More severe power shortages, the frequent breakdown of generators, and rising electricity costs in recent years have led to increasing public interest in electricity. Against this backdrop, the National Assembly Budget Office (NABO) conducted an analysis of the issues from the stage of power generation to consumption with a focus on the electricity price system and proposed measures for improvement.

    In comparison with OECD members, the commercial power consumption to GDP in Korea is 171Wh/USD, 2.1 times the OECD members’ average of 81Wh/USD, while residential power consumption is 42Wh/USD, around 0.6 times the OECD members’ average of 81Wh/USD. Even after considering the population size, the per capita commercial power consumption in Korea is 4,617kWh, 1.8 times the OECD’s average of 2,445kWh, while the per capita residential power consumption in Korea is 1,240kWh, 0.5 times the OECD’s average of 2,448kWh. Given the comparison, NABO proposed that the main target of power-saving policy should be commercial power users. 

    As an issue in the wholesale power pricing system, NABO first pointed out inconsistencies in the “Settlement Adjustment Coefficient.” In other words, the Settlement Adjustment Coefficient, one of the important factors in deciding the wholesale power price, is not reliable because of the gap between the projected and actual figures of oil prices and foreign exchange rates, etc. In addition, the calculation standards of the Settlement Adjustment Coefficient are losing consistency because of the challenges in mediating the conflicting interests between the Korea Electric Power Corporation (KEPCO) and power generation affiliates.

    Secondly, there is a continuous vicious cycle in which the failure rate of power generators surges as generators are operated without sufficient maintenance due to severe power shortages, which again leads to more serious power shortages. As a result, the operating incomes of the players in the private power generation industry have increased due to the rising wholesale power price while KEPCO’s financial soundness has deteriorated and inflationary pressure on the power price has continued.

    Third, NABO proposed that it is necessary to consider the introduction of a Government Regulatory Contract to avoid the risks that KEPCO and power generation companies are faced with because of the volatility in the power supply and to impose penalties on the breakdown of generators, etc. When a Government Regulatory Contract is introduced, it becomes possible to hold power generation companies responsible for the power supply, including by having them borrow electricity from other power generation companies, when they fail to fulfill the contracted amount of power because of generator breakdown or maintenance delays.

    With regard to the retail power price, NABO first pointed out that large corporations that are mostly using off-peak power enjoy more benefits due to the affordable power price than companies that are not, as LNG power generators that accompany high generation costs are operated to produce commercial off-peak electricity. While the off-peak price is excessively lower than the cost, the maximum load price is excessively high. Such a price system may be meaningful in a situation in which power supply management is critical, as recently witnessed. However, NABO proposed that it is necessary to fully reflect the cost structure in the price, as an off-peak price that is excessively lower than the cost can cause a distortion of energy consumption by triggering a conversion demand from other energy when the power situation improves.

    Second, NABO pointed out that while the progressive residential power pricing system is substantially fulfilling its goal of saving energy and supporting energy welfare for the low-income class, it may impose relatively higher electricity bills to households with low incomes but many family members. Moreover, it pointed out that while discounts on electricity bills are provided to beneficiaries of the national basic livelihood aid, there are cases in which the beneficiaries are not enjoying the benefits of the discounts as the discounted amount is deducted from their wages. In addition, although there are energy welfare systems including discounts on electricity and city gas bills, and briquette coupons for the low-income class, the low-income households using LPG, kerosene, and diesel are in a blind spot of the energy welfare system. 

    As for agricultural electricity bills, NABO proposed that the scope of agricultural electricity should be revisited, showing that the benefits of affordable agricultural electricity bills go mostly to agricultural electricity users who use more than 100KW of contract power.