Korea mulls raising electricity rates for industrial use

[Photo by Lee Seung-hwan]

The South Korean government and the ruling People Power Party are looking into the option of raising electricity prices for industrial use, which account for more than half of the country’s entire power consumption, according to sources on Monday.

The industrial rate plan applies to customers who use electricity for mining, manufacturing and other businesses with contracted power of more than 300 kilowatts.

The ruling party, however, is considering not to raise electricity rates for general use and small businesses ahead of the general election scheduled for April next year.

The review comes as state utility provider Korea Electric Power Corp. grapples with losses, which have exceeded 47 trillion won ($36.18 billion) so far.

Industrial electricity accounts for more than half of the nation’s total power consumption, and raising the price of industrial electricity alone can deliver at least half of the needed results.

According to KEPCO, industrial electricity use accounted for 54 percent of total power use last year, while the figures were about 15 percent and 23 percent for residential and general use, respectively. Industrial sales also accounted for 53 percent of the total, compared to 15 percent and 27 percent for residential and general sales each.

A hike in power rates for industrial customers is likely to mitigate KEPCO’s financial risks without having to push its bond issuance limit.

Proponents to the hike note that Korea’s industrial electricity rates are lower than the average of the Organization for Economic Cooperation and Development (OECD) economies.

According to the International Energy Agency (IEA), Korea’s industrial electricity price was $95.6 per megawatt-hour (MWh) in 2021, below the OECD average of $115.5.

Beginning in 2021, KEPCO sold electricity below cost for more than two years as it failed to reflect the surge in international energy prices in electricity rates in time. This structure of buying electricity at high prices and selling it at low prices has greatly contributed to KEPCO’s growing losses.

Even worse, the United States government recently decided to impose countervailing duties on Korean steel products, claiming that the country’s cheap electricity constitutes a government subsidy. Some analysts believe that an industrial electricity rate hike is unavoidable as cheap electricity rates could even lead to a trade dispute.