※[김리안의 에네르기파WAR]Covers news in the energy sector from the perspective of national security and the climate crisis.
The world of electricity and grid – the ‘annex’ ahead of the
Regarding Taiwan’s central bank’s surprise hike in the base interest rate last month, an analysis said, “It was a failure after trying to copy Korea’s electricity rate policy.” It is pointed out that the central bank’s monetary policy was mobilized to keep pace with the increase in electricity rates by the state-run electric power company, which was unable to cover accumulated losses.
Bloomberg News recently reported, “(On the 21st of last month), Taiwan’s central bank raised the benchmark interest rate by 0.125 percentage points to 2% per annum, the highest in 16 years, which was unexpected by the market.” Just a few hours ago, on the other side of the world, the U.S. Central Bank (Fed) froze the benchmark interest rate (5.5% per annum) for the fifth time, sending a signal that “the austerity cycle is over.” The market predicted that Taiwan, which followed the Fed four times in a row, would also choose to freeze this time.
However, Taiwan’s monetary authorities chose to decouple with the Fed. The background was revealed in one day. The next day, Taiwan’s Ministry of Economic Affairs brought out a plan to increase electricity rates. It was announced that the rate should be raised to 25% for industrial use and 10% for home use. An analysis was conducted that austerity measures had to be adopted due to concerns about additional inflation due to increases in electricity rates.
Bloomberg said, “Central banks must maintain independence in establishing monetary policy, but they often have to deal with the aftermath of the government’s fiscal and industrial policies.” He added, “In the Taiwan case, there is a gap between the government’s industrial policy and the central bank’s monetary policy.” “When it is disconnected, it clearly shows the problem,” he pointed out.
The Taiwanese government has unveiled a plan to transition to new and renewable energy in 2022 and to improve and expand the power grid (power system) for this purpose. However, Taiwan’s state-owned power company Tai Power was unable to cover this investment cost due to snowballing financial losses. This is because Thai Power was constrained by government policy that prevented it from raising rates to a level commensurate with the cost of electricity production. In the end, all investments were delayed, and Thai Power sharply raised electricity rates to prevent further bleeding.
Chang Tai-Xie, a professor of economics at the University of Chicago’s Booth School of Business, recently wrote in a Taiwan Commonwealth article, “The mistake Taiwan made was Korea’s energy policy of freezing prices to protect consumers in response to energy shocks such as the war in Ukraine.” “It is an imitation,” he said, adding, “Singapore (not Korea), which does not provide electricity subsidies and sets market prices based on power generation costs, should become a model example.”
This is because locking in electricity rates without providing consumers with incentives to reduce electricity consumption actually causes unfairness. Additionally, this can be interpreted to mean that Korea, like Taiwan, will soon have no choice but to make a decision regarding an increase in electricity rates. If electricity prices rise, it is predicted that the Korean monetary authority will also adopt austerity measures to avoid further price rises.
In the United States, the recently released March Consumer Price Index (CPI) showed that electricity prices were the cause of the surge in prices. In the United States, utility companies set electricity prices relatively freely. On a year-on-year basis, electricity prices in the United States, which rose 2.1% in August of last year, jumped to 3.4% in November, 3.8% in January of this year, and soared 5% in March compared to the previous year.
This is because utility companies are spending large amounts of money to maintain and increase power generation and power grid capacity, leading to significant prices being passed on to consumers. According to the U.S. Bureau of Labor Statistics, utility companies in more than three out of four major U.S. metropolitan areas continue to raise electricity rates.
Reporter Kim Rian [email protected]
