Industrial electricity rate changes, time-of-use pricing, and a rundown of what businesses will pay

industrial Electricity Rate Reform: Why Now?

recently, discussions on industrial electricity rate reform have been moving quickly. The KEPCO and the Ministry of Climate, Energy and Environment are considering various options to revise electricity rates by time of day.

not only traditional power-intensive industries such as smelting and steel, but also semiconductor companies such as Samsung Electronics and SK Hynix have cited rising electricity prices as a major cost risk.

in October of last year, the Ministry of Trade, Industry and Energy and KEPCO raised electricity rates by an average of 9.7 percent for industrial use and 10.2 percent for large companies. The business community estimates that the electricity bills of the top 20 companies alone have increased by more than 1.2 trillion won annually.

what is time-of-use pricing?

time-of-use electricity pricing is a system that charges different rates depending on the time of day you use electricity, with higher rates during peak demand and lower rates during off-peak hours.

kEPCO has been discounting nighttime rates by up to 50% compared to daytime rates, which is why many manufacturers have been running their factories at night to save on electricity costs.

the direction of the government's reorganization

the core of the proposed industrial electricity rate reform is to lower daytime rates and raise nighttime rates, effectively reversing the existing late-night discount structure.

the intention is clear: to reduce the burden on the grid and stabilize supply and demand by directing electricity demand during the day, when renewable energy generation such as solar power is high. Industries that can increase their operations during the day will benefit, but industries that need to operate continuously around the clock, such as semiconductors, may experience limited benefits.

estimating the impact by industry

industries with a high proportion of daytime production can expect to save money on their electricity bills, while industries such as semiconductors and steel, which require full operation around the clock, may face higher electricity bills at night.

electricity cost burden of large enterprises

as of 2023, the top 20 largest conglomerates by electricity consumption were 84,741 GWh, accounting for 97.4% of the nation's residential electricity consumption. Samsung Electronics alone used 22,409 GWh, accounting for about 17% of industrial electricity.

using the average unit price of KRW 146.37 per kWh for the top 20 companies, Samsung Electronics pays about KRW 3.26 trillion and SK hynix pays around KRW 1.17 trillion in electricity bills annually. The impact of electricity price fluctuations on these companies' profits and losses is significant.

international Comparison of Korean Industrial Electricity Prices

according to the International Energy Agency and OECD statistics, Korea's industrial electricity cost is 185.5 won per kWh, which is still lower than the OECD average.

if you look at industrial electricity rates in major countries, they are 197.1 KRW in France, 121.5 KRW in the United States, and 129.4 KRW in China. However, the rate of increase has been rapid. From the first quarter of 2022 to the fourth quarter of last year, industrial electricity rates increased by 75.8%, from 105.5 KRW to 185.5 KRW per kWh. During the same period, residential electricity rates increased by only 37%.

korea is criticized for its high dependence on fuel imports and the burden of rising prices for households, which results in power costs being passed on to industries.

frequently asked questions

Q. when will the industrial electricity rate reform take effect?

A. The government is currently reviewing various options. The specific implementation date has not yet been finalized, and we will have to wait for further announcements.

Q. will all businesses benefit from the time-of-day pricing reform?

A. While businesses with a high proportion of daytime production will benefit, businesses that need to operate around the clock may be burdened by the increase in nighttime rates.

Q. are industrial electricity bills in Korea expensive compared to other countries?

A. They are still lower than average based on OECD statistics, but the rate of increase has been accelerating recently, increasing the burden on businesses.

Q. Why are you lowering daytime rates and raising nighttime rates?

A. We want to reduce the burden on the grid and stabilize supply and demand by directing electricity demand during the day, when there is more renewable energy generation such as solar power.

conclusion

the reform of industrial electricity tariffs is taking place in the context of the expansion of renewable energy and stabilization of electricity supply and demand, and companies need to check the impact of time-of-day tariff changes in advance and prepare a response strategy.

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