[Square] Electricity Bill Reform, The First Step Toward a Rational System

There was a time when discussions about 'denuclearization' dominated the pages related to energy policy. As the complex and multifaceted energy issues focused on 'denuclearization,' urgent topics such as improving electricity consumption efficiency and reducing greenhouse gas emissions did not receive proper attention.

Recently, the government and Korea Electric Power Corporation (KEPCO) announced a reform of the electricity tariff system. Although the reform was somewhat delayed, having been postponed several times since last year and finalized just before the end of this year, there is relief that the electricity tariff system is now aligned with the times.

Globally, electricity tariffs are shifting toward structures that accurately reflect costs. The core of this reform is the introduction of a fuel cost linkage system and the separate charging of climate and environmental costs. This means reflecting the cost of fuel and the expenses for reducing greenhouse gases and fine dust in the tariffs. By providing price signals and cost information to electricity consumers, they can improve electricity consumption efficiency, and nationally, the effects of reducing greenhouse gases and fine dust can be enhanced.

While there are positive aspects, it cannot be denied that controversies over the electricity tariff system may become even more intense than before the reform. However, discussions should not be trapped in a wasteful frame. The key should be 'how rational the tariff system is.'

Let us first examine the level of electricity tariffs in Korea. The gap between the overall consumer price index and the electricity consumer price index, which were both 100 in 2015, widened, with the overall consumer price index reaching 104.85 in 2019, while the electricity consumer price index was 87.41.

Electricity tariffs, which have not kept pace with inflation, have distorted the relative prices among energy sources such as oil, gas, and electricity, leading to nationally inefficient energy consumption. Although consumers appear to benefit from the real price decline, they have used more energy than necessary, emitting greenhouse gases and fine dust that could have been avoided, and negatively impacting the trade balance.

Of course, Korea's rigid electricity tariffs, which have prevented price fluctuations and maintained low levels, have positively influenced industrial activities and the quality of life for citizens. However, the negative aspects outweigh the positives. The tariffs have been opaque, neglecting environmental and safety considerations, and have failed to serve as signals to regulate supply and demand. Moreover, they have not clearly conveyed the reasonable costs arising from energy transition and climate change response to the public.

A rational electricity tariff system flexibly and timely reflects all costs involved in producing, supplying, and selling electricity to consumers. This is why particular attention is paid to the fuel cost linkage system to be implemented from next year. It will distribute the burden of tariff changes due to fuel cost fluctuations and encourage reasonable consumption. It will prevent excessive electricity consumption and national energy substitution caused by the lack of reflection of energy price changes only in electricity tariffs, thereby promoting energy transition.

Furthermore, it will prevent the deterioration of power producers' business viability, enhance the stability of the power industry, and ultimately protect consumers from harm. Among the top 30 countries by Gross Domestic Product (GDP), most resource-poor countries have already implemented fuel cost linkage systems. Domestic oil, city gas, and district heating tariffs are also already linked to fuel costs. Moreover, a new tariff system is necessary to resolve the recurring social controversies that arise whenever electricity tariff rates are adjusted in Korea.

The remaining task for the government and KEPCO is not to be swayed by concerns and frames equating 'electricity tariff reform' with 'tariff increases.' They must confidently pursue policies in the direction of a transparent, predictable, and rational tariff system. It is necessary to disclose information about the tariff system to the public and communicate to secure national support. If a more suitable environment for energy transition and demand management through efficient energy consumption is created, the benefits will ultimately be enjoyed by the people. We hope that the tariff system reform will be the first step toward change.

Kim Seongsu, Director of the Renewable Convergence Program, Korea Institute of Energy Technology Evaluation and Planning

This content was produced with the assistance of AI translation services.