Chapter 4. Effects of the Electricity Tariff Rate Reform
B. Post-Reform Market
In this section, we estimated the NPVs of households consuming different amounts of electricity each month. Although we applied the same method used in the previous section, our analysis in this section considered the conditions of the reformed three-stage progressive tariff system as opposed to the former six-stage system. The capacity of the PV system remains the same as in the previous analysis, as do the monthly outputs. Table 4-2 outlines the electricity tariffs paid by households under the reformed tariff system, based on average monthly electricity consumption prior to the installation of a household PV system. Under the reformed tariff system, households pay less than under the previous tariff systems (see Table 3-7), up until a monthly consumption level of 200 kWh, at which point the patterns switch. Households that consume 201 kWh to 300 kWh a month pay the same amounts of tariffs under both systems. Households that consume more than 300 kWh, however, pay less under the reformed tariff system.
14 Maximum: 3,510,458 households × 3kW = 10,531,374kW; minimum: 10,531,374kW × 0.26 = 2,738,157kW.
15 Maximum: 10,531,374kW × KRW 1,800,000/kW = KRW 18.956 trillion; minimum: 2,738,157kW × KRW 1,800,000/kW = KRW
Table 4-2. Household Electricity Tariffs After Reform
(Unit: KRW/month) Monthly
consumption (kWh)
Basic fees Tariffs Subtotal VAT
Electricity Industry Base
Fund Contribution
Total
200* 910 18,660 15,570 1,550 570 17,690
250 1,600 28,055 29,655 2,966 1,090 33,710
300 1,600 37,450 39,050 3,905 1,440 44,390
350 1,600 46,845 48,445 4,845 1,790 55,080
400 1,600 56,240 57,840 5,784 2,140 65,760
450 7,300 70,270 77,570 7,757 2,870 88,190
500 7,300 84,300 91,600 9,160 3,380 104,140
550 7,300 98,330 105,630 10,563 3,900 120,090
600 7,300 112,360 119,660 11,966 4,420 136,040
650 7,300 126,390 133,690 13,369 4,940 151,990
700 7,300 140,420 147,720 14,772 5,460 167,950
Note: Lesser amounts have been truncated.
* The Minimum Consumption Security Credit of KRW 4,000 was applied to each household consuming 200 kWh or less per month.
Electricity tariffs after PV installation are also affected by system reforms. Table 4-3 lists the tariffs paid under the reformed system by a household consuming an average of 350 kWh of electricity a month after the installation of a PV system. According to a comparison of Table 3-8 and Table 4-3, the afore mentioned PV-installed household pays less tariffs under the reformed system. For a net-metered consumption of 58 kWh in the first year of PV installation, the household pays KRW 11,505 under the pre-reform system, but only KRW 8,959 under the post-reform system. The VAT and the Electricity Industry Base Fund Contribution are also lower under the reformed tariff system. This is because these two charges are based on the subtotal of the basic fee and the consumption tariff. The basic fee and electricity tariffs after the installation of a PV system are charged based on the amounts of electricity that the household receives from the KEPCO grid after net metering. Under the reformed system, the basic unit price of electricity for households consuming 100 kWh or less of electricity a month increases from KRW 60.7 per kWh to KRW 93.3 per kWh. Since the net-metered consumption of most PV-installed households falls short of the 100-kWh-per-month threshold, they must pay a higher basic unit price under the reformed system than under the previous system. However, the introduction of the Minimum Consumption Guarantee Credit under the reformed system results in an overall lower electricity bill for these households than in the past.
Table 4-3. Monthly Electricity Bill of the Representative Household by Year After PV Installation Year
Total consumption
(kWh)
PV output (kWh)
Net- metered consumption
(kWh)
Basic
fee Tariff Guarantee
Credit VAT Base Fund
Contribution Total
1 350 292 58 910 5,414 4,000 4,845 1,790 8,959
2 350 284 66 910 6,173 4,000 4,845 1,790 9,718
3 350 276 74 910 6,935 4,000 4,845 1,790 10,480
4 350 267 83 910 7,700 4,000 4,845 1,790 11,245
5 350 259 91 910 8,469 4,000 4,845 1,790 12,014
6 350 251 99 910 9,241 4,000 4,845 1,790 12,786
7 350 243 107 910 10,017 4,000 4,845 1,790 13,562
8 350 234 116 910 10,795 4,000 4,845 1,790 14,340
9 350 226 124 910 11,576 4,000 4,845 1,790 15,121
10 350 218 132 910 12,359 4,000 4,845 1,790 15,904
11 350 268 82 910 7,674 4,000 4,845 1,790 11,219
12 350 260 90 910 8,405 4,000 4,845 1,790 11,949
13 350 252 98 910 9,138 4,000 4,845 1,790 12,683
14 350 244 106 910 9,873 4,000 4,845 1,790 13,418
15 350 236 114 910 10,610 4,000 4,845 1,790 14,154
16 350 228 122 910 11,348 4,000 4,845 1,790 14,893
17 350 220 130 910 12,088 4,000 4,845 1,790 15,633
18 350 213 137 910 12,829 4,000 4,845 1,790 16,374
19 350 205 145 910 13,570 4,000 4,845 1,790 17,115
20 350 197 153 910 14,313 4,000 4,845 1,790 17,858
Next, we estimated the different annual cash flows for each level of monthly household electricity consumption. We applied the same estimation process as outlined in Table 3-9 and adopted the same PV system installation/operation conditions and electricity tariffs. Table 4-4 summarizes the annual cash flow of a representative household consuming 350 kWh of electricity per month.
