KEPCO claims 10% rate hike can cut energy use and halve trade deficit, rate change due Fri

[Graphics by Song Ji-yoon]

If South Korea cuts back energy consumption by 10 percent through higher power charges, it can save 15 trillion won ($10.5 billion) in energy imports a year, helping to halve trade deficit and ease losses at state utilities running at record levels, a study by power monopoly Korea Electric Power Corp. (KEPCO) showed Wednesday.

According to KEPCO’s independent study, a 10 percent drop in electricity use, or 54,432 gigawatt hour in total, can reduce imports of 8.1 million tons of liquefied natural gas (LNG) worth 15 trillion won every year. The imports accounted for 7 percent of entire energy imports in the first six months of the year, and the cut could have shaved this year’s trade deficit by 59 percent.

Korea’s trade balance in the first six months incurred a deficit of $10.3 billion. Although exports added $47.2 billion between January and June, imports surged by greater $74.8 billion due to $41 billion worth higher cost in energy imports.

KEPCO projected that a 10 percent raise in electricity bills could cut consumption by 18.5 percent and 13 trillion won worth LNG imports for power generation.

Consumption in industrial sites enjoying cheap rates took up 56 percent of power use, highest ratio among the members of the Organization for Economic Cooperation & Development countries. The OECD average is 33.5 percent. The share in Japan and Germany with high manufacturing reliance is at 41.9 percent and 36.5 percent, respectively.

While the basic unit for power consumption of major countries has improved by more than 30 percent over the past 30 years, it has worsened 37 percent in case for Korea, KEPCO also claimed. By country, the unit improved 39 percent in the United Kingdom, 33 percent in the United States, 32 percent in Denmark, 28 percent in Germany, and 27 percent in Australia.

Basic unit for power consumption is energy needed to produce $1,000 gross domestic product. It is an index that evaluates energy efficiency of a country. The lower the reading, the higher efficiency in energy use.

KEPCO found its operational crisis from high production cost could persist until 2026.

The Ministry of Trade, Industry and Energy in charge of energy policy is also arguing for higher rates.

“Korea has less sense of energy crisis because state utilities KEPCO and Korea Gas Corp. are entirely bearing the burden with snowballing losses,” said Park Il-jun, second vice industry minister.

He argues if the imbalance is not fixed and public utilities are wrecked, greater harm will go to the future generation,

He predicted KEPCO losses could stretch to as much as 40 trillion won this year, a red that could drown even a giant company if it was privately run.

Rates should go up incrementally, although a 50 percent hike is needed to save public utilities, he added.

The energy ministry this week will decide electricity rates for the fourth quarter.

Electricity rates are assessed by adding basic fuel cost, fuel cost adjustment rate, and climate environment fee.

“Large businesses are using electricity greater than necessary due to cheap cost,” said Industry Minister Lee Chang-yang on Monday. “We will differentiate the rate system for industrial use to impose higher rate for bigger users.”

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