The legislature, in which the opposition Chinese Nationalist Party (KMT) and Taiwan People’s Party have a combined majority, on July 11 rammed through a NT$545 billion (US$18.5 billion) special relief package, scrapping a NT$100 billion subsidy for financially struggling Taiwan Power Co (Taipower). Without the funding, Taipower is likely to hike electricity rates to offset costs and stay afloat. That might lead to electricity rates returning to a normal, market-oriented mechanism, which would bring a lot of agony.
Power prices in Taiwan have long been distorted, with Taipower responsible for stabilizing consumer rates. It has attributed its massive losses to its efforts to keep rates low. The state-owned utility company said it absorbed NT$599.3 billion from 2022 to last year due to its freeze on price rises for regular households and underprivileged groups. It also hiked prices for local industrial users by less than what its increased costs would have justified, aiming to help the government rein in inflation. Russia’s invasion of Ukraine propelled a rise in global fuel prices, which contributed to Taipower’s deteriorating financial performance. As of May 31, Taipower had NT$451.4 billion in losses, pushing the company’s net debt-to-assets ratio to 93.9 percent.
An electricity rate review committee — comprising officials from across government agencies and industry experts who meet twice a year to determine the nation’s power prices — in March unexpectedly kept electricity rates unchanged amid growing concern that US tariff hikes and geopolitical tensions would deal a blow to Taiwan’s economy. The rate freeze added NT$50 billion to the firm’s losses this year, Ministry of Economic Affairs data showed.
After losing the financial aid from the government, the ministry said it saw “no reason electricity rates should not increase” in the second half of this year.
Speculation circulated that Taipower would seek a 5 percent hike at September’s meeting, affecting about 14.5 million customers — from residential customers to companies in the service and manufacturing sectors. The rate for regular residential users averages NT$2.77 per kilowatt-hour (kWh), which is a loss of more than NT$1/kWh for Taipower based on its costs of NT$3.93/kWh, Taipower data showed. That is much cheaper than the equivalent of NT$3.96 in South Korea and NT$7.73 in Japan.
Local companies also enjoy low power rates, despite rates for industrial users having been increased four times since 2022 to NT$4.27/kWh on average, slightly surpassing Taipower’s costs. In South Korea, industrial users pay NT$4.96/kWh, soaring 105 percent from 2020 to last year, while in Japan, they pay NT$5.87/kWh following a jump of 54 percent over the same period.
To make Taipower financially viable and to boost the nation’s energy resilience, it is essential to normalize the pricing strategy — ending the price distortions and factoring “real” power generation costs into the pricing formula, as the firm’s global peers do.
In addition to hiking prices, some experts suggest that Taipower add more price brackets. Others suggest that the ministry increase the frequency of the price review meetings from twice a year to four times to better reflect Taipower’s costs given global fuel price fluctuations and other external risks.
To safeguard Taiwan’s energy resilience, the advice should be seriously considered.
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