Government Considers Additional Electricity Rate Hike Next Month... What Is the Expected Amount?

Discussion on Raising Up to 9.9 KRW per 1kWh
Average Monthly Increase of 3000 KRW for 4-Person Household

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Dongwoo Lee] The government plans to push for an additional electricity rate hike next month to resolve Korea Electric Power Corporation's (KEPCO) record-breaking deficit. While the government agrees that a rate increase is inevitable to stop KEPCO's deficit structure, it intends to adjust the appropriate increase range to minimize the burden on the public amid high inflation.

According to related ministries on the 24th, the Ministry of Trade, Industry and Energy is reportedly discussing a plan to raise electricity rates by up to 9.9 KRW per kWh next month. This is an additional increase of up to 5 KRW on top of the already scheduled 4.9 KRW increase based on the standard fuel cost, reflecting the surge in fuel prices. In this case, the average monthly electricity bill for a four-person household is expected to increase by about 3,000 KRW.

According to the Korea Power Exchange, the System Marginal Price (SMP), which is the wholesale electricity price KEPCO pays to power producers, averaged 230.86 KRW per kWh on the mainland from September 1 to 24. This is due to the skyrocketing price of liquefied natural gas (LNG), influenced by the Russia-Ukraine war and other factors. This is why KEPCO stated that a 50 KRW per kWh increase is necessary to normalize the rates.

Even if the government raises electricity rates by 10 KRW per kWh next month, it will still be difficult to resolve KEPCO's deficit structure. Therefore, the Ministry of Trade, Industry and Energy is pursuing a reform of industrial electricity rates, which have a cost recovery rate stuck in the 60% range, and agricultural electricity rates, which have a cost recovery rate around 25%, as alternatives.

Park Il-jun, the 2nd Vice Minister of the Ministry of Trade, Industry and Energy, recently said at a press briefing, "If places that use a lot of energy pay a bit more attention to saving, the effect can be significant," adding, "Considering the ability to bear the cost, it is necessary to adjust electricity rates differentially for large-volume users." The plan is to minimize private electricity rate hikes while increasing the cost recovery rate of industrial electricity rates for energy-intensive companies to offset KEPCO's deficit as much as possible.

Park Il-jun, the 2nd Vice Minister of the Ministry of Trade, Industry and Energy, is delivering opening remarks at the 'Major Industry Meeting on Energy Supply and Demand' held on the 23rd at the Korea Electric Power Corporation Namseoul Headquarters in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

The government is also accelerating the revision of the KEPCO Act to increase KEPCO's bond issuance limit. This is a temporary measure to prevent KEPCO's default on power transaction payments, as KEPCO manages its operations through corporate bonds worth about 6 trillion KRW or more every month.

The amendment to the Korea Electric Power Corporation Act, recently introduced by Representative Seong Il-jong of the People Power Party, raises KEPCO's bond issuance limit to five times the sum of its capital and reserves. Currently, Article 16 of the Korea Electric Power Corporation Act limits KEPCO's bond issuance to no more than twice the sum of its capital and reserves. As of the 20th of this month, KEPCO's new corporate bond issuance this year amounts to 25.3266 trillion KRW, which is 2.5 times the annual issuance amount of about 10.43 trillion KRW last year.

However, some argue that adjusting the bond issuance limit is only a temporary measure rather than a fundamental improvement of the financial structure. They emphasize that practical measures to improve the financial structure, such as additional electricity rate hikes, are urgently needed. KEPCO recorded a deficit of 14.3 trillion KRW in the first half of this year, and there are concerns it will record a record deficit of about 35 trillion KRW by the end of the second half.

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