Mentioned at Korea Electric Association Policy Forum
Increase in Reflecting Environmental Costs in Production Costs
New Tariff System Requires Social Consensus
[Asia Economy Reporter Moon Chaeseok] As the necessity of introducing a fuel cost linkage system for electricity rates is being raised, opinions are emerging that environmental costs should be included in the rate structure. As renewable energy expands due to the government's energy transition policy, environmental costs reflected in power purchase costs increase, so there is a call to transparently disclose these costs and establish a system to apply them to electricity rates.
The Korea Electric Association held a power policy forum titled "Green New Deal and Electricity Rate Structure Improvement Measures" on the afternoon of the 19th at the Electric Hall in Songpa-gu, Seoul. Experts participating in the forum suggested that the new electricity rate structure to be prepared by Korea Electric Power Corporation (KEPCO) this year should include environmental costs and establish a system to objectively assess price appropriateness.
Seo-hye Lee, head of the E-Consumer Research Office, reported that environmental costs are included in power purchase costs during the implementation of the Renewable Portfolio Standard (RPS), but consumers are not properly informed. The RPS supply rate is set to increase gradually as the energy transition policy is implemented. Therefore, environmental costs reflected in power purchase costs (production costs) of power producers also increase.
Since environmental costs are a factor in electricity rate increases, Lee argued that social consensus must be reached before applying them to the rate structure. The reality in Korea is that energy transition policies must be promoted to reduce fine dust and greenhouse gases, and to implement these policies, environmental costs should be calculated in electricity rates and disclosed transparently.
Lee stated, "Simply lowering the price level does not increase consumer acceptance," and added, "Efforts should be made to operate systems that benefit consumers while enhancing their price acceptance."
Dr. Tae-ui Lee of the Korea Energy Economics Institute argued that a fuel cost linkage system should be introduced to establish a system that objectively assesses price appropriateness. This is to periodically reflect fuel cost adjustment fees such as oil prices in retail electricity rates, provide timely price signals, and induce rational electricity consumption by consumers.
He also advised that clear regulatory standards for electricity rate adjustments should be established. Currently, when KEPCO applies for electricity rate adjustments, it goes through a process of consultation with the Ministry of Economy and Finance and review by the Electricity Commission. Without consistent standards regarding the timing and scope of rate adjustments, a new rate structure is created each time based on consultations with the Ministry and reviews by the Electricity Commission.
Dr. Lee presented principles such as ▲the cost principle (excluding special losses and business expenses from costs) ▲the fair prudence principle (recognizing dividends and interest payments of KEPCO, a KOSPI-listed company, as reasonable) ▲the equity principle (minimizing the application of special rates). He emphasized, "Due to the lack of clear standards for electricity rate adjustments, situations where rate adjustments violate principles are repeatedly occurring," and added, "It is necessary to establish clear standards to create a fair and rational regulatory system."
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