Electricity rates for the third quarter, taking effect next month, will remain at current levels. Korea Electric Power Corp. (KEPCO) said Sunday it would keep the third-quarter fuel cost adjustment unit price at 5 won per kilowatt-hour (kWh). The problem is that this freeze means industrial electricity rates—already far higher than those of competitor nations—will have been held unchanged for seven consecutive quarters. General-use electricity rates will also remain frozen for a 13th straight quarter.
A major issue is that KEPCO, having failed to reflect rate increases in a timely manner despite surging international fuel costs since 2021 in the name of stabilizing public livelihoods, now bears more than 36 trillion won in accumulated operating losses and 206 trillion won in debt on a consolidated basis. With its finances in such a state, there are inevitable limits to a reasonable adjustment of industrial electricity rates. On top of this, President Lee Jae-myung, mindful of price stability and easing burdens on ordinary citizens, said in March this year, "We intend to keep electricity rates at the current level as much as possible," which has effectively become a guideline for electricity rate decisions.
However, with fuel cost uncertainty high, it is unclear how long electricity rates can be held down. While international oil prices have turned downward following the agreement to end the war in Iran, the price of liquefied natural gas (LNG) for power generation continues to remain strong due to Europe's winter demand and supply instability in Qatar. If LNG prices continue to climb, the system marginal price (SMP)—the cost at which KEPCO purchases electricity from power generators—will inevitably rise as well. Kim Sung-hwan, Minister of Climate, Energy and Environment, is also reviewing the introduction of an SMP cap in response to this burden.
Suppressing electricity rate increases is merely a stopgap measure that defers losses. Only by reflecting international fuel cost fluctuations in electricity rates in a timely manner can the efficiency of resource allocation be improved and KEPCO's financial structure repaired. Expanding market intervention such as an SMP cap while holding down electricity rate increases could, over the long term, distort price signals and dampen essential investments such as the power grid. The approach of deferring general-use electricity rate increases in the name of price stability while concentrating the burden on industrial rates has also reached its limits. General-use rates should be brought to appropriate, realistic levels to reduce excessive energy consumption, while industrial rates should be adjusted reasonably in consideration of corporate competitiveness. In addition, a region-based differential electricity rate system should be implemented promptly to ease the burden on industrial complexes.
