Most Taiwanese households and small and medium-sized businesses were spared the pain of electricity price surges last year as state-run Taiwan Power Co (Taipower, 台電) froze prices to keep the supply affordable during the COVID-19 pandemic. This year, Taipower seeks to set a “reasonable” pricing strategy as widening losses and stubbornly high global energy prices are pushing it to the verge of insolvency.
There is no reason to reject a larger scope of electricity rate increases. The main concern is that aggressive price hikes could exacerbate inflation and harm the competitiveness of local manufacturers. Taiwan’s inflation reached an annual rate of 3.04 percent in January, the highest since July last year.
Taipower last year proposed its first price hikes in four years to mitigate the soaring prices of imported coal and natural gas. The price adjustments were small, given concerns that sudden or drastic increases could create a ripple effect in the nation’s inflation, affecting businesses and individuals alike. The company raised electricity rates by an average of 8.4 percent annually for heavy users, with heavy industrial consumers such as Taiwan Semiconductor Manufacturing Co and flat-panel makers facing an even steeper increase of 15 percent.
As the price increases only affected about 22,000 users for a short period of six months, the adjustments were not sufficient to ease Taipower’s cost burden. As of the end of last year, the utility registered a loss of NT$267.5 billion (US$8.75 billion). Without the increases, Taipower would be trapped in another massive loss of NT$278.5 billion this year.
Taipower’s calculation is based on the surges in coal and natural gas costs. Those costs in January jumped 28.6 percent and 21.4 percent year-on-year respectively, causing a loss of NT$32.1 billion that month alone. That meant Taipower’s accumulated losses could climb to as high as NT$54 billion this year and last year combined, compared with the company’s share capital of NT$330 billion.
To help Taipower remain solvent, the government has earmarked NT$150 billion in assistance, on top of the NT$50 billion it is to receive from last year’s tax surplus redistribution.
A new capital injection is crucial to Taipower’s operation, but it is equally important that the fundamental problems of high operational costs be addressed.
Some economists and industry leaders suggested that Taipower cautiously implement mild price hikes in multiple stages. To fully reflect the increased costs, Taipower would have to raise rates more than 30 percent. The Chinese National Association of Industry and Commerce called on the government to raise rates in stages and consult a broad range of sectors to avoid hurting the economy.
Taipower should raise its rates between 10 to 20 percent, National Central University professor Liang Chi-yuan (梁啟源) said. To improve Taipower’s financial stability, price hikes should be undertaken more than once for industrial and household users consuming more than 500 kilowatt-hours per month, he said.
Liang’s suggestion is projected to push national inflation up by a minimal 0.19 percent a year, if rates are raised 10 percent.
The Ministry of Economic Affairs has scheduled a meeting for later this month to review electricity rates. The ministry should gather opinions from economists and industrial representatives before finalizing its price scheme.
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