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Lightening the electricity burden

Aug 11,2018
The author is the head of the economic policy team of the JoongAng Ilbo.

It was in 1974, during the first oil shock, that the tiered electricity pricing was introduced to the residential electricity bill. To discourage energy consumption, electricity usage was divided into three tiers, and the progressive rate went as high as 1.7 times. In 1979, at the time of the second oil shock, the progressive electricity rate became a monster. The electricity usage was divided into 12 tiers, and the progressive rate was as high as 19.7 percent. In the 2000s, two adjustments were made to create another three-tier rate system.

Nevertheless, people are reluctant to use air conditioning even during the worst heat wave because of the progressive rate system. There are a number of reasons to call for a rate adjustment. First, people’s living patterns have changed. In 1997, only 9 percent of households had air conditioners at home, but now, 90 percent have one. Households that use more than 300 kilowatt hours of electricity a month have increased from 12.2 percent in 2002 to 30 percent today. Fairness is also controversial. Residential electricity is the only situation where a progressive rate is applied for commercial and industrial electricity.

The Ministry of Industry, Trade and Energy is ready to draft an overall reform of the electricity bill, including the progressive rate on residential electricity. However, the process is not simple. When the tiered rate is adjusted, households that consume a large amount of electricity would save, but the burden on low-income households may grow. To lower the rate in the high-rate tier, the basic unit cost is bound to increase.

Also, to change the electricity billing system, industrial electricity rates needs to be reviewed, and the industrial electricity has direct impact on the economy and market. Kepco, which is responsible for the progressive rate, also has a growing deficit.

The government actually has another major concern. Removing the tiered rate could encourage electricity over-consumption. It would make it harder to manage stable electricity demand, and some may insist that nuclear power plants should be increased. Because the electricity demand prediction for the summer was off, some criticized that the government may have made a conservative estimate for the electricity demand to support the nuclear phase-out rhetoric.

The trend that encourages electricity consumption could hurt the argument defending nuclear phase-out.

President Moon Jae-in said that the usage of air conditioners should be considered a basic need directly related to the health of Korea’s citizens.

To make air-conditioning an accessible and universal need, a low-cost, highly efficient electricity source is necessary. As extreme heat waves and severe winters have become more common and the fourth industrial revolution has started, the demand for electricity will only grow. But the government promised that electricity rate hikes would not happen in this administration.

It is complicated to calculate how to cover the increasing electricity demand while maintaining the nuclear phase-out direction and how to lighten the burden of electricity bill while having people use air-conditioning liberally. I am curious of what the solution for the residential electricity rate system that the government is drafting will be.

JoongAng Ilbo, Aug. 10, Page 30