The Ministry of Economic Affairs recently signaled that it might allow state-run Taiwan Power Co (Taipower) to raise electricity rates from April, which has triggered discussions as the move might affect not only heavy users and industrial consumers, but also most Taiwanese households and small and medium-sized businesses.
While the exact scope of rate increases is still unknown — pending a meeting of the ministry’s electricity price review committee next month to decide on the new pricing structure — many people can expect bigger bills. The potential rate hikes come at a critical moment as Taipower grapples with higher fuel prices and ballooning losses.
Taipower raised electricity rates by 8.4 percent on average in 2022 and 11 percent on average last year in the wake of surging international fuel costs due to the impact of Russia’s war in Ukraine. The hikes mainly affected industrial consumers, namely high-voltage and ultra-high-voltage electricity users, with more than 90 percent of users, including most households and small and medium-sized businesses, paying the same as before. Indeed, if all power generation and distribution costs are reflected in electricity prices, rates should have increased by 43 percent in 2022 and by 29 percent last year, economists said.
This year, Taipower seeks to set a “reasonable” pricing structure for users as widening losses, high fuel costs and a rising share of green energy procurement are pushing it to the verge of insolvency. Despite capital increases of NT$150 billion (US$4.75 billion) through an issuance of new shares and an electricity subsidy of NT$50 billion from the government last year, Taipower still posted an annual loss of NT$198.5 billion — versus a loss of NT$267.5 billion in the previous year — with accumulated losses amounting to NT$382.6 billion, more than three-quarters of its paid-in capital of NT$479.9 billion.
Taiwan’s electricity prices might be among the top 10 cheapest in the world, even though more than 90 percent of the country’s energy is imported. The average electricity rate is NT$3.1154 per kilowatt-hour, which is lower than Taipower’s average cost of producing and distributing energy at NT$4 per kilowatt-hour, indicating a rate hike is needed to cover the company’s financial shortfalls.
Earlier, Taipower estimated it would post a loss of NT$188.7 billion this year, even with a potential rate hike of 3 percent, while losses would expand to NT$212.4 billion if there is no rate hike at all.
On Friday last week, Taipower’s extraordinary shareholders’ meeting approved a capital increase of NT$100.1 billion through new shares this year, which would boost its paid-in capital to NT$580 billion. While the government has said it would continue to provide financial support to the company, state subsidies are only a short-term solution, as Taipower’s operating difficulties would still depend on raising electricity rates to reflect the rising costs of power generation, allowing it to operate sustainably in the long run.
Only when the public realizes the need to rationalize electricity prices would they begin to practice conservation, cut wasteful consumption and contribute to carbon emissions reduction.
The main concern is that aggressive rate hikes could exacerbate inflation due to its knock-on effects and harm the competitiveness of local industries.
Therefore, Taipower should stagger the implementation of price increases in multiple stages, rather than implementing them all at once. The company should also make mild rate adjustments for minority groups and small businesses, as well as several industries that remain under pressure from the economic slowdown such as textiles, plastics, bicycles, metal processing, machinery and equipment manufacturing, to minimize the potential impact. On the other hand, rate hikes could be undertaken more than once for heavy electricity consumers based on the user pays principle.
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