"Cost Share Seen Exceeding 35%"...Nighttime Electricity Rate Hike to Deal a Direct Blow

Climate Ministry Unveils Industrial Electricity Tariff Reform Plan
Nighttime Operation of Cement Kilns Unavoidable
Electricity Cost Share Likely to Rise by 3% to 4%
"Additional Measures Needed Reflecting Process Characteristics"

As the government has unveiled an "industrial electricity rate reform plan" that lowers daytime rates and raises nighttime rates, concerns are emerging that the electricity cost burden could rise significantly for industries such as cement and paper, where 24-hour operations are unavoidable. Critics argue that, given the nature of these processes, which cannot be flexibly adjusted by time of day, the government needs to prepare additional measures that take industrial structure into account.

A view of Hanil Cement's Yeongwol plant. The Asia Business Daily DB

According to related industries on the 4th, if the industrial electricity rate reform plan proposed by the Ministry of Climate, Energy and Environment is implemented, the share of electricity costs in the manufacturing cost structure of the cement industry is expected to rise by an average of around 1% to 5%. Cement production is largely divided into mining, calcination, cooling, and shipping, and among these, the kiln used in the calcination process to produce clinker, the key raw material for cement, operates 24 hours a day. Because halting and restarting a kiln alone incurs additional costs of several hundred million won, the cement industry is seen as being unable to avoid the impact of higher nighttime electricity rates. According to the industry, electricity currently accounts for an average of about 30% of cement manufacturing costs.

An industry official said, "Even now, we already pay electricity bills amounting to several hundred billion won every year, so even a 1% to 2% increase in the share would translate into a substantial additional burden," adding, "We will have to wait for detailed guidelines on the reform plan, but it appears that the share of electricity costs in total manufacturing costs will increase by about 3% to 4%."

The paper industry, where key production facilities such as paper machines operate around the clock, is also on high alert over the reform plan. The sector analyzes that, because of its structural characteristics in which the operation of major facilities for base paper production, such as large motors, pumps, and fans, is concentrated during nighttime hours, it could be more directly affected by higher nighttime electricity rates. According to the industry, electricity costs account for about 15% of manufacturing costs in the paper industry, while externally purchased power makes up around 30% of total electricity use.

Some observers also detect a "temperature gap" depending on each company's capacity to respond. This is because, unlike companies that have room to absorb part of the rate hikes through energy storage systems (ESS) or in-house power generation facilities, companies with a high proportion of outdated equipment or limited investment capacity are more likely to bear the full brunt of the reform plan. An ESS is a system that stores electricity and supplies it again when needed, allowing users to reduce their bill burden by charging electricity during relatively cheaper time periods and using it during more expensive time periods.

An industry official stressed, "We agree with the policy goal of dispersing power demand, but the government needs to consider more carefully tailored measures, such as separate rate structures or supplementary mechanisms that take into account process characteristics and company size."

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