Transcript Industry Perspective (Jeanne Ng)

HK Climate Change Forum
CPD Program on Climate Change
Adaptation – An Industry Perspective
22 September 2010
Dr Jeanne Ng
CLP Holdings Limited
Why Adapt?
While we mitigate,
we must also adapt…
Adaptation is necessary to address impacts resulting from the
warming which is already unavoidable due to past emissions
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How Can Businesses Adapt?
General
 Increasing adaptive capacity includes consideration of
climate change impacts in:
 development planning and
 disaster risk reduction strategies
 Adaptive responses include:
 technological
 behavioural
 managerial
 policy
Many early impacts of climate change can be effectively addressed
through adaptation, but options diminish and associated costs
increase with increasing magnitude of climate change...
3Source: IPCC 4th Assessment Report (FAR), Working Group 2 Report: Summary for Policymakers
How Can Businesses Adapt?
Risk Monitoring & Assessment
 Physical climate change impacts – anticipate and assess
potential impacts and implications to business
 Emerging regulations – anticipate and monitor regulatory
risks and implications to businesses
 Investments – conduct climate risk assessments for
potential/new investments
 Stakeholder expectations – anticipate and assess potential
stakeholder expectations and implications to business
Businesses should monitor and assess regularly the potential
climate change impacts, regulations and related stakeholder
expectations.
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How Can Businesses Adapt?
Risk Mitigation Strategies
 Development planning – incorporate climate change
considerations into design specifications and contracts
 Crisis management planning – incorporate climate change
considerations into crisis management plans
 Investments – build in carbon-related investment/screening
criteria
 Maximising opportunities – identify and pursue potential
new business opportunities arising from changing market
conditions
Businesses should develop and implement strategies to reduce
business risk and optimise business opportunities.
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Examples Of Hypothetical Scenarios
 Water shortage – changed rainfall patterns and water shortages
in certain regions
 Higher temperature – increased average temperatures, longer and
more intense summer heat waves and a greater number of
extreme heat days each year
 Legal action – Non-government Organizations begin to take
action against major emitters
 Investors’ limit – Leading institutional investors institute a
voluntary code that limits their investment in businesses with
emission liabilities greater than 10% of EBIDTA
Begin raising staff awareness and capacity from different units on
possible adaptation measures for some climate change scenarios.
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The Problem: Water Shortage
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Climate change leads to changed rainfall patterns and
water shortages in certain regions.
 In the worst affected regions, Governments respond
by introducing mandatory caps on water use for
industrial purposes and a system of tradeable water
rights.
 Existing power station water extraction rights are
curtailed and power stations must forgo generation
or purchase water rights from other users.
 New power stations are forced to purchase all their
water requirements from other users and to put in
place stringent water management practices to limit
water use on site.
Not as unlikely as you might think…
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WATER FLOW CUT TO POWER STATIONS The Australian – 8 March 2007
The Queensland Government will today reduce the water supply to the Tarong North and Swanbank power
stations, which is expected to save 3,600 megalitres over the next 12 months. Opposition Leaders called for
the Government to go one step further and temporarily shut down the power stations, to save a further 6,530
megalitres of water. The cap on water extraction was only possible after a lengthy process to ensure the
Government was legally able to enforce it without leaving itself open to compensation claims.
DROUGHT TO PUSH UP POWER BILLS The Advertiser - April 26, 2007
POWER bills delivered to South Australian homes and businesses will jump unless the drought breaks, one of
the state's biggest electricity retailers has warned. The big dry has been blamed for more than doubling the
price of wholesale power in SA during the past month. This is occurring because hydro-electric and some
interstate coal-fuelled generators on the national power grid are struggling to cope with a lack of water.
Analysts say the wholesale price has risen to $63 a megawatt hour, compared with $28MW/h for the same time
last year. Industry commentator and Electricity Week editor Laurel Fox-Allen said the market was undergoing a
"very dramatic change in conditions…What we are seeing now is most unusual. This is a massive change in
the market. "Two months ago, no one would have predicted these sorts of prices in the market.”
