Surging fuel costs pile pressure on Korea Electric Power Corporation, which pays 11.5 billion won a day in interest; Samsung Electronics and SK hynix reject prepayment plan

An electricity meter installed on a building in Seoul. [Yonhap]
An electricity meter installed on a building in Seoul. [Yonhap]

South Korea's electricity rates for the fourth quarter — covering October through December — are set to remain frozen at current levels, with a formal announcement expected Monday. The decision comes despite Korea Electric Power Corporation's debt exceeding 200 trillion won ($149 billion) and ongoing instability in global energy prices stemming from the Middle East conflict, and appears aimed at shielding lower-income households and small businesses from higher bills.

Critics warn, however, that the failure to pass on a sharp rise in the System Marginal Price — the benchmark wholesale electricity rate in South Korea — to retail tariffs is steadily eroding Korea Electric Power Corporation's financial health. The state utility now carries daily interest costs of around 11.5 billion won.

According to power authorities, Korea Electric Power Corporation plans to announce on its website Monday that the fuel-cost adjustment unit price for the fourth quarter will be maintained at the current rate of plus 5 won per kilowatt-hour.

Electricity bills in South Korea consist of a basic charge, a power usage charge, a climate and environment charge, and a fuel-cost adjustment unit price. The fuel-cost adjustment component is determined within a range of plus or minus 5 won per kilowatt-hour, reflecting the average prices of bituminous coal, LNG and Brent crude over the preceding three months.

Korea Electric Power Corporation has held the adjustment at its maximum of plus 5 won per kilowatt-hour since the third quarter of 2022, when international energy prices spiked following Russia's invasion of Ukraine, and has kept it there regardless of subsequent fuel-cost movements.

While the government has maintained its rate-freeze stance, upward pressure continues to build. Data from the Korea Power Exchange show that the monthly average land-based System Marginal Price climbed from 102.84 won per kilowatt-hour in January to 147.88 won in August, a rise of 43.8 percent.

The average for Sept. 1–8 eased slightly to 143.85 won, still roughly 40 percent above the level at the start of the year. Day-to-day and hour-to-hour swings have been even sharper: daily average prices ran between 150 and 168 won from Sept. 1 to 4, then tumbled to the 97–106 won range over the weekend of Sept. 5–6, before rebounding to 150.38 won on Sept. 7 and 141.10 won Tuesday.

The primary driver of this year's System Marginal Price surge is LNG. Since the outbreak of the US-Iran war at the end of February, supply anxiety has gripped the global LNG market. Domestic natural gas prices for power generation rose for five consecutive months — from 13,731 won per gigajoule in March to 19,379 won in June and 22,726 won in August — a gain of roughly 39 percent compared with January.

Korea Electric Power Corporation buys electricity on the wholesale market and sells it to households and businesses. The core problem is that the wholesale System Marginal Price and the retail tariff consumers pay are not automatically linked. When international fuel costs and the System Marginal Price surge and procurement costs rise, Korea Electric Power Corporation must absorb the additional expense upfront if the government freezes retail rates on grounds of inflation control or industrial competitiveness.

Korea Electric Power Corporation raised electricity rates seven times between 2022 and October 2024. The October 2024 increase lifted industrial tariffs by an average of 9.7 percent, or 16.1 won per kilowatt-hour. Rates have been frozen since then, and in April the government made only structural adjustments to seasonal and time-of-use pricing, primarily for industrial customers.

Buoyed by those rate increases and a period of relative stability in international fuel prices, Korea Electric Power Corporation posted operating profit of 13.49 trillion won last year. Yet accumulated deficits and debt from earlier years remain a heavy burden: total liabilities stood at 210.7 trillion won as of the first half of 2026.

The National Assembly Research Service recently flagged the need to normalize electricity tariffs in its "2026 National Audit Issue Analysis." It warned that a prolonged gap between costs and rates would cause Korea Electric Power Corporation's debt and interest expenses to keep growing, ultimately shifting the deferred burden onto future consumers through higher electricity bills or greater fiscal outlays.

Samsung Electronics and SK hynix have declined Korea Electric Power Corporation's proposal to prepay five years' worth of electricity bills totaling 25 trillion won. Korea Electric Power Corporation had approached the two chipmakers with a plan under which Samsung Electronics would prepay around 20 trillion won and SK hynix around 5 trillion won — amounts equivalent to five years of each company's electricity payments based on last year's bills.


oskymoon@heraldcorp.com