Q3 electricity rates likely frozen, to be announced June 21, as Middle East war and high exchange rate weigh on KEPCO

South Korea's electricity rates for the third quarter (July–September), which take effect next month, are expected to be frozen at their current level. The decision reflects concern over the burden on ordinary households and small business owners during the peak summer cooling season, even as Korea Electric Power Corp.'s debt exceeds 200 trillion won and international energy prices remain volatile in the wake of the Middle East war.

According to power authorities, KEPCO plans to announce on its website June 21 that the fuel cost adjustment unit price for the third quarter will be maintained at the current rate of plus 5 won per kilowatt-hour.

Electricity bills in South Korea consist of a basic charge, a power usage charge, a climate and environment charge, and a fuel cost adjustment unit price. The fuel cost adjustment component is determined within a range of plus or minus 5 won per kWh, reflecting the average prices of bituminous coal, liquefied natural gas and Brent crude over the preceding three months.

KEPCO has held the adjustment at its maximum of plus 5 won per kWh since the third quarter of 2022, when international energy prices surged following Russia's invasion of Ukraine, regardless of subsequent fuel cost fluctuations.

President Lee Jae-myung signaled a rate freeze at the second Emergency Economic Review Meeting held at Cheong Wa Dae on March 26, saying, "Since electricity is supplied exclusively by KEPCO, the government bears effectively 100 percent of the responsibility," and adding that he intended "to keep electricity rates at their current level for the time being."

Despite the government's freeze stance, pressure for a rate increase is mounting.

Prolonged conflict in the Middle East has pushed up fuel costs, driving the system marginal price — the wholesale electricity price — past 150 won per kWh. The SMP is the price at which power generators sell electricity to KEPCO and is directly affected by changes in generation fuel costs.

According to the Korea Power Exchange, the land SMP stood at 152.67 won per kWh as of 5 p.m. June 2, surpassing the 150-won threshold widely regarded as the point at which KEPCO's profitability deteriorates. The government estimates that if the annual average SMP reaches around 146 won, KEPCO could slip into the red.

The SMP has climbed sharply this year. The monthly average rose from 90.43 won per kWh in December to 103.54 won in January, 108.52 won in February, 110.03 won in March, 118.94 won in April and 121.91 won in May. With hourly prices already exceeding 150 won, the June monthly average is also expected to rise sharply.

The surge in the SMP is largely driven by rising LNG prices. According to Korea Gas Corp., the wholesale price of natural gas for power generation in June reached 19,379 won per gigajoule, up 7.9 percent from the previous month. That follows a 7.5 percent increase in May, marking two consecutive months of gains above 7 percent.

The June rate is 20.1 percent higher than the March rate of 16,048 won per gigajoule, before the Middle East conflict intensified. Surging global oil and LNG prices have fed through into May and June wholesale rates in succession, rapidly pushing up generation costs.

The persistently high exchange rate compounds the problem. A prolonged won-dollar rate above 1,500 won raises the cost of LNG imports while also increasing the won-denominated interest burden on KEPCO's dollar-denominated debt. KEPCO estimates that every 10-won weakening of the won against the dollar erodes its operating profit by roughly 300 billion won ($197 million). The utility's total debt stands at approximately 206 trillion won, with daily interest costs alone reaching 11.9 billion won.

Industry groups argue that a rate freeze inevitably sustains the heavy electricity cost burden on businesses. Industrial electricity rates have risen 80 percent, from 105.48 won per kWh in 2021 to 190.09 won in January. Industrial rates have been frozen for consecutive quarters since the fourth quarter of 2024.

The government contends that a seasonal and time-of-use electricity rate restructuring, which took effect April 16, will help ease the burden. The overhaul reversed the previous pricing structure — under which daytime power was expensive and nighttime power cheap — so that daytime rates are now lower and nighttime rates higher. The reform targets some 40,000 industrial consumers using 300 kW or more of electricity, and the Ministry of Climate, Energy and Environment expects 97 percent of them to benefit.