Talking about the’laughing’ reality of’electricity cheaper than cost’

On December 17, 2020, the Ministry of Trade, Industry and Energy and KEPCO announced a plan to reorganize electricity rates, which will take effect from January 1, 2021. The main point is to reflect the fluctuations in the cost of power generation fuel used to generate electricity in the electricity price. In addition, a summary of support for the rapid exit cost of coal-fired power plants was added, and measures to improve the’essential use deduction system’ for households with low power consumption and energy weakness were also included. If you look at the existing electricity bill, it is divided into basic rate and electricity rate (standard fuel cost + fuel cost variable cost + climate environment cost + other). The fuel cost fluctuation cost and climate environment cost are hidden forms in the electricity bill. The reorganization plan is to separate the fuel cost fluctuation cost and the climate environment cost, which were hidden in the electricity bill, and mark it to appear on the electricity bill.

First of all, the variable cost of fuel cost is calculated by subtracting the average fuel cost (performed fuel cost) for the three months immediately before the month of payment from the average fuel cost (standard fuel cost) of the previous year, and reflected in the monthly electricity bill. However, it was decided to put an upper and lower limit of ±5 won per 1 kWh on rates that would become cheap or expensive. In addition, it is decided not to reflect changes within 1 won per 1kWh quarterly in the electricity bill. It also put in a clause stating that the government can withhold rate adjustment if there are exceptional circumstances, such as a sharp rise in oil prices within a short period of time.

Meanwhile, it was decided to separate the climate and environment costs included in the current electricity bill and indicate them separately in the bill. In other words, it was decided to separately notify the cost of fulfilling the obligation for new and renewable energy (RPS) and the cost of GHG emission trading (ETS) by 4.5 won and 0.5 won per 1 kWh, respectively. In addition, it is decided to receive 0.3 won per 1kWh by establishing a new cost for reducing coal power generation. In addition, the’required residential use deduction discount system (4,000 won per household per month)’ was changed to apply only to 810,000 households, the actual vulnerable. Although the mandatory use deduction discount system for housing was introduced to support the vulnerable, who use less electricity, in reality, it is said that non-vulnerable households with upper-middle income (81% of the total) and households with one or two (78% of the total) benefit. Problems were constantly raised. In order to improve this, it was decided to abolish the discount application of general furniture in July 2022. It was also decided to introduce an optional fee system for each house as a pilot. Currently, the seasonal and hourly selection rate plans are applied to industrial and general electricity users. The government is planning to conduct a trial in July 2021 in Jeju Island, where the penetration rate of smart meters (AMI) that can measure electricity usage by time period is over 99%, and then gradually expand it nationwide.

Between’Welcome, but not enough’ and’National transfer of the cost of denuclearization’

When the reorganization proposal came out, criticism in a completely different direction was coming out of’Welcome but not enough’ and’Transferring the cost of nuclear power plant to the public’. First of all, looking at the voice of’Welcome, but not enough’, the reorganization plan contains the contents of a retreat from the fuel cost-linked electricity bill enforcement plan (abandonment due to inflation concerns; hereinafter ‘2011 implementation plan’) that the Lee Myung-bak administration was preparing to implement in 2011. Point out.

The ‘2011 Implementation Plan’ was to reflect changes in fuel costs to monthly electricity bills. However, this reorganization plan decided to adjust the rate every three months. In addition, the ‘2011 Implementation Plan’ set the limit for adjusting fuel costs at 50% of fuel costs in order to prevent too rapid rate changes. Fuel costs account for 40% of the total cost of electricity bills, and if this maximum adjusted weight is applied to the average electricity bill for a four-person household (about 20,000 won), 10,000 won can be cheaper or more expensive. However, in this reorganization plan, a household of 4 who uses 350 kWh per month and pays a fee of 55,000 won will pay a maximum of 1,750 won per 6 months or expensive electricity. The adjustment value that reflects fuel cost fluctuations in the rate is set as small as that. Compared with the ‘2011 implementation plan’, it is hemostasis. Even if fuel costs change rapidly and try to raise rates significantly, it is difficult to reflect them immediately.

Some accusations come from completely different directions. After the announcement of the reorganization plan, the major institutional media were “pre-nuclear bills, post-nuclear boomerang” (<조선일보> As of December 18, 202, it is called “abolition of discounts on denuclearization boomerangs, 10 million households that hit single households”) or “billing to consumers for denuclearization costs” (<중앙일보> As of December 18, 2020, “Government electricity bill surprise reorganization…Next year’s nuclear power plant bills will fly”). This reorganization plan is the’passion of the cost of nuclear denuclearization’ to the public at the cost of the post-nuclear government’s neglect of cheap nuclear power. Between criticism and criticism, the truth lies within the current electricity tariff system. Let’s take a look.

