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Research Papers
Abstract
1. Research Background and Objectives
■ The current progressive residential fee is a major factor for home consumers' complaints a`bout electricity fees.
○ As income levels rise, electric consumption is also increasing, but there are growing complaints due to restrictions on consumption resulting from costs due to the progressive fee system.
- Despite reforms to the progressive fee system in 2016, complaints about the progress rate persist.
○ Having implemented Time Of Use (TOU) systems, the government is looking to expand consumer options for selecting the rate that is advantageous for them between progressive and TOU fee rates.
- The government expects expanding options for consumers to enable reducing complaints about residential electricity fees, while also reducing the on-peak of the grid using the TOU system
- The TOU system for residential has been operated in Jeju since September 2021, and the government plans to expand areas for its application gradually.
○ Because there are few households that selected the TOU system in Jeju, however, it is judged to be severely lacking considering the government’s expectations.
- Expanding areas that apply the TOU system necessitates finding the problems through the case of Jeju and coming up with improvement plans.
■ The purpose of this study is to present plans for expanding electric fee options for residential consumers.
○ For this, the case of Jeju was analyzed first, and various TOU systems were assumed to conduct comparative analysis on the difference between the current progressive fee system and TOU system.
- Power consumption data per time frame in 2021 of about 1,700 households were used for analysis
- The simulated fee set in this study and general/concentrated fees used in the test project were used for comparative analysis with the current low-voltage residential fees
- Analyzed the impact on revenue from selling electricity by KEPCO for each fee system when implementing fee options
○ Deduced policy tasks that must be resolved to expand consumer options based on the analysis results and presented policy implications
2. Status of residential electricity fees and problems
■ Status of residential electricity fees and problems
○ Progressive systems for residential were implemented in the early 1970s during the Oil Shock and when energy conservation was being emphasized.
- In the early stages, there were three stages for the progress system, the progressive rate started at 1.6 times, and the progressive stage and rate were continuously adjusted depending on the changes to the electric power market environment.
- In 2002, residential electricity fees were divided into low voltage and high voltage. Apartments supplied with electricity at high voltage could select advantage fees.
- The progressive stages were reduced to 3 stages in 2016 and significantly eased to 3.0 times for low voltage and 2.8 times for high voltage
○ The progressive system was implemented with the aim of supporting low-income families and reducing consumption, but the effects were not as expected; in fact, various problems arose due to the fee structure that was not commensurate with the cost
- The first-stage cost was so low that it resulted in cross-subsidies among consumers. The effects of support for low-income families were unclear
- The sales price was very low compared to the cost, but it was difficult to adjust the fees due to misunderstandings and negative perception on the progressive system by consumers.
■ Examples of expanding electric fee options for residential consumers abroad
○ California, US applied progressive systems for residential with the expectations of reducing consumption and having redistribution effects.
- In the 2010s, upon reviewing the effectiveness of the progressive fees, the regulatory commission came to the conclusion that it had negative outcomes.
- According to the opinion that differentiated fees per time frame are recommended, the CPUC decided to implement the TOU system, and the number of consumers opting for TOU systems continued to increase
- In examining the rate of households that selected TOU systems, PG&E grew from 4.84% in 2013 to 46.06% in 2021, and SDG&E rose from 4.08% to 78.95% during the same period
○ Japan declared full liberalization of the power retail market in 2016. Various plans started to be offered for residential electricity fees that were based on progressive fees with the entry of new businesses in the market
- Among the new businesses, there were many gas and communication businesses; thus implementing fee plans combined with other services such as gas or communications
- Tokyo Electric Power Company implemented premium plans, standard plans, nighttime plans, etc., in addition to smart contract plans in order to reduce the maximum load by considering the difference in lifestyle patterns
3. Residential electricity consumption and load patterns
■ Residential electricity consumption rose by 2.6 times from 1995 to 2021. Annual average increase rates were recorded at 3.8%
○ From 2010 to 2015, the residential electricity consumption eased to an annual average of 0.8%, but the increase rate has been rising again since then. In 2021, it increased by 4.7% compared to the previous year
○ Residential electricity consumption is clearly seasonal, increasing in the summer and winter seasons. Recently, variability has been expanding significantly in summer.
