Electricity and Gas Prices Expected to Soar Next Year... Planned Increase Around Twice This Year's Rates

Electricity Rate Increase Factor Calculated at 51.6 KRW per kWh... 2.7 Times the 19.3 KRW This Year
Gas Fee May Rise Up to 10.4 KRW per MJ... Could Increase 1.9 Times Compared to This Year

An electricity meter is installed at a commercial building in Seoul on the 27th, when the fuel cost adjustment unit price for electricity bills in the third quarter is scheduled to be announced. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yoo Byung-don] From next year, electricity and gas rates are expected to increase by about twice the amount of this year's hike.

According to Korea Electric Power Corporation (KEPCO) and others on the 15th, the Ministry of Trade, Industry and Energy and KEPCO have estimated the electricity rate increase factor for next year, including the standard fuel cost, at 51.6 KRW per kWh (kilowatt-hour).

Electricity rates consist of a basic charge, electricity consumption charge (standard fuel cost), climate and environmental charge, and fuel cost adjustment charge.

The electricity rate increase pressure for next year is composed of 45.3 KRW per kWh for the standard fuel cost, 1.3 KRW for the climate and environmental charge, and 5.0 KRW for the fuel cost adjustment unit price. The fuel cost adjustment charge assumes an annual cap expanded to 10 KRW per kWh.

This year, electricity rates were raised three times (in April, July, and October) by 2.5 KRW per kWh for the electricity consumption charge, 9.8 KRW for the standard fuel cost, 2.0 KRW for the climate and environmental charge, and 5.0 KRW for the fuel cost adjustment charge, totaling a 19.3 KRW increase.

The electricity rate increase pressure for next year (51.6 KRW per kWh) is 2.7 times the increase amount this year (19.3 KRW per kWh).

Despite raising rates by about 20% this year, the Ministry and KEPCO reported a deficit of 21.8 trillion KRW through the third quarter, and estimate the deficit to reach about 34 trillion KRW by the end of this year based on separate criteria.

Furthermore, if the electricity rate increase factor for next year is reflected in a quarterly 'high-low' (front-loaded) manner, operating profit is expected to record a surplus of 1.9 trillion KRW, but if evenly distributed quarterly, an annual deficit of 1.3 trillion KRW is anticipated.

Moreover, if the increase factor is evenly distributed quarterly over three years, the operating deficit for next year could expand to 14.3 trillion KRW.

The Ministry and KEPCO proposed a plan to normalize rates and minimize costs, aiming to return to profitability in 2024 or next year, then resolve accumulated deficits in 2025?2026, and normalize management by the end of 2027.

Alongside this, Korea Gas Corporation is also pushing for a rate increase, stating the need to recover accumulated unpaid bills early to normalize management.

The Ministry and Gas Corporation proposed raising gas rates next year by at least 8.4 KRW per megajoule (MJ) (2.1 KRW each quarter) or up to 10.4 KRW (2.6 KRW each quarter).

This year, gas rates for residential use increased by 5.47 KRW through four hikes (in April, May, July, and October). Next year, gas rates will rise by at least 1.5 times and up to 1.9 times this year's increase.

The Ministry and Gas Corporation analyzed that raising rates by 8.4 KRW per MJ next year would allow unpaid bills to be resolved starting in 2027, and raising by 10.4 KRW per MJ would enable resolution from 2026.

The Gas Corporation explained, "From July 2020 for one year and eight months, residential rates were frozen, and since the second half of last year, crude oil and gas spot prices surged sharply, causing unpaid bills to increase rapidly. Due to the surge in unpaid bills, the Gas Corporation's borrowings have expanded, and the bond issuance limit is expected to be exhausted within this year."

To normalize management, the Gas Corporation plans to implement about 10 trillion KRW worth of intensive self-help measures from next year through 2027, in addition to rate increases.

The Ministry, KEPCO, and Gas Corporation stated that the rate increase plans for next year are based on their own simulations and require interdepartmental consultations, so they are not finalized. Therefore, the level, timing, and duration of rate increases may be subject to adjustment.