BABCOCK POWER UPGARDES 2007 GUIDANCE The Age - April 26, 2007
While Australia's water crisis is causing headaches for some, water shortages have underpinned Babcock &
Brown Power Ltd's (BBP) upgraded earnings forecast for this financial year. The energy utility said it expected
earnings to be more than 12.5 per cent higher than the previous forecast of $91 million for 2006/07, following
favourable conditions linked to water constraints. "The widespread water shortages have resulted in rising
wholesale electricity prices across Australia in both the spot and forward…In Queensland, level five water
restrictions are now in place, which has led to a significant reduction in baseload generation capacity…In
addition, Snowy Hydro has hit a critical point in its water stocks with levels currently around 10 per cent of
active capacity,“ BBP said.
Assets
Implications
 Shortage of water
supply
 Cooling water
restriction
 Increased cost for
generation
 Water rights and
potential legal issues –
leading to water trading
markets
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Responses
 Seek government
incentives/funding to
retrofit
 Seek government
approval
 Different tariff
 Additional water source
 Community awareness
& engagement
Systems & Processes
Implications
Responses
 Rise of ambient river
temperature
 Change in water salinity
 May need to use substitute
or alternative water sources
e.g. recycled, reclaimed,
seawater cooling, etc.
 Retrofit new technologies
although high cost
 Moving to ZERO discharge
sites
 Securing additional/
alternative water sources or
options
 Purchasing water from
others e.g. market, other
entitlement holders, etc.
 Introducing different
operating regimes e.g. for
cooling water blow down
 Technical safety and
environmental issues
encountered when making
these changes
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Growth & Development
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Implications
Responses
During planning consider:
 Technology selection e.g.
gas/renewable, hybrid drywet cooling, co-generation,
etc.
 High cost
 Water entitlement issues
 Migration of
customers/industries (shifts
of location of rainfall
patterns)
 Government policies
 New technology e.g.
integrated generation &
desalination (produce water
as well)
 Alternative generation
technology
 Changing of geographical
location
 Securing water entitlement
 Pass through of cost to
customers\upfront project
planning
 Partnership with water
suppliers & customers
The Problem: Higher Temperature
 Climate change leads to increased average
temperatures, longer and more intense summer heat
waves and a greater number of extreme heat days
each year when temperatures exceed 40C.
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Not as unlikely as you might think…
GLOBAL WARMING CAUSES HEAT WAVE China Daily – 7 Feb 2007
Beijing reports record high temperatures. After temperature records were broken on "Lichun" (the beginning of
spring, the first of China's 24 traditional agricultural "terms" in the lunar calendar, which this year fell on
February 4), Beijing reported another record high temperature of 16 degrees Celsius on the afternoon of
February 5, the highest recorded temperature on that date in the last 167 years (systematic temperature
records have been kept since 1840). Meteorological data shows that the average temperature in Beijing last
December and this January were significantly higher than in previous years and that trend will continue this
month. Meteorological experts say that the recent abnormally high temperatures have seldom been seen
during this period at any time in history. Temperatures also remain high in Harbin city. The snow in the streets
is melting. In Shanghai, the temperature was above 20 degrees Celsius for a few days in early February.
HEAT WAVE HITS EAST CHINA CITIES China Daily - 2004-07-27
The city of Shanghai is expected to remain on red alert as the temperatures are expected to remain above 35
C until the end of this month. Electric generators have been kept running near maximum load so as to meet the
surging power demand of households while 5,000 industrial producers have been co-ordinated to shift their
working hours to reduce the pressure. The electric load reached 14.44 million kilowatts Monday, following
15.006 million kilowatts recorded last Friday according to Shanghai Municipal Electric Power Company. The
company has worked out arrangements with other power suppliers such as introducing electricity from the East
China Power Grid to help the city through the hot summer. The city saw four successive days last week with
the temperatures rising above 38 C. On Saturday, the temperature soared to this summer's highest of 39.5 C .
The heat has also worsened the serious power shortage in the city. Although the local government launched
emergency measures last week to ensure the residents have electricity during the night, more than a hundred
lines of electricity have to be cut off. As the number of high-temperature days outnumbered officials'
predictions, 97 local enterprises have been required to stop operation today.