- In particular, variability has been expanding since 2015 as a result of easing the progressive fee system and practically reducing fees by expanding the progressive 1 sector.
■ Residential electricity load pattern
○ Despite the increase in residential electricity consumption, load patterns have been repeating in similar fashions
- After recording the highest level at 21:00, demand continuously drops until 05:00, and then switches to increasing trends and rises until 08:00
- Similar levels are maintained or there are small reductions from 09:00 to 17:00. Demand starts to grow after 17:00 and continues to increase until about 21:00
○ In examining the daily load pattern of residential electricity, there is very little difference between weekdays and weekends, and they are also similar by month.
- In the summer of 2021, unlike other seasons, there was a mild increase even after 08:00 and to 17:00
■ Comparison of load patterns by use
○ The total electricity load pattern is quite different from that for residential but is similar for industrial and general uses
- The load pattern for industrial, general, and total electricity maintained high levels during work hours (09:00 - 18:00) and decreased before and after this time.
- The load structure was similar, but there were differences in terms of minimum load and maximum load.
○ Time categorization of TOU systems is determined by the load pattern of the entire grid, with the on-peak load time formed between 10:00 and 17:00.
○ In the TOU system, the highest rates are applied to the on-peak load time of 10:00 to 17:00 to encourage transferring load to other hours
- Load is not high in residential during these hours, so there is little possibility of transferring the load to other hours. This should be considered when deciding the TOU rates for residential.
4. Comparison of progressive fee and TOU system
■ Current state of TOU system in Jeju
○ Compared to the mainland, Jeju shows differences in the TOU time frames for the net electricity load patterns. Jeju currently applies the same time frame for all seasons
- Off-peak time (22:00-08:00), mid-peak time (08:00-16:00), on-peak time (16:00-22:00)
- The electricity fees are the same for the summer and winter seasons but different for the spring and fall seasons
- The base rate based on capacity is 4,310 KRW per kW. By household, it is 12,930 KRW.
○ In comparing the TOU fees and existing progressive fee, the electricity consumption where fees are the same for the two plans is determined to have high levels.
- Monthly consumption in the winter and spring/fall seasons is about 500kWh and is about 600kWh in summer
- Consumption must exceed the levels above for the TOU system to be cheaper than the progressive system, so there are very few households that select the TOU system
■ Comparison of electricity fees per fee system
○ When electricity consumption is 400kWh, the simulated TOU fees was set so that the sum would be the same as that of the current progressive system to compare it with the current fee system
- For the base rate, the same structure as the current progressive fee system was assumed to set it up so that the difference between the two plans occurs only in the electricity fees
- The electricity fee of the TOU system is a single-fee structure by default, so when consumption exceeds 400kWh, the difference in electricity fees of the two plans increases.
○ It is judged that the electricity fee reduction effect of the TOU system according to differences in load patterns will not be very high.
- By comparing the average load patterns, if there was a difference of about 3 hours or given precisely symmetrical load patterns, electricity fees decreased by 1.5% and 4.0%, respectively
- When displaying symmetrical load patterns, fees for off-peak times are applied in the sector with the highest demand for electricity; thus showing a relatively high rate of discounts.
■ Impact analysis of electricity fees
○ Actual data on consumption by time range per household of an apartment complex with about 1,700 units were used to analyze the impact of the TOU system
- Looking at the electricity consumption per household, there were seasonal elements where consumption increased significantly in July and August.
- The household distribution per consumption range showed that the number of households with monthly consumption in the 200-250kWh range was highest at about 400, followed by households in the 250-300kWh range
- Household distribution moved to the right during the summer season compared to the winter or spring/fall seasons
- Load patterns by time frame showed similarities in all consumption ranges.
- The load pattern per time frame of individual households had high variability compared to the average.
- The rate of dividing the on-peak consumption with off-peak consumption displayed positive correlation with consumption quantity; thus implying that higher consumption means relatively higher consumption in the on-peak time frame
○ The average monthly TOU fees were compared and analyzed for the simulated TOU fees, general and concentrated fees of the test project, and current low-voltage fees for residential
- The purchase price of electricity fees per consumption quantity showed that all three fees were horizontal for the TOU system. However, it displayed a band type instead of a straight l ine due to the differences in load patterns per household.
