| Title |
The Volatility of Required Rate of return and Rate Shock and Volatility Mitigation |
| Authors |
권용오(Yong-O Kwon) ; 김태형(Taehyeong Kim) |
| DOI |
https://doi.org/10.5370/KIEE.2023.72.2.169 |
| Keywords |
Electricity rate; Electricity tariff; Required rate of return; Rate Shock; Rate Volatility |
| Abstract |
Electricity rates in Korea are determined by the sum of the appropriate cost of electricity production and the required rate of return of capital invested in the electricity business. The full cost represented by fuel costs or the rate base represented by power generation, transmission, and distribution facilities can identify changes due to the characteristics of the power industry, but the required rate of return is not easily identified because it is calculated by changes in financial markets. The volatility of rate of return has recently expanded due to the repeated economic crisis, the spread of infectious diseases, and war. Although it is reasonable to immediately reflect the fluctuating required rate of return, it is necessary to minimize rate shock by applying a formula. This study can be used as a method to prove the effect of easing volatility and stabilize electricity rates by comparing the current and improved formulas of the required rate of return. |