Last year a new electricity price formula was introduced. Since then, because the price of fossil fuels — coal, oil and natural gas — have fallen worldwide, the average price of 1 kilowatt-hour (kWh) of electricity in Taiwan has been cut by nearly 20 percent from the high it reached more than one year ago. The most recent price reduction saw the tariff reduced by almost 10 percent.
Even before these price reductions, electricity prices for both industrial and non-industrial consumers were already among the lowest in the world. It is strange that people should enjoy such cheap electricity when the nation is almost entirely dependent on the import of fossil fuels.
The fundamental reason Taiwan has such unreasonable electricity prices is that the pricing structure is focused on supply and does not consider demand or quality. This formula is based on Taiwan Power Co (Taipower) data as the standard. It is based on Taipower’s total electricity generation fuel costs within a certain period of time, plus taxes and fees, profit of 3 to 5 percent, depreciation and interest, staff costs, maintenance costs and other operational costs, minus revenue from “green” electricity prices and other operational revenue. The total cost is then divided by the total power generated in kWh to calculate the price of 1kWh of electricity.
The price of electricity is calculated according to a formula that deviates from market mechanisms and thus loses price flexibility. Taiwan’s super-low electricity prices are a result of artificial manipulation of an electricity price formula.
One effect of having such distorted electricity prices is that power-guzzling industrial and commercial businesses have no incentive to conserve energy and a lot of electricity is also wasted in everyday use. The electricity price formula should be amended in accordance with market mechanisms and principles, as pricing is the only way to curb demand.
The existing structure encourages state-run and private power companies, generally speaking, to generate electricity using the cheapest and dirtiest methods, namely coal burning and cogeneration, also known as combined heat and power. This is because pollution costs are not reflected in the formula.
Coal-fired power generation produces several kinds of pollutants. It emits carbon dioxide, which affects climate change; PM2.5 particles and airborne toxins; sulfur oxides, which cause water acidification; and fly ash, which leaches toxins into soil and groundwater. It entails great costs in terms of environmental harm and damage to human health. If these costs were factored into electricity prices, the external costs of each kWh generated by coal-fired power stations might be five to 10 times as high as the internal costs.
Power stations and factories are concentrated in central and southern Taiwan. This leads to an environmentally unjust distribution of air, water and soil pollution, which are higher in the south and lower in the north. The north-south divide also exists in health inequality, with the incidence of environmental illnesses and death being higher among people in central and southern Taiwan than they are in the north.
In order to change all this, it would be necessary to thoroughly revise the price formula to reflect the social costs of electricity generation. That would allow low-pollutant alternative technologies, such as natural gas, solar and wind power, to be viable and eventually replace damaging coal-fired power generation.
Chan Chang-chuan is vice dean of the College of Public Health at National Taiwan University and Director of the university’s International Health Center.
Translated by Julian Clegg
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