Chapter 4. Effects of the Electricity Tariff Rate Reform
A. Analysis of the Feasibility of Small-Scale PV Installations
after the tariff reform, the NPVs for ESS decreased for households consuming 450 to 500 kWh of electricity a month.
Although not represented in the table below, the NPV for household ESS was determined to be at its greatest at the consumption level of 487 kWh per month, before declining rapidly at 488 kWh per month. A 3.3-kW ESS, capable of generating a maximum of 87 kWh of electricity a month, allows households consuming 200 to 400 kWh of electricity a month to pay a monthly basic fee of KRW 1,600, while a household consuming 1 kWh more of electricity a month would pay a basic fee of KRW 7,300, which would accumulate over the months and the entire 10-year span. The NPVs for ESS remain constant for some electricity consumption levels because the bills paid by these households increase by the same rate before and after ESS installation. A household consuming 250 kWh of electricity a month would see a slight improvement of the NPV for its ESS installation after the tariff reform, mainly because the household would be eligible for the Minimum Consumption Guarantee Credit under the reformed tariff system, while its ESS installation would help keep its net-metered consumption below 200 kWh a month.
Table 4-15. Comparison of NPVs for the Representative ESS Installation Before and After Tariff Reform (Unit: KRW 1,000)
Category Monthly consumption (kWh)
250 300 350 400 450 500 550 600
Before reform -1,657 -1,516 -908 -804 105 248 2,034 2,489
After reform -1,411 -1,516 -1,515 -1,516 -604 -804 -804 -804
Increase 247 - -607 -712 -709 -1,052 -2,838 -3,293
Figure 4-7. Comparison of NPVs for the Representative ESS Installation Before and After Tariff Reform
ESS 시장의규모변화 ESS 시장의질적변화
Change in magnitude of the ESS market Change in quality of the ESS market 개편전기준
442kWh/월가구
Pre-reform baseline 442 kWh/month 개편전
개편후
Pre-reform Post-reform
Under the current reformed tariff system, which charges the same tariffs regardless of season or hour, and with ESS not being used to save cheaper nighttime electricity, Korean households have no incentive to install ESS. This policy background and the relatively cheap price of electricity in Korea have prevented the emergence of a household ESS market in Korea. Should the power market in Korea, the household tariff system, and policy goals change, different household electricity tariffs could potentially apply by season and hour for ESS installations and for households that generate and consume electricity. The framework of analysis presented in this study could then be used to establish different hourly rates and possible discounts exclusively for ESS users.
4. Analysis of the Feasibility of PV Installations Under the Current Progressive Tariff System
The marginal household with the financial incentive to install a 3-kW household PV system without government aid under the reformed three-stage progressive tariff schedule consumes 334 kWh of electricity a month. According to the aforementioned data, there are 3,214,495 households in Korea that live in PV-installable detached homes and consume 334 kWh or more of electricity a month. These households represent approximately 36 percent of all the nation’s 9,006,112 households living in detached homes. It is important to note that 47 percent of households living in detached homes consume 100 to 340 kWh of electricity a month. In order to boost the new and renewable energy market in Korea, it is essential to develop smaller-capacity PV systems that cater to these households and/or establish policy measures supporting the installation of PV systems in these households.
In this section, we estimated the NPVs of smaller household PV systems (those with a capacity of less than 3 kW)in order to explore the implications of developing and distributing smaller PV models to the 47 percent of households living in detached homes. We adopted the same assumptions and preconditions discussed in Section 2 of Chapter 3 and implemented the same processes and methods outlined in this chapter to analyze 1-kW and 2-kW household PV installations. Our interviews with PV experts and manufacturers confirmed that there are currently no household PV systems available in the Korean market with a capacity of less than 3 kW. The lack of a current market also means a lack of concrete information on installation costs. As such, we adopted the unit price of KRW 1,800,000 per kW as seen in the installation of 3-kW PV systems and readjusted installation costs to reflect changes in capacity.
Table 4-16 and Figure 4-8 detail the NPVs of the three PV installations types (1 kW, 2 kW, and 3 kW) under the conditions of the current (reformed)progressive three-stage electricity tariff system. With a smaller PV installation, the NPV is positive even below a monthly consumption level of 334 kW. Both the 1-kW and 2-kW models are financially feasible for households consuming 300 kWh of electricity a month, while the 1-kW model is feasible for households consuming 250 kWh of electricity a month.
Table 4-16. NPVs for PV Installations by Capacity and Monthly Electricity Consumption
(Unit: KRW 1,000)
Capacity Monthly consumption (kWh)
200 250 300 350 400 450 500 550
1kW -253 520 299 299 299 2,155 2,056 2,329
2kW -1,168 -302 371 911 598 2,070 2,731 3,223
3kW -2,998 -1,576 -504 222 873 2,585 3,028 3,687
Note: Shaded boxes indicate the monthly consumption levels at which each given PV installation has the greatest NPV.
