the centerpiece of the government's industrial electricity price reform plan is the introduction of time-of-day pricing. the idea is to lower daytime rates and raise nighttime rates to ease the burden of electricity costs for large companies like Samsung Electronics and SK Hynix.

the government is reorganizing industrial electricity rates

the KEPCO and the Ministry of Climate, Energy, and Environment are in the midst of a major overhaul of industrial electricity rates. The centerpiece of the plan is the introduction of a time-of-day pricing system, which charges different rates depending on the time of day electricity is used, with cheaper rates during the day and higher rates at night. Let's take a look at what's in store for South Korea's electricity pricing system and the reasons behind it.

the proposed reform would reverse day and night rates

the government is considering effectively reversing the late-night discount policy that KEPCO has maintained for the past year. previously, KEPCO had discounted late-night rates by up to 50 percent compared to daytime rates, when power usage is lower. The new reorganization would do the exact opposite: lower daytime rates and raise nighttime rates.

the intent of this change is clear. the idea is to stabilize power supply and reduce transmission and distribution burdens by concentrating industrial operations during the day, when renewable energy generation such as solar is most abundant. Industries that can increase production during the day are expected to see real benefits, but industries that need to operate around the clock, such as semiconductors and steel, may see limited benefits.

why this change now?

the reason is that the industrial sector has been complaining about electricity costs recently. Not only traditional power-intensive industries such as smelting and steel, but also semiconductor companies, which are a key national industry, see soaring electricity prices as a serious business risk.

in October of last year, the government and KEPCO raised electricity rates for industrial use by an average of 9.7 percent and 10.2 percent for large enterprises, a move that financial analysts estimate has increased the electricity bill burden for the top 20 largest companies by more than 1.2 trillion won a year. the numbers are even more alarming. by 2023, the top 20 conglomerates will use 84,741 GWh of electricity, which is equivalent to 97.4% of the nation's household electricity consumption.

the semiconductor industry is particularly burdened: Samsung Electronics, at 22,409 GWh, uses about 17% of industrial electricity as a single company. at an average unit price of KRW 146.37 per kWh, Samsung Electronics pays about KRW 3.26 trillion in electricity bills annually, while SK Hynix pays about KRW 1.17 trillion. compared to four years ago, electricity usage has only increased by 9% over the same period, but electricity bills have more than doubled.

how do Korea's industrial electricity prices compare to international levels?

interestingly, South Korea's industrial electricity rates are still lower than the international average. According to the International Energy Agency and OECD statistics, South Korea's industrial electricity rate is 185.5 won per kWh, which is still lower than the OECD average. france is 197.1 KRW, the US is 121.5 KRW, and China is 129.4 KRW, so there is a wide variation by country.

but it's the pace of the increase that matters. from the first quarter of 2022 to the fourth quarter of last year, industrial electricity prices increased by a whopping 75.8%, or 80 cents, from 105.5 to 185.5 cents per kWh. In the same period, residential electricity prices increased by only 37%, from 109.2 to 149.6 cents. the rate of increase for industrial use is more than twice that of residential use.

this shows that Korea's high dependence on fuel imports and the social burden of household rate hikes have resulted in electricity costs being heavily passed on to industry.

how do time-of-use electricity plans work in practice?

time-of-use pricing works by dividing the day into three time periods. these are light-load (cheaper), medium-load, and peak-load (more expensive) hours.

on weekdays, light-load hours are usually set from 10pm to 8am, and peak-load hours are set from 1pm to 10pm. The same amount of electricity can cost more than three times as much depending on the time of day. an example of this is the difference between running your air conditioner for one hour at 6am and 7pm.

will the industrial rate reform help all businesses?

the most likely beneficiaries of the reforms are companies that have the freedom to adjust their production hours. However, industries like semiconductor manufacturing, where high-tech equipment such as clean room operations, lithography equipment, and ion implantation machines must run around the clock, the situation is different. these companies cannot concentrate production during the day, so the practical benefits of reorganization are limited.

That's why SK hynix and Samsung Electronics are investing in expanding their own power generation facilities. SK hynix is building LNG power plants in Cheongju and Icheon, respectively, to increase the proportion of its own power supply, a strategy to hedge against the uncertainty of future rate hikes.

future policy direction, even regional differentials under consideration

the government plans to not only reorganize time-of-day pricing, but also introduce a regional electricity rate differential system, which will adjust rates to reflect regional electricity supply and demand conditions, with the aim of alleviating overcrowding in the Seoul metropolitan area. It is also considering differentiating industrial rates by season, which will further complicate the system.

meanwhile, the government has decided to freeze electricity rates at current levels for the first quarter of next year. this is because further increases are unaffordable right now, even given KEPCO's massive debt. Household electricity rates will be frozen for 11 consecutive quarters and industrial for five.

frequently asked questions

Q1: Will the daytime reduction in industrial electricity rates actually reduce the burden on businesses?
A: Industries that have the flexibility to adjust production hours will certainly benefit. however, industries such as semiconductors and steel, which require continuous operation around the clock, may not be able to take full advantage of the daytime discount. Therefore, the actual effect of the reform is expected to vary greatly by industry.

Q2: If Korea's industrial electricity rates are lower than the OECD average, is an increase inevitable?
A: It is difficult to judge based on international comparisons alone. the government needs to design a sophisticated policy that considers both supply and demand stabilization and corporate competitiveness, as there is a large social resistance to household rate hikes in Korea, and national key industries such as heavy industry and semiconductors may be weakened in international competition.

Q3: How does time-of-use pricing connect to the expansion of renewable energy?
A: Since solar power generation is only possible during the day, the reform aims to increase the utilization of renewable energy by increasing the demand for electricity during daytime hours. This aims to increase energy efficiency and stabilize the electricity supply system in the long term.

Q4: When will the reforms be implemented?
A: The government is currently in the review phase, and the exact timeline for implementation is still being determined. however, it is likely to be implemented after the first quarter of 2026 and will be introduced gradually after consultation with industry.

Q5: How will the increase in corporate self-generation affect grid operations?
A: The voluntary expansion of power generation facilities by large companies will lead to a deterioration in KEPCO's profitability in the short term. however, in the long term, it has the positive aspect of increasing energy independence and improving the regional power supply and demand structure. however, the government should guide this trend by revising the industrial tariff system to prevent it from intensifying.

conclusion: Policy reforms need to balance prudence and growth

industrial electricity tariff reform is not just a cost-cutting policy; it is a complex national policy that aims to achieve three goals simultaneously: expanding renewable energy, stabilizing electricity supply and demand, and enhancing corporate competitiveness. the introduction of time-of-day pricing and regional differentiation is a result of considering the interests of businesses, households, and the environment.

for the policy to succeed in the future, it will need to be further refined to take into account the characteristics of period industries such as semiconductors and steel, and to balance KEPCO's financial health with the public's access to energy. it will be interesting to see the government's next steps and the industry's reaction.