[K-Semiconductor Crisis]②Mounting Adversities... Additional Burden of Hundreds of Billions Due to Electricity Rate Hike

Electricity Rate Hike Burden ↑... Semiconductor Industry Faces Double Hardship Amid Memory-Centric Market Chill

Semiconductor image / Source=Pixabay

[Asia Economy Reporter Kim Pyeonghwa] As the government announces an increase in industrial electricity rates, concerns are growing within the domestic semiconductor industry. Although the exact rate hike has not been determined, even a 5 won increase per kilowatt-hour (kWh) could raise the additional burden on Samsung Electronics and SK Hynix by nearly 140 billion won annually. While the rate hike is inevitable amid soaring energy prices, it is evaluated that it could become a double burden during the semiconductor market's harsh downturn.

According to the semiconductor industry, the Ministry of Trade, Industry and Energy, and Korea Electric Power Corporation (KEPCO) on the 29th, KEPCO's deficit is expected to increase to 30 trillion won this year, and with recent surges in energy prices, the government has introduced the card of electricity rate hikes. As the crisis is expected to deepen with competition among countries for energy supply this winter, a rate increase has been announced, focusing on large-scale consumers.

The Ministry of Trade, Industry and Energy and KEPCO are of the opinion that the rate hike should be applied immediately from the fourth quarter in October. However, since the Ministry of Economy and Finance is concerned about the ripple effects such as inflation, discussions between the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance are ongoing. If an agreement is reached quickly, it is expected that the specific increase rate could be presented within this week.

According to KEPCO, industrial electricity consumption accounted for 53.8% of total consumption last year. The selling price of industrial electricity per kilowatt-hour (kWh) is 105.48 won, which is 3.38% lower than that of residential use (109.16 won). The government emphasized that the rate hike is inevitable as the industrial electricity rate has dropped to 60% of the cost due to energy prices such as LNG and thermal coal soaring about fivefold compared to early last year. It also pointed out that domestic industrial electricity rates were ranked 22nd out of 33 countries (excluding Australia) at 94.3 dollars (about 140,000 won) per megawatt-hour (MWh) as of 2020, which is low compared to the OECD. It explained that since global unit rate hikes are continuing this year, domestic increases are also inevitable.

The semiconductor industry, which uses a large amount of electricity, is expressing concerns ahead of the industrial electricity rate hike. According to data received by lawmakers Gu Ja-geun and Lee Dong-joo of the National Assembly's Industry, Trade, Energy, Small and Medium Business Committee from KEPCO, Samsung Electronics and SK Hynix were the top two companies using the most industrial electricity last year.

Samsung Electronics used 18,412 gigawatt-hours (GWh), and SK Hynix used 9,209 GWh, paying 1.7461 trillion won and 867 billion won in electricity bills, respectively. Due to the nature of semiconductors requiring 24-hour factory operation, the selling price per kWh was 94.83 won for Samsung Electronics and 94.14 won for SK Hynix, including night-time discounts. Assuming a simple calculation where the electricity rate increases by 5 won per kWh, Samsung Electronics would bear an additional burden of about 92 billion won, and SK Hynix about 45.9 billion won. If the increase exceeds 10 won, the total additional burden for both companies would rise by more than 276 billion won. Considering that the electricity consumption of the two companies has increased every year, the actual burden next year is expected to increase further.

The semiconductor industry acknowledges that the rate hike is an unavoidable task given the surge in energy prices but responds that the perceived burden could be greater amid the recent sluggish business conditions.

Domestic semiconductor companies mainly focus on memory semiconductors, and with the memory semiconductor market expected to experience a particularly pronounced downturn, growth is forecasted to be virtually in the 0% range next year. Inflation, weak front-end demand, increased inventory, and falling semiconductor prices are sequentially impacting and burdening related companies. Even in July, the Ministry of Trade, Industry and Energy announced plans to raise national funds to support infrastructure such as power and water supply necessary for semiconductor complex development, but just two months later, the announcement of electricity rate hikes followed.

Lee Chang-han, Vice Chairman of the Korea Semiconductor Industry Association, said, "Since KEPCO has a large deficit and energy prices are soaring, rate hikes should be applied not only to industrial use but across the board to lessen the burden on companies. Although it is a recession period, the semiconductor industry must endure this time while steadily investing in preparation for a boom."