Fuel cost adjustment unit to stay at +5 won per kWh; announcement expected June 21; wholesale power price tops profitability threshold of 150 won; debt exceeds 200 trillion won amid Middle East war pressures

Electric meters installed on the exterior wall of a building in Seoul. [Yonhap]
Electric meters installed on the exterior wall of a building in Seoul. [Yonhap]

Electricity rates for the third quarter of this year (July–September), set to take effect next month, are expected to be frozen at their current level. The decision comes despite Korea Electric Power Corp.'s debt exceeding 200 trillion won (about $131 billion) and volatile international energy prices driven by the prolonged Middle East war, reflecting concern over the burden on low-income households and small businesses as summer cooling demand rises.

According to power authorities Thursday, KEPCO plans to announce on its website on June 21 that the fuel cost adjustment unit for the third quarter will remain at the current rate of plus 5 won per kilowatt-hour. Electricity bills in South Korea consist of a basic charge, a usage charge, a climate and environment surcharge and the fuel cost adjustment unit. The adjustment unit is set within a range of plus or minus 5 won per kWh, reflecting the average prices of bituminous coal, liquefied natural gas and Brent crude over the preceding three months.

KEPCO has held the adjustment unit at its maximum of plus 5 won per kWh since the third quarter of 2022, when international energy prices surged following Russia's invasion of Ukraine, regardless of subsequent fuel cost fluctuations.

Earlier, President Lee Jae-myung signaled a rate freeze at the second Emergency Economic Review Meeting held at Cheong Wa Dae on March 26, saying, "Since KEPCO has a monopoly on electricity supply, the government bears in effect 100 percent of the responsibility," and adding that the administration intended "to keep electricity rates at their current level for now."

Despite the government's freeze stance, pressure to raise electricity rates is mounting.

As fuel costs climb with the prolonged Middle East war, the system marginal price — the wholesale electricity price — has broken through the 150-won-per-kWh mark. The SMP is the price at which power generators sell electricity to KEPCO and is directly affected by changes in fuel costs.

According to the Korea Power Exchange, the land SMP stood at 152.67 won per kWh as of 5 p.m. on June 2, surpassing the 150-won threshold widely regarded as the point at which KEPCO's profitability begins to deteriorate. The government estimates that if the annual average SMP reaches around 146 won, KEPCO could slip into deficit.

The SMP has risen sharply this year. The monthly average climbed from 90.43 won per kWh in December last year to 103.54 won in January, 108.52 won in February, 110.03 won in March, 118.94 won in April and 121.91 won in May — rising every month. With hourly prices already above 150 won, the June monthly average is also expected to rise significantly. The surge is largely driven by rising LNG prices. According to Korea Gas Corp., the wholesale price of natural gas for power generation in June reached 19,379 won per gigajoule, up 7.9 percent from the previous month — the second consecutive month of increases above 7 percent, following a 7.5 percent rise in May.

That is 20.1 percent higher than the March rate of 16,048 won per gigajoule, before the Middle East conflict intensified. Surging international oil and LNG prices are feeding through into May and June wholesale rates in succession, rapidly pushing up generation costs.

A persistently high exchange rate compounds the problem. With the won-dollar rate stuck above 1,500 won for an extended period, LNG import costs are rising while interest payments on dollar-denominated debt grow heavier in won terms. KEPCO estimates that every 10-won rise in the exchange rate reduces its operating profit by roughly 300 billion won. The company's total debt stands at approximately 206 trillion won, with daily interest costs alone reaching 11.9 billion won.

Industry groups are increasingly vocal that a rate freeze leaves companies with no relief from industrial electricity costs. The industrial electricity rate has risen 80 percent — from 105.48 won per kWh in 2021 to 190.09 won in January this year. Industrial rates have been frozen for consecutive quarters since the fourth quarter of 2024.

The government argues that a seasonal and time-of-use electricity rate restructuring, which took effect April 16, will help ease the burden. The key change shifts the pricing structure for businesses from "expensive during the day, cheap at night" to "cheap during the day, expensive at night." The reform targets roughly 40,000 industrial consumers using 300 kW or more of power, and the Ministry of Climate, Energy and Environment expects 97 percent of them to benefit.


oskymoon@heraldcorp.com