Industrial electricity rates internationally high, need to come down for competitiveness, climate minister says

Minister of Climate, Environment and Energy Kim Sung-hwan said Thursday that the government would soon unveil a regional tiered electricity pricing scheme that would set different rates by area based on local power self-sufficiency, transmission costs and balanced national development.

Kim made the announcement at a press briefing at the Government Seoul Building, held to mark the first anniversary of the Lee Jae Myung government. "Inter-agency consultations on the regional tiered pricing scheme are under way," he said. "After those consultations, we will gather public opinion through a public hearing. It is difficult to specify a timeline, but it will not take long."

Kim said the petrochemical and steel industries were feeling pressure from electricity costs and that a public hearing would be prepared soon. He added that industrial rates had been raised under the Yoon administration, while other countries kept rates for export-competing industries relatively low. "That is something that needs to be corrected," he said.

South Korea's current industrial electricity rate stands at 182 won per kilowatt-hour, higher than the roughly 120 won per kilowatt-hour charged in China and the United States.

Kim indicated the regional tiered pricing scheme would be designed to ease the electricity cost burden on industrial facilities outside the greater Seoul metropolitan area.

The broader approach would minimize new transmission infrastructure in the metropolitan area and disperse it to regional areas, while the tiered pricing scheme would ensure that locations farther from Greater Seoul pay lower rates.

On the possible reintroduction of a cap on the system marginal price — the wholesale electricity rate that Korea Electric Power Corp. pays power generators through the electricity market — Kim said current liquefied natural gas prices were not straining electricity rates the way they did during the Russia-Ukraine war. He added, however, that the government would not repeat the mistake of failing to take proactive measures on LNG prices, as happened during that conflict.

Kim explained that KEPCO turns unprofitable when the annual average system marginal price exceeds 146 won per kilowatt-hour. On Tuesday, the rate stood at 126 won, which he said was not yet at a level that would burden the utility.

"Some renewable energy generators and private power producers made considerable profits under the previous SMP cap," Kim said. "We will design the system so that they earn a reasonable return but not an excessive one."

Asked about the government's decision to suspend for one month the site selection process for 27 transmission line construction projects nationwide, Kim said the local elections were now over and the government would try to resolve as many complaints related to the projects as possible. "We will connect the transmission lines that are needed, but we will concentrate on short-term measures — such as upgrading existing 154-kilovolt lines to 345-kilovolt lines, or undergrounding lines that pass near villages even if it costs more," he said.

The briefing also touched on the restructuring of KEPCO's power generation subsidiaries in the context of the coal phase-out.

Kim said a related research project was under way and that the government had already heard from union leaders at the five generation subsidiaries. "We plan to release the interim findings to the public this month," he said.

The coal phase-out roadmap, including plans for restructuring the generation subsidiaries, is set to be incorporated into the 12th Basic Plan for Electricity Supply and Demand, which is currently being drawn up.

Kim also addressed the stalled revision of the Carbon Neutrality Basic Act, which the Constitutional Court ruled partially unconstitutional and which has since been held up by disagreements among the ruling party, the opposition party and the government in the National Assembly. "The remaining sticking point is whether the law should include provisions for cases where greenhouse gas reduction targets are not met," he said. "We are in the final stages of reviewing that issue, and we aim to reach a ruling-opposition consensus and complete the revision this year."