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Assets
Implications
Responses
 Increase in electricity demand (sales
increase)
 More peaking capacity needed (load
factor decreases)
 Generation efficiency decreases
 Higher risk of damage to
transmission and distribution
systems
 Bush fire risks to assets in very dry
areas e.g. Australia
 Difficulty of supply responding to
meet the rapid increase in demand
 Build more peaking capacity
Future Developments
 New assets must work reliably in
high temperatures
 Embedded generation (smaller
plants) for meeting peak power
demands
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 Need to optimise cost
 Demand side management
 Incentives to customers to reduce demand in
high temperature period
 Build embedded generation (smaller
plants) for meeting peak power
demands
 Operations integrity
 Keep plants running
 May mean retrofitting to provide more plant
capacity, more cooling capacity
 Asset flexibility to meet peak and shut down
when not required
 Crisis management plan for potential blackout –
emergency response
 Increase fuel inventory
The Problem: Legal Action
Non-government Organizations, like Greenpeace,
WWF, Climate Justice and Stop Climate Chaos,
begin to take action against power companies.
 Action takes the form of:
 Legal actions filed against leading electricity generating
companies with large coal-fired portfolio.
 Legal challenges filed against all new coal fired power plant
planning/permitting.
 Activist protests at individual power stations; and
 Public campaigns against large regional electricity
generators.
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Not as unlikely as you might think…
US POWER GIANTS FACE LANDMARK CLIMATE LAWSUIT
Eight states and New York city have launched an unprecedented civil action against five of America's largest
power companies, demanding that they cut carbon dioxide emissions because of global warming. The
companies being sued are American Electric Power Co, Southern Co, Xcel Energy, Cinergy and the federal
Tennessee Valley Authority. They collectively own 174 fossil-fuel-burning power plants which produce 646m
tons of carbon dioxide a year - about 10% of the nation's total, the statement said.
GREENPEACE HIGHLIGHTS THE HAZARDS OF CLIMATE CHANGE
Greenpeace India today sent a strong message about the hazard of climate change caused by the excessive
burning of coal. Greenpeace activists beamed messages on the Ennore Coal Power Plant to highlight the fact
that coal is one of the highest emitters of carbon dioxide which causes climate change. This is part of a series
of activities Greenpeace India is undertaking to draw attention to the immediate threat from climate change.
Greenpeace wants subsidies to the coal industry to be phased out. Greenpeace demands that 30% of the
energy generated in India by the year 2030 should come from renewable sources and that this should increase
to a 60% by the year 2050.
CLIMATE ACTIVISTS BRING POWER STATION TO A HALT
Climate activists from around the East Midlands managed to stop some operations at Radcliffe on Soar Power
Station after climbing onto conveyor belts and dumper trucks inside the plant yesterday. The power station is
the 3rd biggest emitter of CO2 emissions in the UK. The owner of the plant, E-On, said operations ran as
normal and that their environmental record is good with aiming to be a clean coal-fired power station. The
blockade lasted for 3 hours and 11 people were arrested all of which were later released.
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Business
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Implications
Responses
Short term
 Disruptions in day-to-day operations
from protests
 Security & safety issues from
protests
 Publicity, reputation & credibility
issues
 Governments may react under
public pressure, particularly where
rule of law not as entrenched
Medium – long term
 In Thailand and India, can lead to
close-down of facility (high risk to
our investment and serious
economic implications)
 Delay in granting permits
 Impact our decisions on strategy,
facility planning, fuel mix
 Need to have a proactive, positive
responses to public and NGOs to
show responsibility and long term
commitment
 Sizable stakeholder engagement
programme
 Government, community, NGOs, academia,
customers, etc.
 Collaboration, communication, education,
sponsorship of green project
 Influence policy makers and
authorities
 Formulate corporate climate
strategy/carbon reduction plan
 Flexible business models to cater
for new technologies and changes
required of a responsible company
The Problem: Investors’ Limit
Leading institutional investors, such as AMP, California Public
Employees Pension Scheme, HSBC Holdings, Henderson, etc,
institute a voluntary code that limits their investment in
businesses with emission liabilities greater than 10% of
EBIDTA.
 The emissions liabilities are to be calculated on the basis of
total greenhouse gas emissions coming from direct sources –
and apply to operations in all countries, irrespective of the
existence of climate change regulations.
