The South Korean government has decided to reduce industrial electricity rates outside the capital region by up to 10%. However, industry experts argue that this measure is insufficient to alleviate the financial burden on the steel sector. They advocate for separate support measures utilizing government finances and funds to facilitate the transition to electric and hydrogen-reduced steelmaking.
On September 17, the National Assembly Steel Forum, composed of 29 lawmakers from both parties, held a policy seminar titled 'Reform of Industrial Electricity Rates: Impacts and Challenges for the Steel Industry.' The seminar focused on the effects of regional electricity pricing and long-term support strategies for the steel sector.
The government plans to introduce a regional industrial electricity pricing system by the end of the year, which will reflect power system costs, self-sufficiency rates, and regional balanced development in the pricing structure. A new 'regional adjustment fee' will be established to apply differentiated industrial electricity rates based on location.
According to the Korea Electric Power Corporation (KEPCO), the southern part of the capital region will maintain current rates, while the northern part may see reductions of 6 to 10 won per kWh, the central region 10 to 15 won, and the southern region 13 to 18 won. Overall, this is expected to lower industrial electricity rates by about 10%.
The steel industry has positively assessed the potential for immediate relief from electricity costs, particularly since major production hubs like Pohang and Gwangyang are located in regions with significant discounts.
However, experts caution that merely lowering rates will not resolve the electricity cost challenges facing the steel industry. Jeong Yeon-je, a professor at Seoul Tech's Department of Energy Policy, emphasized the need to broaden the focus from simply reducing electricity rates for specific industries to how to support the competitiveness of energy-intensive industries.
He noted that artificially lowering rates could shift the financial burden to other consumers or lead to financial strain on KEPCO, making it difficult to establish a sustainable support mechanism.
Jeong also pointed out that limited rate reductions may not significantly enhance the price competitiveness of steel products, especially given the substantial electricity cost disparities with major competitor countries. He argued for the necessity of reducing actual electricity costs through separate funding rather than just lowering rates.
He cited examples from major countries such as Germany, the UK, Japan, and Poland, which support energy-intensive industries like steel not by uniformly lowering electricity rates but by combining government finances, funds, network cost reductions, and compensation for emissions trading costs.
These countries select support recipients based on objective criteria such as energy intensity and trade exposure, thereby alleviating cost burdens through government finances or statutory funds.
In South Korea, there are calls for establishing stable funding sources separate from the regional electricity pricing system. One proposal is to utilize revenue from emissions trading allocations flowing into the climate response fund to ease the electricity cost burden on the steel industry.
Another suggestion is to reduce the burden of the Electricity Industry Base Fund by providing relief for companies located in industrial crisis response areas and offering additional benefits for low-carbon steel facilities like electric and hydrogen-reduced steelmaking.
The sustainability of the regional electricity pricing system itself has also been identified as a challenge. Jo Yoon-taek, a senior researcher at POSCO Research Institute, pointed out that even if the regional adjustment fee is implemented, the actual discount effect could quickly diminish if other charges, such as energy and climate fees, increase.
There are also calls to lower the actual power supply costs to secure support capacity. Jeon Woo-young, a professor at Seoul Tech, stated, "Utilizing an additional 1 GW of nuclear power in the market for one year could save KEPCO about 400 to 500 billion won in power purchase costs," emphasizing that effectively leveraging South Korea's existing nuclear infrastructure could help reduce KEPCO's financial burden.
* This article has been translated by AI.
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