[Viewpoint] How to structure electric power

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[Viewpoint] How to structure electric power

The restructuring of the electric energy industry began in 2001 as six electric power generation companies and the electric power exchange separated from the Korea Electric Power Corp.

However, in the course of dividing electric power distribution, the government was faced with labor union opposition and postponed further action, leaving the restructuring incomplete.

In the Lee Myung-bak administration, the situation remains unchanged, and the law on the restructuring of Kepco will be automatically repealed by the end of the year.

Just in time, some suggest reconsolidating the former subsidiaries with Kepco.

While the restructuring process stalled, the environment for the electric energy industry has changed dramatically.

Low-carbon, green growth has become the global trend of the period, and will fundamentally change the general framework of the energy industry.

Countries around the world are trying to develop new renewable energy, enhance energy efficiency and reduce consumption in order to limit greenhouse gas emissions.

The electric power industry cannot be an exception and, therefore, it needs to find a structure to follow the trend.

When the unit price of generating solar energy is 10 times more than that of conventional power generation, renewable energy production cannot compete with conventional methods.

Development of energy-efficient electric equipment requires considerable investment, and will gain steam after benefits from power savings are significant.

Consumers will be active power savers when the benefit is visible.

Developmental subsidies for renewable energy production and efficiency improvements will certainly boost solar power generation and power-saving equipment.

In fact, the government’s low-carbon, green growth policy includes subsidies and obligatory generation of a set amount of renewable energy.

If the electric rate is raised 10-fold, solar energy generation will become huge without subsidies.

People will voluntarily make great efforts to save energy, and electric equipment makers will focus on developing energy-efficient products.

Of course, the rate cannot be raised by 10 times all at once, but the electricity rate needs to be at least above cost in order to cut down on the subsidies since even a slight hike in oil prices results in deficits.

As long as the electricity rate is included in the public utility bill, the government cannot adjust the rate due to political pressure.

Even when Kepco was suffering from a serious deficit from high oil prices, the government refrained from taking any action.

When the government is responsible for the electricity rate, the only motivation for low-carbon green growth is government subsidies.

Most of the subsidies come from the Electric Power Industry Fund, which is a part of Kepco’s revenue, so, fundamentally, the electricity rate is limiting the growth engine.

Additional subsidies can only come from the government budget, but as we have seen in the case of solar energy, an additional boost is impossible when financial well-being is threatened by added spending to rescue the economy.

As long as the government keeps electricity rates a part of public utility bills, the low-carbon, green growth engine will soon fade away just as the law on restructuring the electric energy industry.

So we are left with only one solution.

By completing the halted restructuring process, we need to boost market competition and let the market decide electricity rates.

The market will always keep the rate above production costs, and the government no longer needs to take on that responsibility.

Since the disastrous electricity shortages and blackouts in California, the electricity market has been developing a more sophisticated model, and even Japan has accomplished a more advanced system even though its restructuring began after Korea began tackling the industry.

There has been a pilot project to launch a smart grid on Jeju Island, and the key system for the period of green growth provides electricity rate information to power generators and consumers in real time.

The appearance of the smart grid will be able to maximize the effect of competition in the electricity market.

Electricity rates will always cover costs, and consumers can save on bills by developing more economical consumption habits to avoid expensive surprises.

When the global trend encourages full-fledged market competition in the electricity market, discussion of the reintegration of Kepco is retrogressive.

*The writer is a professor of economics at the Seoul National University.
Translation by the JoongAng Daily staff.

by Lee Seung-hun
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