[Q&A] Vice Minister of Industry: "If current levels of interest rates and oil prices persist, incentives for future electricity rate hikes will decrease"

Electricity Rates to Rise by 16.1 Won for Industrial Use Only from the 24th
Residential Rates 'Frozen'... 'Considering Burden on Low-Income Households'

From the 24th, industrial electricity rates will increase by 16.1 KRW per kilowatt-hour (kWh). Residential and general (small business) rates will be maintained at the current level considering the burden on the low-income economy.

The government, while concerned about the massive debt of Korea Electric Power Corporation (KEPCO) amounting to 203 trillion KRW, expects KEPCO to maintain a stable surplus trend with this electricity rate hike. Furthermore, it judged that if the current interest rate levels and international oil prices persist, there will be little incentive for further electricity rate increases in the future.

On the 23rd, at the Government Complex Sejong, Choi Nam-ho, Vice Minister of the Ministry of Trade, Industry and Energy, said, "Given that energy prices, interest rates, and exchange rates are expected to move favorably for Korea under the overall current situation, if this trend continues, the incentive to significantly raise (electricity rates) will decrease. However, since there could be unforeseen situations like the Russia-Ukraine conflict, we will review the overall situation once more in the first half of next year."

Choi Nam-ho, Vice Minister of the Ministry of Trade, Industry and Energy (right), and Kim Dong-chul, President of Korea Electric Power Corporation, are explaining about the increase in industrial electricity rates at the Government Sejong Complex on the 23rd.

On the same day, KEPCO announced that considering the burden on the low-income economy, residential and general rates will be frozen, but electricity consumption charges for industrial customers will be increased by an average of 9.7%, a single-digit rate increase. This means industrial electricity rates will rise by 16.1 KRW per 1 kWh.

Industrial customers account for 1.7% of all customers (about 440,000 households) but consume 53.2% of total electricity usage. KEPCO decided to raise industrial (Type B) rates, used by large corporations and other large-volume customers, by 10.2%, while considering the difficulties faced by small and medium-sized enterprises (SMEs) due to the economic downturn, industrial (Type A) rates, mainly used by SMEs, will be increased by 5.2%. As of last year, industrial (Type B) customers numbered about 41,000 households, which is about 0.1% of the total (25,129,000 households). Their electricity consumption was 263 TWh, accounting for 48.1% of total electricity consumption (546 TWh).

The following are the main points from the Q&A session with Vice Minister Choi Nam-ho and KEPCO President Kim Dong-cheol held with reporters.

- What is the increase in kWh rates for industrial Type A and B, and what proportion of KEPCO's electricity sales revenue does industrial use represent?

▲ Vice Minister Choi: Currently, the average selling price for industrial (Type A) is 168.9 KRW per kWh, and for industrial (Type B) it is 164.6 KRW per kWh. With this measure, the average increase is 9.7%, with industrial (Type A) rising by 5.1%, about 8.5 KRW per kWh, and industrial (Type B) increasing by about 10.2%, approximately 16.9 KRW per kWh.

The impact on sales and financial structure involves various factors and variables, so it is somewhat limited to provide exact figures on how 'sales and financial structure will change.' However, barring any major external changes, this measure should allow KEPCO to maintain a stable surplus. From KEPCO's perspective, not only on a consolidated basis but also on a separate basis, the overall surplus and stable surplus trend will improve, so the overall financial structure is expected to improve.

- What is the impact of the industrial electricity rate increase on inflation?

▲ Vice Minister Choi: Since the increase applies to industrial use, it does not reflect in the consumer price index. Most companies classified under industrial (Type B) are export-oriented large manufacturers. I understand that electricity costs account for about 1.3 to 1.4% of their total cost structure. Since this is mostly reflected in export prices, we believe the impact will not be significant. Ultimately, even if prices are affected, they will be reflected in export prices, so the domestic impact is expected to be limited.

- Why was the electricity rate increase applied only to industrial use?

▲ Vice Minister Choi: We gave much thought to how to distribute the rate increase among industrial and other usage categories. Although inflation has somewhat stabilized, risks remain due to Middle East tensions and related situations, so inflation cannot be considered 'completely stable' yet. More importantly, we considered the circumstances of different economic actors. In particular, the overall recovery of the service sector has been delayed recently. Also, construction investment is sluggish, and the general livelihood situation is difficult, which we took into account significantly.

- How much will the burden increase due to this industrial electricity rate hike?

▲ Vice Minister Choi: Considering the average usage scale, for industrial (Type A) users, the annual bill is expected to increase by less than 1 million KRW. For large corporations, it varies by scale, but considering the average usage of large corporations using industrial (Type B), the annual increase is predicted to be around 110 million KRW.

- With this increase, will the average rate for industrial (Type B) become more expensive than industrial (Type A)? Also, are there differences in the detailed increase by voltage level for industrial (Type B)?

▲ President Kim Dong-cheol: Industrial (Type A) will likely be slightly cheaper than industrial (Type B) as a result. There is no detailed differentiation by voltage level. The difference is only between Type A and Type B.

- You mentioned that this increase is also necessary to send price signals, but companies will not stop operating factories just because electricity rates rise. Is this measure appropriate?

▲ President Kim: Industrial customers have off-peak and peak load times. They can reduce operation during high-load daytime hours and shift to off-peak times like early morning. By shifting load to nighttime hours, they can take advantage of lower electricity rates through automation and other means. According to the general theory of supply and demand, when prices rise, demand decreases. However, for residential use, which accounts for only about 14% of total sales, heating and cooling demand has low price elasticity. Please understand it from this perspective.