[Insight & Opinion] Industrial Electricity Rates Accelerate the Collapse of Manufacturing

Industrial electricity rates have soared by a staggering 70% over the past three years, with seven separate increases. Now, the industrial electricity rate stands at 179.23 won per kWh, which is 15% higher than the residential rate of 155.52 won per kWh, even though supplying residential electricity actually costs much more. In fact, Korea’s industrial electricity rate is now about 50% higher than that of the United States.

Corporate electricity bills are not paid personally by business owners. Instead, these costs are fully reflected in the production cost of goods, which are ultimately passed on to consumers, thereby undermining the competitiveness of companies.

The sharp and excessive increase in industrial electricity rates is due to the cost of government policy failures. Instead of utilizing nuclear and coal power-which have the lowest generation costs-the government has recklessly expanded the use of LNG and renewable energy, which are two to three times more expensive. This disastrous phase-out of nuclear power is the result. The populist policies of the previous administration also played a role. The Moon Jae-in administration’s nuclear phase-out costs have been entirely shifted to the industrial sector. Nowhere else in the world are industrial electricity rates higher than residential rates; this is an abnormal situation.

As a result, companies are now declaring their 'independence' from Korea Electric Power Corporation (KEPCO). Even if it means lower expertise and efficiency in power generation, they are choosing to produce their own electricity. The nuclear phase-out and populism are leading to national waste. There is a real risk that the entire power industry, which has been built around KEPCO, could collapse.

Excessively high industrial electricity rates are accelerating the collapse of the manufacturing sector. Today, manufacturing in our society, along with self-employment, is being driven into a corner. While China’s overinvestment and the United States’ relentless investment pressure are serious issues, institutional factors such as the “Yellow Envelope Law” and the “Stronger Commercial Act” are worsening the business environment, and energy and environmental costs are also soaring. In the case of the petrochemical industry, it is estimated that electricity accounts for 25% of the net manufacturing cost, excluding raw materials.

The outlook is not reassuring. This is because the Ministry of Environment, which is being reorganized into the Ministry of Climate, Environment, and Energy, is now actively pursuing a “Nuclear Phase-Out Season 2.” In fact, Minister Kim Seonghwan of the Ministry of Environment has announced plans to increase renewable energy capacity from the current 34 GW to 100 GW by 2030. This means installing 13 GW of solar and wind capacity every year for the next five years. As for nuclear power-the most reliable “carbon-free power source” that can actually help reduce greenhouse gas emissions-the government’s stance is to “decide based on the results of public discussion.”

Securing Chinese-made solar and wind facilities is no easy task, nor is finding suitable sites for installation. Ultimately, attention will inevitably turn to the sea, where fishermen make their living and the navy conducts national defense operations. Yet, this does not guarantee a sufficient supply of high-quality electricity needed for artificial intelligence innovation (AX) and the green transition (GX). Due to the extreme intermittency of renewables, the actual power that can be produced from 100 GW of installed capacity will not even reach 20 GW at maximum.

Simply installing facilities does not mean electricity will flow abundantly. A web of transmission lines is needed to connect remote or offshore renewable energy facilities to the national grid. In other words, “national roads” and “local roads” must be built to connect to the “West Coast Energy Expressway.” These are facilities on a completely different scale from the “national backbone power grid” covered by the “special law” enacted in March. Real-time management of more than 20,000 renewable energy installations is already impossible with current technology. As President Lee Jaemyung said, perhaps we are left with no other choice but to resign ourselves to the fact that “it simply won’t work.”

Lee Deokhwan, Professor Emeritus at Sogang University, Chemistry and Science Communication