Electricity Rates to Rise from April Next Year… KEPCO to Gradually Reflect Increases in Base Fuel Costs and Climate Environmental Charges

Base Fuel Cost Increase of 9.8 KRW/kWh, Reflected in April and October
Climate and Environmental Fee Increase of 2 KRW/kWh, Applied from April
Increase of 1,950 KRW for a Four-Person Household

KEPCO to Promote Management Efficiency and Energy Efficiency Improvement Projects

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] Korea Electric Power Corporation (KEPCO) has decided to raise electricity rates starting from April next year. This reflects the increase in international fuel prices and climate/environmental costs, but considering the burden on citizens struggling due to the prolonged COVID-19 pandemic, the adjustment timing has been spread out after April next year.

On the 27th, KEPCO announced the base fuel cost and climate/environmental fee to be applied in 2022 as follows.

The base fuel cost will be increased by 9.8 KRW/kWh in two phases (4.9 KRW/kWh in April and 4.9 KRW/kWh in October), and the climate/environmental fee will be increased by 2.0 KRW/kWh, with the new rate applied from April 1.

The fuel cost linkage system reflects changes in actual fuel costs compared to the base fuel cost. The 2022 base fuel cost is calculated based on the period from December 2020 to November 2021, which is the most recent one year. During this period, the price of bituminous coal rose from 120 KRW/kg to 145 KRW/kg, a 20.6% increase; natural gas increased by 20.7%; and BC oil by 31.2%, resulting in a 9.8 KRW/kWh increase in the 2022 base fuel cost compared to 2021.

A KEPCO official stated, "Considering that applying the entire 9.8 KRW/kWh increase in base fuel cost at once would sharply increase the burden on citizens, we decided to reflect it gradually in electricity rates in two phases in April and October 2022." He added, "The fuel cost adjustment rate for the first quarter of 2022, which was deferred by the government on the 19th, remains unchanged at 0 KRW/kWh."

The climate/environmental fee has been separately billed since January 2021 to transparently provide information on climate and environmental costs. Reflecting the annual costs of 2021, the unit price will be adjusted from 5.3 KRW/kWh to 7.3 KRW/kWh starting April 1, 2022. This represents a 2 KRW/kWh increase compared to the current rate. KEPCO explained that this is due to the increase in the Renewable Portfolio Standard (RPS) mandatory supply ratio (from 7% to 9%), the increase in the paid allocation ratio of greenhouse gas emission permits (from 3% to 10%), and the implementation of coal power generation upper limit restrictions.

This electricity rate adjustment is expected to result in an approximate 5.6% increase in electricity rates in 2022. For a household of four (average monthly usage of 304 kWh), the monthly electricity bill is expected to increase by about 1,950 KRW (reflecting the increases in base fuel cost and climate/environmental fee).

KEPCO is managing the electricity supply cost per kWh as a key performance indicator (KPI) and controlling the annual increase rate within 3% to minimize factors leading to electricity rate hikes. In 2022, KEPCO plans to form and operate a 'Financial Crisis Response Emergency Committee' and carefully review and implement cost reduction measures through the application of new technologies and construction methods, improvement of facility efficiency, asset sales, and business structure adjustments (non-core businesses).

A KEPCO official said, "We will actively and steadily promote investments in transmission, distribution, and other system facility reinforcements, core technology development, and safety enhancements to achieve carbon neutrality goals." He added, "Since high fuel costs are expected to continue, we will continuously monitor power generation cost factors and ensure that cost fluctuations are reasonably reflected in electricity rates, striving for the stable operation of the cost-linked tariff system."

In addition, KEPCO plans to discover and promote projects to support energy efficiency improvements for small and medium-sized enterprises with high electricity consumption alongside this electricity rate adjustment.

KEPCO will increase the budget for projects supporting energy efficiency improvement obligations (EERS), smart factory construction, and installation of energy storage systems (ESS) for peak reduction by about 80% (from 12 billion KRW in 2021 to 21.1 billion KRW in 2022) to provide focused support. It also plans to promote various win-win cooperation projects such as power facility efficiency consulting, research and development (R&D) expenses, securing key personnel, and welfare improvement support.

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