Taiwan Power Co (Taipower) has good reason to raise electricity rates — to stay afloat. The state-run utilities company is facing imminent bankruptcy, with losses of NT$421.9 billion (US$13.25 billion) as of the end of August, approaching the limit of its NT$582.9 billion assets. Taipower’s collapse would be a disaster the economy cannot afford.
The government has allocated NT$100 billion in new subsidies to absorb some of Taipower’s losses after raw material costs skyrocketed in the wake of surges in global fuel prices. Taipower did not fully pass its dramatic cost increases to customers, as it has to help keep inflation in check.
Since 2020, Taipower has raised rates by about 7.1 percent for households as of the first half of this year, compared with dramatic increases of 49 percent in South Korea, 39 percent in France and 79 percent in the UK, the company said. The rate hikes for industrial users are greater at 48 percent compared with 87 percent in South Korea, 139 percent in France and 126 percent in the UK.
The electricity rate review committee yesterday approved Taipower’s plan to raise rates 12.5 percent for heavy industrial users such as chipmaker Taiwan Semiconductor Manufacturing Co and data center operators, the fourth increase since 2022. The hikes are lower than the 14 percent proposed by Taipower. Industrial users make up about 75 percent of its total power supply revenue. For some sectors, the rate would increase only 7 percent. Those sectors include bicycle manufacturers, car component makers and chemical companies that consumed at least 5 percent less power in the first half of this year than in the same period last year. Rates were unchanged for companies that reported a 15 percent annual decline in revenue in the first half of this year and consumed 5 percent less power.
Smaller-scale businesses such as restaurants, supermarkets and households were spared the upward adjustments, to prevent higher electricity rates from inflating consumer prices, the utility said.
The latest rate hikes are certainly not enough to erase Taipower’s heavy losses, but are a crucial step toward improving its financial situation. Based on the company’s calculations, the increases would give it an additional NT$84 billion a year and trim losses by about NT$21 billion by the end of this year. The new prices are to take effect on Oct. 16.
The Taipei-based Chinese National Federation of Industries (CNFI), which represents the nation’s 159 subindustries, is concerned that higher power rates would undermine the competitiveness of traditional sectors, given that they have slimmer profit margins than chipmakers and chip designers. As local petrochemical, textile, metal and plastic producers are heavy consumers of electricity, higher electricity costs would make it difficult for them to fend off growing competition from southeast Asian rivals, the CNFI said. Price increases could fan fears of a rise in consumer prices amid ripple effects, the industry association said. Its inflation worries are overstated, as rate increases do not affect all users.
The effect on consumer prices should be manageable, as the consumer price index is to rise 2.17 percent year-on-year this year, Directorate-General of Budget, Accounting and Statistics economists said. The agency said that every 1 percent increase in power prices, including on households and industries, would boost inflation by 0.12 percentage points.
As Taiwan is heavily reliant on imports of crude oil, natural gas and coal to generate power, it is extremely difficult for Taipower to keep electricity rates steady while turning a profit. To create a healthy financial structure, Taipower should be allowed to adjust electricity rates to reflect its costs to some extent, rather than become reliant on government subsidies. To reach that goal, Taipower and the government have to find the subtle balance between staying afloat and tending the nation’s inflation.
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