The government is moving forward with plans to implement regional reductions in industrial electricity rates, leading to mixed reactions among industries, particularly in the energy-intensive steel and petrochemical sectors. While there are positive expectations for reduced electricity costs and increased local investment, concerns have been raised about potential disparities in cost competitiveness within the same industry based on the location of operations.
According to industry sources, the government is considering a plan to apply differential industrial electricity rates based on regional power supply conditions, such as generation capacity and electricity demand. The proposal aims to provide larger rate cuts in the southern regions, where power generation is higher, while minimizing benefits for the metropolitan area.
This initiative seeks to establish a 'local production, local consumption' system, reducing the burden of transmission networks that send electricity to the capital region and encouraging businesses to invest in local areas.
If implemented, industrial electricity rates in the southern regions could decrease by up to approximately 10%, while rates in Chungcheong and Gangwon could drop by about 8%. The northern metropolitan area, including northern Seoul and Incheon, may see reductions of up to about 5.5%.
Industries have responded positively to the move to lower industrial electricity rates, as rising electricity costs in recent years have significantly increased the cost burden for manufacturers, particularly in energy-intensive sectors like steel and petrochemicals, where fluctuations in electricity rates directly impact production costs and profitability.
There are also expectations that the regional pricing system could effectively encourage new investments in local areas. Large-scale production facilities, once established, typically operate for decades, making utility costs, including electricity rates, a key factor in determining investment locations. If the reduction in electricity rates is sustained over the long term, it could enhance the attractiveness of investments in local industrial complexes.
However, there are significant concerns that disparities in electricity rates based on the location of operations could create winners and losers among companies. Even if they produce the same products, differences in electricity rates based on factory locations could lead to variations in manufacturing costs.
Moreover, existing production facilities face challenges in relocating solely due to electricity rates. Large-scale industries require substantial costs to move factories, and they are closely tied to existing supply chains, port and logistics infrastructure, and partnerships within the local industrial ecosystem. Companies located in regions with fewer rate reductions may find their options limited in responding to policy changes.
The steel industry shares similar concerns. Steel manufacturers, which consume significant electricity in their production processes, stand to benefit greatly from reduced rates. However, they are closely monitoring the potential for differences in cost competitiveness within the steel sector if rate reductions vary by location.
The petrochemical industry is also expected to experience divergent interests based on regional factors. Major petrochemical production facilities are concentrated in large industrial complexes in Ulsan, Yeosu, and Daesan. The extent of regional rate differentials will inevitably affect the cost-saving benefits experienced by companies within each industrial complex.
There are concerns that future investments in new or expanded facilities may concentrate in regions with lower electricity rates. If electricity costs become a more significant factor in site selection for companies, regions with higher generation capacity may become more attractive for business, while those without such advantages could find themselves at a competitive disadvantage in attracting investment.
One industry insider noted, "For manufacturing sectors with high electricity consumption, reducing electricity rates can alleviate cost burdens. However, since companies cannot easily relocate existing factories, excessive differences in regional rates could lead to disparities in cost competitiveness based on the location of operations."
* This article has been translated by AI.
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