Electricity Rates Up 7.5 Won per kWh in Q4... Higher Increases Expected Next Year

Government: "From Next Year, Electricity Rates Will Be Gradually Normalized Reflecting Cost Factors"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] Korea Electric Power Corporation (KEPCO) will raise electricity rates by 7.4 KRW per kWh starting next month. For a household of four, the average monthly increase is expected to be 2,770 KRW. Amid soaring international energy prices, the government plans to gradually normalize electricity rates from next year by reflecting cost factors, meaning future electricity rate hikes are expected to be even larger.

KEPCO announced on the 30th that starting in October, it will add an additional 2.5 KRW increase per kWh on top of the previously announced 4.9 KRW per kWh increase in the standard fuel cost.

Electricity rates for residential, industrial, educational, agricultural, street lighting, and nighttime electricity will all increase by 2.5 KRW per kWh. For large-volume industrial users, the general industrial electricity rates will increase by 4.5 KRW per kWh for High Voltage A and 9.2 KRW for High Voltage BC, resulting in final increases of 7.0 KRW and 11.7 KRW per kWh respectively. Large corporations are excluded from the agricultural electricity application to protect small-scale farmers and fishermen.

Additionally, to alleviate the burden on vulnerable groups, the welfare discount limit of 40%, which has been in effect since July, will be extended until the end of the year. As a result, the electricity cost burden for vulnerable groups is expected to be further reduced by 31.8 billion KRW.

The government plans to gradually reflect the accumulated factors of rate increases next year to restore the price function. The aim is to encourage electricity consumers to voluntarily reduce demand. Continuous electricity rate hikes are thus a foregone conclusion for next year as well.

A government official stated, "Considering inflation and livelihood conditions, from next year we will promote the gradual normalization of rates by reflecting cost factors," adding, "Gas rates will also gradually reflect past increases starting in 2023, and the historically high unpaid balances will be incorporated into the settlement price for gradual recovery."

Due to the Ukraine war, international energy prices continue to surge. The international liquefied natural gas (LNG) price, mainly used for electricity generation, was 35.1 USD per million Btu as of this month, soaring 8 times and 1.9 times compared to 4.1 USD in 2020 and 18.5 USD in 2021, respectively. In March, it reached an all-time high of 84.8 USD.

KEPCO recorded an operating loss of 14 trillion KRW in the first half of this year alone due to this. The annual operating deficit is expected to reach 30 trillion KRW. According to KEPCO estimates, to eliminate this large-scale deficit this year, electricity rates need to increase by 260 KRW per kWh, and to break even in the fourth quarter, an increase of 50 KRW per kWh is required.