Chapter 4. Effects of the Electricity Tariff Rate Reform
A. Pre-Reform Market
Household fuel cells are considerably more expensive than household PV systems and therefore lack the economic feasibility needed to appeal to a wider range of households. Recognizing the cost differences between household fuel cells and PV systems, we set the monthly consumption level of the representative fuel cell-installed household higher than that of the representative PV-installed household. Accordingly, we began our analysis of household fuel cells at a monthly consumption level of 400 kWh, increasing in 50 kWh increments up to 700 kWh. The same preconditions and processes outlined in Section 3 of Chapter 3 were also used to estimate the NPV for each monthly consumption level for fuel cell- installed households, applying the pre-reform tariff rates.
Table 4-8 shows the average monthly cost of the city gas needed to operate the fuel cell system for the corresponding household electricity consumption level. Considering that a 1-kW fuel cell installation is capable of generating a maximum of 720 kWh of electricity a month, the higher the electricity consumption level, the greater the financial feasibility of the fuel cell installation.
Table 4-8. Monthly City Gas Prices for the Operation of Fuel Cell Installations Electricity
consumption (kWh/month)
Gas volume
(Nm3) (a)
Heat gain (Nm3)
(b)
Net consumption
(Nm3) (a-b)
Gas
price Basic fee VAT Total
Fuel cell operation
rate
400 100 25 75 54,024 1,000 5,502 60,527 55.56%
450 113 28 85 60,777 1,000 6,178 67,955 62.50%
500 125 31 94 67,530 1,000 6,853 75,383 69.44%
550 138 34 104 74,283 1,000 7,528 82,811 76.39%
600 150 37 113 81,036 1,000 8,204 90,240 83.33%
650 163 40 123 87,789 1,000 8,879 97,668 90.28%
700 175 43 132 94,542 1,000 9,554 105,096 97.22%
Applying the same processes as outlined in Table 3-7,along with pre-reform tariff rates, we estimated the monthly electricity bills of households with a fuel cell installation. We then used our estimates of the monthly electricity bill and cash flow (see Table 3-14) of fuel cell-installed households to estimate the corresponding NPVs, as seen in Table 4-9 and Figure 4-4. Under the six-stage progressive tariff rate system (pre-reform tariff system), the higher the monthly electricity consumption level, the greater the NPV. However, under the pre-reform system, since fuel cell installation costs are so high, the NPV remains negative even for households consuming 700 kWh of electricity a month.
Table 4-9. NPVs of Fuel Cell-Installed Households Under the Six-Stage Progressive Electricity Tariff System (Pre-reform System)
(Unit: KRW 1,000) Monthly consumption (kWh)
400 450 500 550 600 650 700
NPV (in KRW
1,000) -22,193 -20,406 -18,967 -15,496 -12,592 -9,688 -6,784
Figure 4-4. NPVs of Fuel Cell-Installed Households Under the Six-Stage Progressive Electricity Tariff System (Pre-reform System)
For a household consuming 720 kWh of electricity a month, with an installation operating rate of 100 percent, the NPV can be estimated as KRW -5,622,168. Households consuming more than 720 kWh a month must receive additional power from the KEPCO grid, since their electricity use exceeds the capacity of their fuel cell installation. The price of this additional electricity, supplied by KEPCO, must be reflected in household NPV estimates. Assuming that these households
do not install fuel cell meters, their basic fees and electricity tariffs can be calculated based on the additional electricity supplied by KEPCO. Keeping these considerations in mind, repeated NPV estimations identified the monthly consumption level at which the NPV turns positive as 807 kWh (KRW 356). Fuel cells can be installed in any indoor space, and therefore can be used by households living in detached homes, apartment buildings, multi-unit buildings, or row homes. The data provided by the Power Big Data Center does not distinguish between monthly household electricity consumption levels that exceed 401 kWh a month, so there is no way to determine, with exactitude, how many households consume an average of 807 kWh of electricity or more a month. However, we can safely surmise that such households are few and far between.
Therefore, it appears very unlikely that the household fuel cell market will see any real growth without policy support.
B. Post-Reform Market
In this section, we used the same processes outlined above and applied the post-reform tariff rates to estimate the NPVs of fuel cell-installed households consuming various levels of electricity. We estimated the annual cash flow for households by consumption level using the post-reform electricity tariff rates (see Table 4-2), the monthly city gas prices for the operation of fuel cell installations (see Table 4-8), and the installation costs of fuel cells. Table 4-10 shows the annual cash flow of a representative, fuel cell-installed household consuming an average of 600 kWh of electricity a month over a 10- year period. As can be seen by comparing Table 3-15 (pre-reform cash flow) to Table 4-10 (post-reform cash flow), the operating costs of the household’s fuel cell are the same regardless of the tariff system (pre-reform vs. post-reform);
however, under the reformed system, the household’s electricity bill drops from KRW 2,608,287 to KRW 1,632,485 a year.
Table 4-10. Annual Cash Flow of the Representative Fuel Cell-Installed Household (Post-reform) Year Electricity bill
prior to reform (A)
Fuel cell operating
cost (B) Difference (A-B)
0 0 25,000,000 -25,000,000
1 1,632,485 1,082,877 549,608
2 1,632,485 1,082,877 549,608
3 1,632,485 1,082,877 549,608
4 1,632,485 1,082,877 549,608
5 1,632,485 1,082,877 549,608
6 1,632,485 1,082,877 549,608
7 1,632,485 1,082,877 549,608
8 1,632,485 1,082,877 549,608
9 1,632,485 1,082,877 549,608
10 1,632,485 1,082,877 549,608
Table 4-11 details the NPVs for household fuel cells based on the annual cash flows outlined in Table 4-10,organized by monthly level of electricity consumption. Since the tariff reform, in effect, lowered electricity tariffs, the NPVs for fuel cells remains negative across all levels of monthly household electricity consumption. The NPV of a household consuming 720 kWh a month, with a fuel cell operation rate of 100 percent, is KRW -17,961,951. For households at a lower monthly consumption level, the NPVs remain even further below zero.
Table 4-11. NPVs of Fuel Cell-installed Households Under the Three-Stage Progressive Electricity Tariff System (Post-reform)
(Unit: KRW 1,000) Category
Monthly consumption (kWh)
400 450 500 550 600 650 700
NPV -23,348 -22,024 -21,272 -20,520 -19,768 -19,016 -18,263
Figure 4-5. NPVs of Fuel Cell-installed Households Under the Three-Stage Progressive Electricity Tariff System (Post-reform)