- The level in which electric consumption has the same electricity fees in the TOU system and progressive fee system exhibited differences by season.
○ When giving options to select the fee to consumers, compare the amount of electricity fees saved per fee system
- In the case of concentrated type, an estimated total of 157 households with reduced electricity fees by selecting TOU fees compared to the current low-voltage fees would be recorded for August, accounting for about 9% of all households.
- In the case of August, the total amount of electricity fee saved in the concentrated type is estimated at 2,295,000 KRW. The total electricity fee of low-voltage fees is 65,781,000 KRW; therefore, the reduction effect of the total electricity fees is estimated to be about 4.5%.
- The general type has the lowest fee level, so when converting to general type, about 195 households or 11% of the total are expected to have reduced electricity fees. About 4.4% is saved from the total electricity fees.
○ The reduced fees compared to low voltage represent a decrease in the sales revenue of KEPCO
- The TOU fee was set at slightly lower levels than the cost; therefore, even when determining the fees considering the cost, it implies that decrease in sales revenue is inevitable
5. Policy tasks and proposals
■ Key policy tasks
○ When expanding options by implementing the TOU system, collection on costs can decrease due to drops in sales revenue; hence the need for careful reviews on the expanded application of the TOU system
- Despite the stark rise in total cost in 2021, the sales price decreased, and the collection on costs is estimated to have dropped to 85.7%.
○ The current apartment electricity fee contract methods are inappropriate for selecting the fee system as desired by individual units; hence the need for revisions to methods that allow the selection of various fee systems
- The high-voltage panel apartment electricity fee contract method is divided into comprehensive contract and single contract. Only a single supply contract for the complex is entered, not contracts by apartment unit
○ When implementing TOU systems due to the progressive fee for residential and low base fees, fees will be lowered only for units with high consumption, so some might point out issues with fairness.
- This is a problem that occurs basically because of the progressive fees. By determining the fee cost at low levels, more households will receive benefits, but it will have a negative impact on collecting on costs
- Residential fees are made up of base fees and high electric power quantity fee structures aside from the progress system, so the single fee-type system will be advantageous for those with high consumption.
○ Adjustment of time ranges for the TOU system
- KEPCO plans to change the time ranges for TOU from 2023 considering the changes in the electric power load patterns over the past 5 years
- It is also worth considering plans to reflect time frames that do not apply on-peak times in spring and fall like the TOU system test project.
■ Policy proposal
○ Considering the policy task that must be resolved, it is judged that it would not be advisable to pursue expanding the TOU system too early.
- Delay its promotion until the AMI distribution and collection rate on costs reach appropriate levels, and have the appropriate level determined by a committee composed of the government, experts, consumers, and sellers
○ Continue improvement work to pursue expanding the consumer fee options smoothly
- Pursue reducing the progressive system and adjusting the base fees. Supplement the increased cost burdens for low-income households by adjusting the welfare discount fees, etc.
○ If expanded application is pursued in advance despite the various problems, it is necessary to reflect the fee level in the cost for residential at the very least.
- When determining the TOU fee costs at current fee levels, fee adjustments may be structurally difficult in the future, in addition to decrease in sales revenue.
○ Need to review the appropriateness of low-voltage and high-voltage fees for residential
- The time of separating residential electricity fees as low voltage and high voltage has high differences in current progressive levels, so it is necessary to review whether the difference of low-voltage and high-voltage fees is appropriate
- In June 2002 when it was separated into low voltage and high voltage, there were seven progressive levels, and the progressive rate was 18.5 times for low voltage and 15.9 times for high voltage.
- By adjusting the December 2016 progressive fees, the progressive stages were decreased to 3 stages and the progressive rate was also lowered to 3.0 times for low voltage and 2.8 times for high voltage.
- As the single-contract method became advantageous with the adjustment of the progressive system, there was a significant increase of apartment complexes switching from comprehensive contracts to single contracts. It is necessary to analyze the appropriateness related to the implementation of TOU systems