 The emissions liabilities are to be valued against an indexed
carbon price published by a recognized trading exchange,
such as the European Climate Exchange.
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Not as unlikely as you might think…
GET ECO-SAVVY, OR LOSE OUT ON MEGA INVESTMENTS 21 Apr, 2007 – The Times of India
When a group representing institutional investors controlling $41 trillion (that's trillion with a T) sends an
innocuous-looking questionnaire asking about your GHG (greenhouse gas) emissions and preparedness to
tackle climate change, can any CEO afford to ignore it? Boardrooms of the top 100 companies in India will be
pondering over this eight-page survey that seeks to assess potential risks and opportunities relating to climate
change for global businesses. From Reliance Industries to NTPC to ICICI Bank to Ranbaxy to even computer
giants such as Infosys and the corporate giants of the Bombay Stock Exchange are part of the select group of
2,400 companies that have been asked to fill a questionnaire by the Carbon Disclosure Project (CDP), a UK
charity representing the World's Largest Investor Coalition comprising a group of 284 institutional investors.
The investors include ABN Amro Bank, California Public Employees Retirement System, CIBC, Deutsche
Bank, Development Bank of Japan, Goldman Sachs, HSBC Holdings plc, Morgan Stanley, Old Mutual plc,
Rabobank, UBS Global Asset Management, Warburg-Henderson and Zurich Cantonal Bank among others.
CITY TRADERS FACING UP TO CLIMATE CHANGE BBC – August 15, 2005
If some of Britain's biggest pension funds get their way, City traders will soon be discussing how climate
change could affect the stock prices of FTSE 100 companies. Nick Robins, of Henderson Global Investors,
believes that the market will see a profit warning from a company as a result of a failure to grasp the impact of
emissions on business. A recent report published by Henderson and Trucost estimates that up to 12% of the
pre-tax earnings of FTSE 100 firms could be at risk from measures required to incorporate the cost of
emissions into market prices. A recent report by the UK-based Institutional Investors Group on Climate Change
(IIGCC) and the Carbon Trust warned that "virtually all" types of asset could be affected by climate change.
"We're not trying to save the world, what we want is for people to realise that climate change is an issue that
can affect the value of their investments," says Mr Scales of the IIGCC.
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Existing Assets
Implications
Responses
 Risk warning raised by
institutional investor on
asset liability
 If investors leave
 Reduce emissions through
technological improvements
 Change dispatch / fuel mix,
based on assumption that
there is cost past-through to
the customer
 Buy credits to offset
liabilities
 Sell off high emitting assets
 Sell greener power at higher
price to increase earnings
 Company share price drops
 Credit rating drops
 Cost of finance increases
 Financing for operations or
new projects may become
difficult
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Growth & Development
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Implications
Responses
 Hard to find funding for new
projects
 Credit rating drops, so cost
of financing increases
 Investors sell off their shares
 Public image of company
negatively impacted
 Change of investor mix e.g.
% of institutional investors
drops
 Acquire non-emitting
projects / business e.g.
transmission, gas, nuclear,
retail, etc.
 Join / acquire partners with
cleaner portfolio
 Privatise the company so not
affected by these investors
 Set a target or aim for more
stringent liabilities / EBIDTA
ratio <<10%
Process & System
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Implications
Responses
 Alter the profile of some
existing systems - need to be
elevated
 Monitoring, reporting, etc.
