KEPCO hikes industrial electricity rates, keeps residential fees steady

Watt-hour meters display power consumption at a multi-unit house in Seoul, Wednesday, as state utility Korea Electric Power Corp. (KEPCO) announced plans to raise electricity rates for industrial use by an average of 9.7 percent starting Thursday. Yonhap

State utility Korea Electric Power Corp. (KEPCO) announced, Wednesday, it will raise electricity rates for industrial use by an average of 9.7 percent starting Thursday, while freezing rates for households, aiming to address the financial strains the company has been experiencing for years.

However, the plan is prompting complaints from businesses, which argue that the rate hike will increase costs and place additional burdens on them.

KEPCO said it will raise electricity rates for industrial use by an average of 9.7 percent—10.2 percent for large-scale industrial users, such as major corporations, and 5.2 percent for small and medium-sized enterprises (SMEs). This change will result in an increase from 165.8 won per kilowatt-hour to 182.7 won for large-scale users, and from 164.8 won to 173.3 won for SMEs.

This will not affect the rate for households and small shops.

KEPCO noted that industrial demand represents only 1.7 percent of total demand but accounts for 53.2 percent of total electricity consumption. Large-scale industrial users constituted 0.1 percent of total users last year but consumed 48.1 percent of the total electricity used.

Second Vice Minister of Trade, Industry and Energy Choe Nam-ho, right, speaks about Korea Electric Power Corp.'s (KEPCO) electricity rate hike plan during a press conference at the ministry in Sejong, Wednesday. At left is KEPCO CEO Kim Dong-cheol. Yonhap

“The rate hike is unavoidable to expand the power grid necessary for future advanced industries such as semiconductors and artificial intelligence, as well as to maintain and repair essential power facilities to prevent outages and malfunctions,” KEPCO said in a press release.

KEPCO estimates that the annual additional cost per small-scale user will be less than 1 million won ($724). For large-scale users, such as major corporations, the annual cost is expected to increase by 110 million won.

Due to rising fuel costs, KEPCO’s cumulative loss from 2021 to the second half of this year has reached 41 trillion won. The company’s outstanding liabilities amounted to 203 trillion won as of the first half of this year, with interest incurred by the debt overshadowing its operating profits for the last four consecutive quarters.

KEPCO previously raised electricity rates for industrial use in November of last year but has not adjusted rates for households since May of the same year.

The state-run utility expects the latest rate hike will generate an additional 4.7 trillion won in annual revenue.

“It aims to minimize the number of affected customers while providing a pricing incentive to the market that encourages efficient energy use,” KEPCO CEO Kim Dong-cheol said during a press briefing.

“At the same time, it will significantly help reduce KEPCO's cumulative deficit.”

Second Vice Minister of Trade, Industry and Energy Choe Nam-ho said the hike will help KEPCO remain profitable unless significant external factors arise. He added that the government believes KEPCO can sustain a stable profit trend, which will contribute to an improvement in the company’s overall financial structure.

The Korea Electric Power Corp. headquarters in Naju, South Jeolla Province / Yonhap

Following KEPCO’s announcement, businesses voiced their concerns, noting that the hike will ultimately increase their manufacturing costs.

The Korea Chamber of Commerce and Industry said the repeated hikes for industrial rates directly impact manufacturing costs and significantly undermine industrial competitiveness.

“While it is important to reflect the factors driving electricity price increases, there is a need to consider measures that encourage not only the industrial sector but also all electricity consumers in society to share the costs and actively participate in energy efficiency initiatives,” it said in the statement.

Lee Sang-ho, vice president of the Federation of Korean Industries' Economic and Industrial Research, acknowledged that the hike is somewhat inevitable given KEPCO’s financial difficulties. However, he cautioned that “differential rate increases that target large corporations may exacerbate the already challenging environment for domestic industries, resulting in a contraction in their business activities.”

An official at a domestic manufacturing company said, “The rate hike will eventually push up costs for companies, and the government could consider more positive ways for saving the energy, such as granting incentives to companies running its own power plants.”

Addressing such concerns, the vice minister said, “Companies that fall into the large-scale user category are primarily major corporations that export their products, and electricity expenses account for an average of 1.3 percent of their overall costs. Even if this increase is reflected in product prices, it will impact exports, resulting in a minimal overall effect on the domestic market.”