Southern Regions to See Up to 10% Reduction in Industrial Electricity Rates

The South Korean government plans to lower industrial electricity rates in regions with high power production to encourage local investments. In the southern regions, rates will decrease by up to 18 won per kilowatt-hour, while the southern metropolitan area, which has concentrated power demand, will maintain current rates. This initiative aims to distribute power demand more evenly and reduce the burden of long-distance transmission network construction.

On August 26, the Ministry of Climate, Energy and Environment and Korea Electric Power Corporation (KEPCO) held a public hearing at KEPCO's Southern Seoul headquarters in Yeongdeungpo, Seoul, to unveil the design plan for the 'Regional Industrial Electricity Rate System.'

The new regional rate system will introduce a 'regional adjustment fee' as part of the rate structure. Areas with greater power supply capacity and those requiring policy consideration will see lower rates, reflecting transmission costs, self-sufficiency rates, and balanced growth factors.

According to the plan presented, the country will be divided into four major regions based on power flow and transmission network structure. These will be further subdivided into 11 regions by combining the local preferential index developed by the Ministry of the Interior and Safety with the designation of industrial crisis areas. Jeju will be excluded from this system due to its unique island characteristics.

In the southern regions, industrial electricity rates will decrease by 13 to 18 won per kilowatt-hour. The central region, which includes Gangwon and Chungcheong, will see reductions of 10 to 15 won, while the northern metropolitan area, including northern Seoul and Incheon, will experience a decrease of 6 to 10 won. The southern metropolitan area, including southern Seoul and Gyeonggi Province, will see a minimal reduction of 0 to 1 won, effectively maintaining current rates.

Considering that the average selling price of industrial electricity was 181.9 won per kilowatt-hour last year, the southern regions are expected to see a maximum reduction of 10%. Since industrial electricity accounts for 51% of KEPCO's total sales, the government anticipates that the differentiated rates will serve as an incentive for power-intensive companies to choose new investment locations.

The Ministry of Climate expects that this reform will reduce the annual electricity cost burden on the industrial sector by approximately 2.8 trillion won. However, the actual reduction may vary depending on the final regional classifications.

The government and KEPCO plan to introduce a regional pricing system in the wholesale electricity market to reduce KEPCO's power purchase costs while also providing financial support. They aim to implement the new system within the year after gathering additional feedback and revising related regulations and electricity rate terms.

During the public hearing, there were mixed expectations that the regional pricing system could encourage new investments in power-intensive industries outside the metropolitan area, alongside concerns about increasing KEPCO's financial burden.

Kim Sang-bong, a professor at Korea University, stated, "The effect of inducing new investments in power-intensive sectors such as artificial intelligence, semiconductors, and data centers to the regions will likely be greater than that of relocating existing manufacturing companies from the metropolitan area. A comprehensive policy package that includes water resources, industrial land, tax incentives, and workforce development is necessary."

Conversely, Lee Yoo-soo, a professor of economics at Soongsil University, argued, "In a situation where KEPCO's debt and fiscal deficits are seriously accumulating, imposing additional burdens through regional pricing is unreasonable. If the goal is to encourage corporate relocation, the government or local authorities should take responsibility by providing tax benefits, financial support, and regulatory relief."