Electricity Rates Frozen from July to September This Year... Government Again Exercises Postponement of Rate Hike (Update)

Fuel Cost Adjustment Unit Price, Applied as '-3 KRW/kWh' Following Q2
Ministry of Trade, Industry and Energy: "To Promote the Stability of Citizens' Lives Amid Prolonged COVID-19 and High Inflation"

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] Electricity rates for July to September (Q3) this year have been frozen. Although electricity rates should have been raised due to increased fuel costs for electricity production, the government once again exercised its right to defer the increase citing "promotion of citizens' life safety."

On the 21st, Korea Electric Power Corporation (KEPCO) announced that the fuel cost adjustment unit price applied in Q3 will be -3.0 KRW/kWh, marking a freeze for the second consecutive quarter.

The government and KEPCO introduced the "fuel cost linkage system" from this year, which reflects fuel costs incurred in electricity production into electricity rates every three months. The Q3 electricity rates are determined based on fuel costs from March to May. The adjustment unit price is calculated by multiplying the conversion coefficient by the difference between the three-month trade statistical prices of thermal coal, liquefied natural gas (LNG), and BC oil and the reference fuel cost (average from December 2019 to November 2020).

The average thermal coal price from December last year to February this year, reflected in the actual fuel cost for April to June, was 113.61 KRW per kilogram, and LNG was 508.97 KRW. However, the average thermal coal price from March to May, reflected in the Q3 actuals, rose 17.6% to 133.65 KRW, while LNG fell 3.6% to 490.85 KRW. Reflecting this, the total actual fuel cost increased by 3.9% from 288.07 KRW in Q2 to 299.38 KRW in Q3. Accordingly, the fuel cost adjustment unit price should have been '0 KRW/kWh,' meaning electricity rates should have increased by 3 KRW per kWh compared to the previous quarter.

However, the government notified KEPCO to freeze the rates again in Q3, following Q2. According to KEPCO's basic supply terms, the government can defer the imposition of adjustment charges in emergencies. If the Minister of Trade, Industry and Energy notifies that the entire or part of the fuel cost adjustment unit price application is temporarily deferred to stabilize citizens' lives and ensure smooth operation of the national economy due to concerns over significant electricity rate fluctuations, KEPCO must comply accordingly.

An official from the Ministry of Trade, Industry and Energy explained, "Although the fuel cost adjustment factor arose in Q3 due to the sharp rise in international fuel prices since the end of last year, considering the need to promote the stability of citizens' lives amid prolonged COVID-19 and high inflation since Q2, and the possibility of utilizing the unadjusted amount generated when deciding the Q1 adjustment unit price, we notified KEPCO to maintain the Q3 adjustment unit price at -3 KRW/kWh, the same as Q2." The official added, "If the current high fuel cost levels persist or the upward trend continues in the second half of the year, we plan to review reflecting fuel cost fluctuations in the adjustment unit price for Q4."

This content was produced with the assistance of AI translation services.