While Foreign Countries Have Long Raised Electricity Prices to Reduce Demand... Only Korea Belatedly 'Senses Public Sentiment'

EU 27 Countries' 2022 Electricity Demand Down 2.7% YoY
"Need to Prevent Political Interference in Price Setting"

As the ruling party delays the decision to raise electricity rates due to public opinion concerns, overseas cases where rates have already been increased to stabilize power demand are drawing attention. Major countries such as Japan have steadily raised electricity rates, and the EU (European Union) saw a 2.7% decrease in power demand last year compared to the previous year as a result.

According to Korea Electric Power Corporation (KEPCO) on the 18th, the power demand of the 27 EU countries last year recorded 2809 TWh, a 2.7% decrease compared to the previous year. Especially in the fourth quarter, due to sharply increased rates and mild weather, demand decreased by 8.5% compared to the same period last year. This contrasts with South Korea, where power consumption increased by 2.7% despite raising the 2022 base fuel cost and adjusting the fuel cost linkage system. Professor Yoo Seung-hoon of Seoul National University of Science and Technology said, "There were complaints about rate hikes overseas as well, but since it was an unavoidable phenomenon due to rising international oil prices and not the government's fault, there was a certain level of acceptance," adding, "While public opinion can be considered, prices are not maintained at such a restrictive level."

According to KEPCO, advanced countries raised electricity rates to encourage expanded investment in energy efficiency, which led to the success of 'decoupling'?where GDP (Gross Domestic Product) increases while energy consumption decreases. In particular, Germany, a manufacturing powerhouse, has electricity rates about three times higher than South Korea, but companies are securing cost competitiveness through energy efficiency improvements, KEPCO explained.

Spain also saw a reduction in electricity demand last year as electricity rates rose sharply. According to the Spanish power company Red El?ctrica, Spain's power demand in the first quarter of this year was 62,715 GWh, which is 2.6% lower than the first quarter of last year.

In France, nationalization of the power company EDF is underway as a measure to resolve deficits caused by the electricity price cap system. EDF filed a lawsuit against the government demanding compensation of 11 trillion won for losses due to the price cap. Originally owning 84% of the shares, the French government has continuously increased its stake to 96% as of February this year. Electricity rates were also raised.

All Japanese power companies announced electricity rate increases starting from April this year. Japan has different power companies by region. According to a March report from the Korea Trade-Investment Promotion Agency (KOTRA) Overseas Market News, major power companies including Hokkaido Electric Power Company, Tohoku Electric Power, Tokyo Electric Power Company, Chubu Electric Power, Hokuriku Electric Power, and Chugoku Electric Power all announced rate hikes. KOTRA explained, "In October 2022, high-voltage electricity rates, which were the cheapest in February 2021, had already risen by nearly 200% (based on high-voltage rates), and another increase was announced," adding, "The Japanese government recognized the seriousness of the situation and decided to provide subsidies for electricity rates from January to September this year as a countermeasure."

Meanwhile, South Korea remains indecisive. Professor Cho Hong-jong of Dankook University pointed out, "There are cases like France where the government nationalized the power company, and some countries raise electricity rates first and then provide government financial support," adding, "South Korea cannot properly raise electricity rates, and KEPCO is a company listed on the US NYSE, so nationalization is not possible."

Electricity rates are mainly adjusted quarterly. The electricity rate for the second quarter of this year was scheduled to be announced at the ruling party-government council meeting at the end of March. Since rates were already raised by 13.1 won per kWh in the first quarter, there were expectations for a similar level of increase, but no conclusion was reached at the meeting. Since then, the ruling party and government have continued to listen to opinions for more than two weeks without presenting any alternatives. On the 6th, the People Power Party Policy Committee held a meeting with energy experts, small business owners, and civic groups. However, even after the meeting, the scale and timing of the increase were not decided, and they said they would also listen to industry opinions. On the 20th, a ruling party-government-industry meeting will be held at the National Assembly to hear the industry's voice on electricity and gas rates.

It is unclear whether rates can be decided immediately after the meeting on the 20th. With the general election a year away, the ruling party still worries about potential backlash from a sudden rate hike. When a reporter asked, "Do you think rates will be decided after this meeting?" an official from the Ministry of Trade, Industry and Energy replied, "I don't know. They will probably continue gathering opinions until the ruling party feels 'this is enough.'"

There are opinions that the structure of the power industry monopolized by a public enterprise should be changed. Professor Cho said, "Since KEPCO supplies electricity as a public enterprise monopoly, the government cannot raise rates if it intervenes," adding, "The monopoly sales structure should be gradually opened to induce efficient market competition."

There are also calls to create an independent and empowered committee at this opportunity. Professor Yoo said, "The current Electricity Commission, which decides electricity rates, does not have as much authority as the Financial Monetary Committee that decides interest rates or the Korea Communications Commission that decides telecommunications rates," explaining, "While the chairpersons of the Financial Monetary Committee and the Korea Communications Commission are minister-level and their members are vice-minister-level, the chairperson of the Electricity Commission is vice-minister-level and its members are director-level." He added, "Legally upgrading the ranks of the chairperson and members to give them more authority would reduce political interference."

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