South Korea raises electricity rates for industrial use, while freezing bills for households

South Korea will raise electricity rates for industrial use while freezing those for households amid mounting power demand by the country’s energy-intensive manufacturers and increasingly extreme weather conditions, the energy ministry said Oct. 23.

Under the measure, the electricity rate for industrial use will rise 9.7% on average from Oct. 24, according to the Ministry of Trade, Industry and Energy.

The rate for large businesses will rise 10.2% to Won 182.7/kWh ($0.13/kWh) from Won 165.8/kWh, and that for small and medium-sized companies will increase 5.2% to 173.3/kWh from 164.8/kWh.

However, the electricity rate for households and small stores will remain unchanged, considering inflation and the livelihoods of the people, a MOTIE official said.

“The hike in the electricity rate will affect 1.7% of the country’s total users, which account for 53.2% of electricity demand,” the MOTIE official said, citing the country’s biggest power consumers such as chip makers Samsung Electronics and SK Hynix, and steelmakers POSCO and Hyundai Steel, among others.

The hike is expected to partly help Korea Electric Power Corp., the state power monopoly, address its mounting losses, as industrial use accounts for more than half of the country’s total power demand.

This is the first electricity rate hike in a year since November 2023 when the country raised rates for big companies by an average Won 10.6/kWh, while freezing electricity prices for households and small and medium-sized firms.

In 2023, the country raised the rates three times -- by Won 13.1/kWh ($0.01/kWh) in the first quarter and Won 8 in the second quarter both for industrial use and households.

The selective hike in electricity rates is a compromise aimed at cutting Kepco’s snowballing losses while addressing public outcry over energy bills amid inflation and an economic slowdown.

Kepco posted a combined loss of Won 43 trillion ($31.2 billion) from 2021 to 2023 due to limited electricity tariff hikes over the past several years, despite higher import costs of LNG and coal amid the pandemic and rising inflation.

The company's debt totaled Won 202.9 trillion as of end-June, rising Won 440 billion from the end of 2023.

"Kepco needs to adjust electricity rates to address the accumulating losses and secure funds to invest in the power grid," the MOTIE official said.

South Korea’s LNG import bills have been declining since late 2022 due to lower crude oil and LNG spot prices.

Local LNG importers, including state-run Korea Gas Corp. paid an average of $11.8/MMBtu in September, down from $13.05/MMBtu a year earlier and $12.06/MMBtu in August, according to customs data compiled by S&P Global Commodity Insights.

The government has taken some measures to lower power production costs. It has extended the consumption tax cut on LNG and coal used for electricity production through the end of 2024.

The government has also decided to extend the import tariff cut on LNG, maintaining it at zero until the end of this year. The country levies a 2% tariff on LNG imports and raises it to 3% during the peak winter season from October to March.