coolerswith energy label | Ratio of refrigeratorswith energy label | |
| January 1999 | 9% | 10% |
| June 1999 | 24% | 16% |
| November 1999 | 33% | 29% |
| Estimate for 2000 | 51% | 47% |
11. While the above figures illustrate that the percentage of energy-labeled products has been on the increase, they also show that a majority of newly imported products are still without energy label. We believe that introduction of a rebate scheme would likely help to transform the market at a quicker pace having regard to the significant increase in the availability of energy-efficient products since the announcement of the DSM programmes. We also believe that the introduction of the rebate scheme should have some positive impact on the trade as it would help to encourage customers to upgrade to energy efficient products. Moreover, since this is only an incentive scheme, the trade may continue to sell their stock of non-energy-labeled products in the market.
12. Notwithstanding the above, we have, in view of concern expressed about the rebate scheme for domestic appliances, explored with the two power companies an alternative option for implementing the DSM programmes whereby the rebate scheme for the residential sector would be deferred say for one year. The two power companies have indicated that they could strengthen their work on the non-residential customers in order to maintain the overall target generating capacity savings of 33MW as set out in the original DSM programmes. If this option is adopted, the electrical appliance traders should be urged to continue to increase the proportion of energy-efficient appliances in the market. The need for reviving the rebate scheme for the residential sector could be reviewed in one year's time in the light of the result of the voluntary efforts of traders and the effectiveness of the programmes for the non-residential sector.
13. The advantage of the alternative option is that while the DSM saving target would be maintained, the DSM charge on all residential customers would be removed and concern of the electrical appliance trade could be addressed to a great extent judging from our discussion with them. In addition, this would enhance the overall cost effectiveness of the DSM programmes because under the original programmes, the residential sector accounts for some 25% of the programme costs but contributes to only about 15% of the generating capacity savings. In short, it would cost about twice as much to save one megawatt under the residential sector as compared to the non-residential sector. On the other hand, if this alternative option is adopted, the residential customers would not be able to enjoy the rebate in purchasing energy-efficient appliances until application of the scheme is extended to cover the residential sector. Moreover, the value of the DSM programmes in encouraging the public to be more conscious of energy efficiency and environmental protection through the rebate scheme would also diminish.
Legislation
14. We have explained in the paper at the Appendix that mandating through legislation the use of energy efficient appliances is not preferred because prohibiting the use of a particular type of electrical appliance would normally be done for safety reason. Since the meeting of the Panel held on 24 May 1999, we have discussed with the Planning, Environment and Lands Bureau (PELB) the possibility of legislating for mandatory labeling for energy efficiency of electrical appliances.
15. PELB advised that it had included a new initiative in its 1999 Policy Objectives to introduce statutory requirements on energy efficiency and conservation. It had obtained resources to conduct research and examine the matter in detail in the next financial year. The intention is to consult the community in 2001 on the proposed statutory requirements, which could cover a wider scope than just electrical appliances. The legislative work, if any, would then follow.
16. Given this time frame, there might be merits in proceeding with the proposed DSM programmes in the interim to encourage people to contribute to energy efficiency and environmental protection in the next few years. Such programmes may also help to provide an impetus to gradually transform the electrical appliances market in the run up to the implementation of any mandatory scheme.
WAY FORWARD
17. Members' views on the revised arrangements as set out in paras 4 to 8 above as well as on the alternative option set out in para. 12 are invited before we further consult the Energy Advisory Committee and decide on the best way forward. It is expected that after a decision is taken, it will take a few months to finalize detailed implementation arrangements with the power companies and make the necessary revision to their DSM Agreements and DSM Resource Plans. It is therefore unlikely that any revised DSM programmes could be implemented before May 2000.
Economic Services Bureau
December 1999