Price distortion and preferential discounts stained electricity bills

There are four major problems with current electricity bills. First, the fluctuations in the market price of power generation fuel are not reflected in the electricity sales price. From Table 1, it can be seen that the power generation fuel price, the wholesale market electricity transaction price, and the retail electricity sales unit price have not been linked and have fluctuated. As the power generation fuel price fell, of course, the wholesale market transaction price also fell, but strangely, the retail sale price rose (2012-2016). On the other hand, when the price of power generation fuels fell, the transaction price in the wholesale market increased, and on the contrary, the retail electricity sales price decreased (2016). “There are many cases where fuel costs are not reflected in electricity bills, but act in the reverse direction”. (☞ Shortcut: Energy Economic Research Institute September 2, 2020’Energy Policy and Directions for Rationalizing Electricity Charges’)

Secondly, there is a problem in which environmental pollution or safety costs are not properly accounted for in power generation fuel prices. Looking at the purchase price (won/kWh) by power generation source in 2019, nuclear power was the cheapest at 58.39 won/kWh, followed by coal at 87.64 won/kWh. On the other hand, the LNG complex was 119.13 won/kWh, and the new and renewable energy was 174.47 won/kWh. Naturally, cheap nuclear power and coal are inevitably used as fuel for power generation. However, if the cost of safety to prevent accidents such as the Fukushima nuclear power plant accident is properly included in the price of nuclear fuel, the damage of premature death due to fine dust, and the cost of improving the air environment due to the promotion of the climate crisis are properly included in the price of coal fuel. Could coal be a cheap fuel?

Third, it is also a serious problem that electricity prices are different for each use. Korea’s electricity billing system differentiates between seven uses (residential, general, educational, industrial, agricultural, streetlight, and late at night) and charges different prices. In 2019, the price by use (KRW/kWh) is 104.95 for residential use, 130.33 for general use, 103.85 for education, 106.56 for industrial use, 47.74 for agricultural use, 113.91 for street lights, and 67.38 for midnight. It can be seen that agricultural power is significantly cheaper than other uses. Since the price of electricity for agriculture is so cheap, the business of importing Chinese frozen peppers, drying them with agricultural electricity, and selling them at high prices has increased, and in some cases, it has eaten up to 46% of the domestic general pepper market. (☞ Shortcut: Debate material from Gwang-Hoon Seok, a Green Association expert committee member during the’Primary Policy Task Seminar for Transitioning to the 2020 Reasonable Electricity Rate System’ on September 1, 2020)

Lastly, it has been pointed out as a problem that there are many special discount rates. Representatively, it was pointed out that most of the 892 million households benefiting from the Audit and Inspection Service were general households (8.76 million units) for the’required residential use deduction discount system’, which is an electricity rate discount system for the vulnerable. More than 90% of the beneficiaries of this system, which was created to help low-income people with low electricity consumption, were ordinary households with sufficient power price payment ability. It would be said that this is a problem that occurred when the energy policy was not a welfare policy, but the protection of the energy underprivileged.

Electricity bill normalization begins now

The problem of the electricity tariff system as described above eventually brought about a’laughing’ reality of’electricity cheaper than cost’. The cost recovery rate (total cost recovery rate) of electricity prices has been below 100 since 2005, excluding 2014-2017. The cost of electricity production continues to change because it has maintained a rigid pricing policy that does not reflect this in electricity rates. The reality of the existing electricity tariff system shows how uncontextually some of the institutional media’s arguments of’passing on the cost of denuclearization to the public’ for this reorganization plan.

The voice of’Welcome but not enough’ is clearly above the facts and close to the truth. The low cost of nuclear power was due to the low cost of fuel, which was formed by political considerations while ignoring safety, and the low cost of coal-fired power generation was also due to the failure to properly calculate the climate and environment costs for fuel costs. Recalling this fact, the accusations of the reorganization plan, which attempted to impose a fair climate and environment cost on fuel costs, were criticized as’being out of nuclear power without increasing electricity rates and violating the promise’ or’adding a wrinkle-wrinkling carbon rate to the industry’. It can be seen that it was a distortion that came under the intention of lowering political credibility by holding back the government’s denuclearization and coalition policies.

“Although insufficient, normalization of electricity rates, the most important basic means of energy conversion, has begun.”

Hong Hye-ran, Secretary General of the Energy Citizens’ Alliance, is suggestive in that respect. Electricity bills should tell the reality of energy and become a lever for energy conversion. Distorted electricity bills are the enemy of energy conversion.