Gwangju Chamber Says Industrial Electricity Rate "Regional Differential System" Must Be Institutionalized Quickly

Exterior view of Gwangju Chamber of Commerce and Industry.

The Gwangju Chamber of Commerce and Industry (Chairman Han Sangwon) announced on the 12th that it had formally proposed to the Office of the Prime Minister, the Ministry of Climate, Energy and Environment, and the National Assembly Climate, Energy, Environment and Labor Committee the prompt institutionalization of a "regional differential system" for industrial electricity rates.

The Gwangju Chamber of Commerce and Industry stated, "We welcome the government's recent expression of its intention to introduce a regional differential system for industrial electricity rates," and stressed, "This system must serve as a practical policy tool to overcome the crisis of regional extinction and to achieve balanced national development."

Currently, the domestic power supply system operates in a structure in which electricity generated at large-scale power plants in non-metropolitan regions is transmitted nationwide, including to the Seoul metropolitan area, through extra-high-voltage transmission networks. As of 2024, more than approximately 75% of domestic power generation facilities are located outside the Seoul metropolitan area, while about 39% of total electricity consumption is concentrated in the metropolitan area (Seoul, Gyeonggi and Incheon). This has entrenched a structural imbalance in which power is generated in the regions but consumed in the metropolitan area.

In particular, the transmission and distribution loss rate resulting from long-distance transmission stands at around 3% to 4%, which can be translated into social costs amounting to several hundred billion won per year. Nevertheless, the current industrial electricity rate system does not sufficiently reflect regional transmission distances or grid costs, and the need for improvement has been continuously raised from the perspective of a cost-based tariff structure.

The Gwangju Chamber of Commerce and Industry explained, "A regional differential system for industrial electricity rates is a realistic alternative that can alleviate these structural problems," adding, "If the costs of building and operating transmission networks are reasonably reflected according to proximity to power plants and the degree of burden on the grid, it will be possible to expand a 'local production and local consumption' energy structure in which electricity is consumed near where it is produced."

It went on to say, "This can reduce energy costs for companies located near power production sites and lead to a tangible increase in the investment attractiveness of regional industrial complexes," and emphasized, "In manufacturing, the share of electricity costs in average cost of goods sold ranges from 3% to more than 20%, depending on the industry, and in energy-intensive sectors such as semiconductors, chemicals, metals and data centers, electricity rates function as a key factor in location decisions."

In fact, major countries such as the United States, the United Kingdom and Australia operate differential pricing systems that reflect transmission network congestion and regional grid costs in their tariffs.

The Gwangju Chamber of Commerce and Industry said, "For the policy to be effective, there must be a level of rate difference that companies can clearly feel," and added, "Given that current industrial electricity rates are generally in the range of about 180 to 185 won per kWh on average, what is needed is not a symbolic level of differentiation but a substantial one."

For example, if the current per-kWh level is maintained in the metropolitan area, while regional areas are given a discount of around 10% to 15%, resulting in rates in the range of 150 to 160 won per kWh, this could have a meaningful impact on the location strategies of manufacturers and large power-demand companies that bear heavy electricity cost burdens.

Chairman Han Sangwon urged, "It is essential, from the perspectives of fairness and sustainability, to build a system in which regions that have accommodated power generation facilities receive reasonable compensation and in which power production and consumption are balanced," and added, "We call for the swift promotion of reforms to the tariff system and the preparation of a concrete implementation roadmap to introduce the regional differential system for industrial electricity rates within this year."

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