Table 4-4. Annual Cash Flow of a Representative Household with a PV Installation
Year
Pre-
installation Post-installation
Difference (A-E) KEPCO tariff
(A)
Installation cost (B)
Maintenance cost (C)
Electricit y bill (D)
Total (E) (B + C + D)
0 0 5,400,000 - 0 5,400,000 -5,400,000
1 660,960 - 54,000 107,510 161,510 499,450
2 660,960 - 54,000 116,611 170,611 490,349
3 660,960 - 54,000 125,755 179,755 481,204
4 660,960 - 54,000 134,942 188,942 472,017
5 660,960 - 54,000 144,170 198,170 462,789
6 660,960 - 54,000 153,437 207,437 453,523
7 660,960 54,000 162,739 216,739 444,220
8 660,960 - 54,000 172,077 226,077 434,883
9 660,960 - 54,000 181,446 235,446 425,513
10 660,960 - 54,000 190,846 244,846 416,114
11 660,960 - 54,000 134,623 188,623 472,337
12 660,960 - 54,000 143,394 197,394 463,566
13 660,960 - 54,000 152,191 206,191 454,769
14 660,960 - 54,000 161,012 215,012 445,948
15 660,960 - 54,000 169,854 223,854 437,106
16 660,960 - 54,000 178,715 232,715 428,245
17 660,960 - 54,000 187,592 241,592 419,368
18 660,960 - 54,000 196,482 250,482 410,477
19 660,960 - 54,000 205,383 259,383 401,576
20 660,960 - 54,000 214,292 268,292 392,668
Both PV- and non-PV households pay lower electricity bills under the reformed tariff system than under the previous system. However, under the reformed system, the PV-installed household pays a higher electricity bill than the non-PV household, thus reducing the annual cash flow of the PV-installed household and decreasing its NPV.
As seen in Table 4-5, we estimated the cash flow for each level of monthly household electricity consumption, and used these figures to estimate the corresponding NPVs. NPVs were also estimated for cases in which the Minimum Consumption Guarantee Credit did not apply. Figure 4-2 shows the NPVs only for cases in which the credit applied. As can be seen in the figure, the NPVs increase in a roughly linear fashion up until a consumption level of 400 kWh per month and increase dramatically at 450 kWh per month. This sudden increase is due to the fact that 3-kW PV installations offer the greatest cost-saving benefits to households in the highest (third) bracket of progressive electricity tariffs.
Table 4-5. NPVs of PV Installations Under the Three-Stage Progressive Electricity Tariff System (Reformed System) (Unit: KRW 1,000) Type
Monthly consumption level (kWh)
250 300 350 400 450 500 550
NPV (no Minimum Credit applied) -1,836 -1,022 -348 321 2,277 3,028 3,687 NPV (Minimum Credit applied) -1,576 -504 222 873 2,585 3,028 3,687
Figure 4-2. NPVs of PV Installations Under the Three-Stage Progressive Electricity Tariff System (Reformed System)
Note: Cases in which the Minimum Consumption Guarantee Credit is applied.
In the absence of the Minimum Credit, the NPV becomes zero somewhere between 350 kWh and 400 kWh. Repeated estimations of NPVs in this range showed that the NPV becomes positive starting at a household consumption level of 376 kWh. Therefore, households consuming 376 kWh or more per month have a financial incentive to install a PV system without government aid.
Based on the information provided in Table 2-15—which depicts the 2016 distribution of households by average monthly electricity consumption—we estimated that there are roughly 2,796,692 households that can benefit from PV installation.
In other words, there are nearly three million households that have a financial incentive to install a PV system even without government subsidies. If all of these potential users were to install a 3-kW PV system, the nation’s household PV market would range from 2.2 GW to 8.4 GW in terms of installation capacity, and from KRW 3.9 trillion to KRW 15.1 trillion in terms of installation costs.
In reality, even PV-installed households can benefit from the Minimum Consumption Guarantee Credit (KRW 4,000 a month) introduced under the reformed system, provided that they use 200 kWh or less of electricity per month. This credit improves the economic feasibility of household PV installations under the reformed system. For example, a household consuming 350 kWh of electricity per month would have an NPV of KRW -347,941, giving the household no incentive to install a PV system; however, the Minimum Consumption Guarantee Credit increases this same household’s NPV to KRW 221,760. With the credit in place, the monthly consumption level at which the NPV turns zero is found somewhere between 300 kWh and 350 kWh. Repeated estimations identified the monthly consumption level of 334 kWh to be the point at which the NPV starts to turn positive. Therefore, marginal households that consume 334 kWh or more of electricity per month have a financial incentive to install a PV system without government subsidies.
Based on Table 2-15, we estimated that there are 3,214,485 households above this zero-NPV consumption level.
Assuming that all these households have a 3-kW PV system installed, the nation’s household PV market would range from 2.5 GW to 9.6 GW in terms of installation capacity, and from KRW 4.5 trillion to KRW 17.4 trillion in terms of installation costs.