Figure 4-8. NPVs of PV Installations by Capacity and Monthly Electricity Consumption
Repeated NPV estimations identified the monthly household electricity consumption levels of 212 kWh and 273 kWh as the marginal levels at which the NPVs of the 1-kW and 2-kW models, respectively, become zero. Interestingly, for households consuming 212 to 300 kWh of electricity a month, the 1-kW model results in a higher NPV than the other models. For households consuming 300 to 380 kWh of electricity a month, the 2-kW model is the most economical. For households consuming 380 kWh or more of electricity a month, the 3-kW model is the ideal choice. In other words, the NPVs estimated in our study suggest that the economic feasibility/appeal of household PV installations is more contingent upon electricity usage patterns than the absolute capacity of the given model. More specifically, the ideal PV capacity for
any given household is the one that affords the lowest progressive tariff rates. For example, a household consuming 350 kWh of electricity a month has an NPV of KRW 221,760 with a 3-kW installation, and an NPV of KRW 911,330 with a 2- kW installation. A similar phenomenon occurs with respect to households consuming 250 kWh a month.
Diversifying the types of household PV installations and focusing on households capable of lowering their progressive tariffs would increase the household PV market from 0.7 to 2.5 GW in terms of installation capacity and from KRW 1.2 trillion to 4.6 trillion in terms of installation costs. Distributing 1-kW PV installations to the 1.61 million households consuming 212 to 300 kWh of electricity a month would increase the market from 0.4 to 1.6 GW in terms of installation capacity and from KRW 0.8 trillion to 2.9 trillion in terms of installation costs. Distributing 2-kW PV system to the 0.47 million households consuming 300 to 334 kWh of electricity would further increase the market by 0.2 to 0.9 GW or by KRW 0.4 trillion to KRW 1.7 trillion.
The NPV estimates presented so far were based on the assumed unit installation cost of KRW 1,800,000 per kW, which is the unit price of the standard 3-kW model. The unit installation costs of smaller models, however, would likely be higher than this since associated labor costs and other fixed fees (e.g., fees for connecting the system to the power grid) would remain fairly constant irrespective of system capacity. For example, only inverters for3-kW models are regularly available on the market today in Korea; therefore, the small-capacity models would also have to use the inverter designed for the 3- kW model, and inverter prices would remain the same across all models.16 We attempted to conduct a separate market study to determine the actual installation costs of smaller household PV systems in Korea; however, there are few businesses that distribute these smaller models, and there is no actual market demand. As a result, we were unable to obtain any concrete information on the unit installation costs for smaller models.
Despite these limitations, there is still a need to readjust the unit installation costs used in our study for small-scale PV systems in order to more realistically estimate the economic feasibility of such systems. One important consideration (as previously discussed) is that the3-kW inverter must also be used for the 1-kW and 2-kW PV models, since there are no smaller-scale replacements for this relatively expensive PV component.
Applying the costs of a 3-kW inverter increases the unit cost of the 2-kW model by six percent to KRW 1,910,000 per kW, and the unit cost of the 1-kW model by 24 percent to KRW 2,230,000 per kW. Table 4-17 and Figure 4-9 show the newly readjusted NPVs, estimated using the aforementioned unit prices. The NPVs of the 1-kW model decrease significantly as a result of the higher unit cost, remaining mostly negative up until a monthly consumption level of 400 kWh or so; the one exception to this trend is the household electricity consumption level of 250 kWh, at which the NPV is slightly above zero. The NPV for the 1-kW model for households consuming 300 kWh drops to KRW -165,000 with the modified unit costs. In contrast, the NPVs of the 2-kW model also decrease, but by relatively smaller margins, since the difference between the system’s former unit cost and readjusted unit cost is less than that of the 1-kW model. Using the adjusted unit costs, the NPV for the 2-kW model for households consuming a monthly average of 350 kWh is KRW 680,000.
Table 4-17. NPVs of PV Installations by Capacity and Monthly Electricity Consumption: Readjusted Unit Prices (Unit: KRW 1,000)
Capacity Monthly consumption
200 250 300 350 400 450 500 550
1kW -717 55 -165 -165 -165 1,691 1,592 1,865
2kW -1,400 -535 139 679 366 1,838 2,499 2,991
3kW -2,998 -1,576 -504 222 873 2,585 3,028 3,687
Note: Shaded boxes indicate the monthly consumption levels at which each given PV installation has the greatest NPV.
16 Although a mini-inverter was recently introduced to support the 250-W mini-PV systems installed on apartment balconies as part of Seoul and Daegu policy projects, there are currently no inverters on the market that specifically cater to the 1-kW and 2-kW PV
Figure 4-9. NPVs of PV Installations by Capacity and Monthly Electricity Consumption: Readjusted Unit Prices