Despite Falling Fuel Costs, Rate Maintained at Previous Quarter Level Due to KEPCO's Financial Situation
The government has decided to freeze electricity rates for the first quarter of 2026. Although falling fuel costs created a downward factor in the calculation, the rate will remain at +5 won/kWh, the same as the previous quarter, taking into account Korea Electric Power Corporation's (KEPCO) financial situation and the accumulated amount of unadjusted fuel cost adjustment charges.
According to KEPCO on the 22nd, electricity rates consist of a basic charge, an energy usage charge, a climate environment charge, and a fuel cost adjustment charge. Among these, the 'fuel cost adjustment unit price' is the standard used to reflect short-term fluctuations in energy prices. The government has notified KEPCO that the +5 won/kWh rate will continue to be applied in the first quarter of 2026, the same as in the fourth quarter of 2025.
The decline in international oil prices has led to a decrease in overall fuel prices for power generation, easing the burden of fuel costs. Recently, the prices of bituminous coal, liquefied natural gas (LNG), and bunker C oil have all dropped, resulting in a downward factor in the calculation of the fuel cost adjustment unit price.
The actual fuel cost for January to March 2026 is calculated by weighting the average trade statistics prices of bituminous coal, LNG, and bunker C oil over the past three months with a conversion factor. As a result, the actual fuel cost was 395.31 won/kg, which is lower than the applied reference fuel cost of 494.63 won/kg after deduction. Accordingly, the variable fuel cost was calculated at -99.32 won/kg. Applying the conversion factor (0.1335 kg/kWh), which represents the amount of fuel input per unit of electricity produced, the required adjustment unit price is approximately -13.3 won/kWh. Based on the calculation alone, there is a significant downward factor for the fuel cost adjustment unit price.
However, according to the operating guidelines for the fuel cost adjustment charge under the electricity supply terms, a quarterly upper and lower limit of ±5 won/kWh is applied to the adjustment unit price. Therefore, even if the calculated value exceeds the lower limit, the actual applicable adjustment unit price is capped at -5 won/kWh. The government decided to continue applying +5 won/kWh, taking into comprehensive consideration the fact that KEPCO's debt amounts to about 200 trillion won, and that electricity rates were not raised accordingly even when international oil prices surged in recent years. In effect, the government decided to freeze the rates, not reflecting the downward factors.
The government has also instructed KEPCO to make self-rescue efforts for management normalization alongside maintaining the fuel cost adjustment unit price. As decisions continue to limit the scope for electricity rate adjustments despite falling fuel costs, discussions are expected to continue regarding the actual effectiveness of the fuel cost adjustment system and improvements to KEPCO's financial structure.
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