A claim has been raised that regional power self-sufficiency rates should be reflected to introduce a region-based differential electricity rate system.
Cho Hong-jong, a professor of economics at Dankook University, stressed at the National Assembly debate, "A National Assembly forum to promote a region-based differential electricity rate system considering power self-sufficiency," held in the main conference room of the National Assembly Members' Office Building on the 26th, that "we need to divide regions with precision and introduce a differential rate system by region."
A region-based differential electricity rate system sets the nationwide electricity wholesale and retail tariff structure, which is currently applied uniformly, differently according to regional characteristics. For example, regions with high power consumption such as the Seoul metropolitan area would see higher rates, while areas near power plants or with low power consumption would see lower rates.
Initially, the government planned to introduce this year a three-zone differential system for the system marginal price (SMP) of power (metropolitan area, non-metropolitan area, and Jeju) and expand it next year to a region-based retail tariff system. However, the rollout has been delayed after some regions raised concerns about reverse discrimination. The Ministry of Trade, Industry and Energy is reviewing ways to differentiate electricity rates, which are now a single nationwide system, by region.
Professor Cho noted that "the current electricity rate system does not have a properly functioning price mechanism," arguing for a region-based differential electricity rate system. He said, "Power plants are mostly located in the provinces, but most of the electricity produced is consumed in the Seoul metropolitan area," adding, "It is unreasonable for the metropolitan area to enjoy only the benefits while ignoring the burden of expense in this way."
He went on to say, "So far, power plant siting has been decided without considering the transmission network, and construction of transmission networks often faces strong nationwide pushback and gets delayed for years," proposing, "We should now acknowledge that building transmission networks is difficult and link regional development plans with power supply and demand policy."
He pointed out, however, that simply splitting the differential rate system into the metropolitan and non-metropolitan areas would cause side effects. Professor Cho said, "Incheon, where power plants are concentrated, would inevitably be disadvantaged because it is classified as part of the metropolitan area," proposing, "We need to draw regional divisions more carefully and set detailed criteria that reflect actual self-sufficiency rates and demand."
He explained, "Consumers currently pay about 2.7% of their electricity bills into the Electric Power Industry Basis Fund, so we can design a differential system based on regional self-sufficiency rates without touching the aggregates of total electricity bills," adding, "It is also possible to reflect this in retail rates by using factors such as generator-specific transmission loss coefficients and applying an arithmetic or weighted average by administrative district."
At the same time, some said at the debate that it would be difficult to subdivide regional electricity rates beyond a metropolitan–non-metropolitan framework. Jeon Young-hwan, a professor in the Department of Electronic and Electrical Engineering at Hongik University, noted, "We have electricity data roughly for the metropolitan and non-metropolitan areas, but there is a lack of granular data, and the transmission network is intertwined, making it hard to identify where electricity is supplied and used."
There was also criticism that the overall electricity rate system should be overhauled before introducing a region-based differential system. Lee Yu-su, a research fellow at the Korea Energy Economics Institute (KEEI), said, "The current electricity rate system does not even properly adhere to the principle of full cost recovery, and it concentrates increases on industrial electricity rates, revealing serious structural problems."
He said, "We should first change the rate system by voltage level rather than by use," expressing concern that "if we introduce a region-based differential rate system under current conditions, the rates by region and use could become excessively complex."
In response, the Ministry of Trade, Industry and Energy said, "We recognize the difficulties caused by increases in industrial electricity rate systems," adding that it would "seek ways to attract corporations to non-metropolitan areas to reduce unnecessary grid expansion and lower the public's electricity bill burden."
An official at the ministry explained, "However, as many experts point out (citing regions such as Incheon), the reality is that administrative districts and power system regions do not align," adding, "Excessive subdivision can lead to greater complexity and management expense, so we are carefully reviewing an appropriate method for regional classification."