 Integrated GHG / financial
accounting reporting system
 Scenario modelling capacity
to optimise future liabilities
and earnings
 Strengthen emissions
monitoring system – more
timely, more accurate
 Carbon credit / offset system
 Bank pools of credits for
future
 Negotiate with investors on
timeframe to achieve their
requirements
CLP Adaptation Workshop
Case Studies: Vung Ang II, Vietnam and Samana Wind Farm, India
27th May 2010, Hong Kong
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Project methodology
The potential loss arising from climate change was quantified for each site
and adaptation options identified where possible
Identify Adaptation
Options
Identify Vulnerability
 Already implemented
 Future options
 Past impacts
 Future climate scenarios
Cost-Benefit Analysis
(loss vs. adaptation cost)
Adaptation Decisions
Regulatory
Requirements
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CLP Values /
Best Practice
Economic Benefit
of Mitigating
Emerging Risk
Climate Change Impacts on
Vung Ang II Coal Fired Power Plant
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Climate
Risks
Impacts
Affected Parts
Typhoon
Wind
 Structural damages
 Destruction to resource and transport
systems
 Reduced demand due to rapid shut down
 Plant cladding, conveyor belt,
transmission line, stack, housing
structure, storage, turbine hall, ash
“flight”, desalination plant, jetty and
loading system, staff injuries
Coastal
Flooding
 Inundation
 Supply Disruption
 Switchgear, milling, cooling water,
auxiliary pumps, access road, ash
pond, conveyor, jetty, cable tunnels,
transmission
Fluvial
Flooding
 Sedimentation
 Contamination of cooling water
 Inundation
 Landslides and soil subsidence
 Reduced condenser efficiency
 Sediment influx, blockage of
access road, damage to
transmission, deteriorated cooling
water quality due to river/estuary
contamination
CLP-JV Environmental Synergy Conference 2010/GEA
Potential Adaptation Options for
Vung Ang II Coal Fired Power Plant
Hard measures
Soft measures
 Relocate site inland / Elevate site (including ash pile)
 Plant mangroves/wetlands to dissipate floods
 Ensure station orientation to be aerodynamic
 Increase coal stock pile onsite during typhoon season
 Concretize coal storage with flood protection
 Specify design to withstand wind speed >110m/s and
subsidence
 Install shut down protection design
 Install underground cables to desalination (desal) plant,
cooling water (CW) plant and other services
 Install dredging/ damage protection
 Apply online condenser cleaning
 Increase filtration system of desal plant
 Elevate pumping/electrical systems and access road
 Build ash pond containment walls to pevent
inundation/piesometric monitoring
 For jetty conveyor system, store inventory, encapsulate
conveyor belt and develop underground system
 Develop early warning system and
emergency evacuation plans
 Train staff in activating emergency
power shut down and startup
 Monitor weather conditions
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CLP-JV Environmental Synergy Conference 2010/GEA
Climate Change Impacts on
Samana Wind Farm, India
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Climate Risks
Impacts
Cost Implications
Temperature Rise (May
– July maxima) o
Low scenario: 48 C
o
High scenario: 51 C
 Increase breakdowns (electronic
card failure)
 Decrease resource availability
 More servicing
 High scenario may reduce
availability to 90%, implying a loss
of approx. HKD500,000 for 3
months
Intense Rainfall
 Pole erosion/corrosion
 Access blocked
 Low rainfall scenario: damage 10
poles 2-3 times/year, cost: approx.
HKD675,000
 High rainfall scenario: damage 20
poles 2-3 times/year, cost: approx.
HKD1,350,000
Typhoon Wind
Low wind scenario
(50m/s)
High wind scenario (6080m/s)
 Low scenario: 15 days outage, 2-3
towers damaged
 High scenario: 30 days outage, 10
towers damaged
 Low scenario: approx
HKD450,000 for tower replacement;
HKD7,500,000 revenue loss
 High scenario: HKD1.5 million for
tower replacement; HKD1.5 million
revenue loss
CLP-JV Environmental Synergy Conference 2010/GEA
Potential Adaptation Options for
Samana Wind Farm, India
Measures
Estimated Cost
 Cooling of electronic cards
 Upgrade cards to sustain high temperatures
 HKD850,000
 HKD1.2m
 Adapt and improve servicing and people (use ice vests,
hydration, air conditioned cars, provide climb assist and
hand held air conditioners)
 HKD200,000
 Ensure access around site using high clearance vehicles
 Improve drainage and flood defense/levee
 Strengthen pole foundations
 Install extra protection for cut point poles
 Build underground distribution/ cabling
 HKD70,000
 HKD6m
 HKD200,000
 HKD100,000
 HKD100m
 Adapt and improve servicing and people (use ice vests,
hydration, air conditioned cars, provide climb assist and
hand held air conditioners)
 HKD200,000
 Build additional spare towers
 Improve tower designs
 Secure transfer point of sale & PPA terms
 Examine insurance products
 HKD1m
 HKD5m + HKD3m for new builds
-
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CLP-JV Environmental Synergy Conference 2010/GEA
Thank You!