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S Korea raises electricity rate for first time in around 8 years on fuel costs

  • Author
  • Charles Lee
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Coal Electric Power Energy Transition LNG Natural Gas Oil

The South Korean government decided to raise the electricity rate in the fourth quarter for the first time in around eight years to reflect spikes in fuel prices such as LNG, coal and oil, the Ministry of Trade, Industry and Energy, or MOTIE, said Sept. 23.

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Under the government's approval, the country's state power monopoly of Korea Electric Power Corp., or Kepco, plans to raise the electricity rate by Won 3/kWh ($0.0025/kWh) from Oct. 1.

Under the new rates, an average four-member household is expected to pay Won 1,050 extra every month, the ministry said.

It marks the first increase in the electricity rate since November 2013. Coal-fired power plants account for about 40% of South Korea's electricity mix, and LNG-fired power plants are responsible for around 25%, while nuclear reactors satisfy around 30% of demand. The remaining come from renewables.

Kepco has introduced flexible electricity rates linked to global fuel prices such as LNG, coal and fuel oil, starting this year, in a move to improve its profitability. It previously charged an electricity rate under a fixed-rate electricity billing system.

Under the new system, the billing system of electricity is revised every three months, depending on movements in the global prices of the fuels.

But the government has refrained from raising the rate despite the hikes in the global fuel prices, citing concerns over financial burden on local households amid the COVID-19 pandemic.

"Kepco's fuel costs jumped by Won 10.8 per kilowatt-hour in the fourth quarter from the previous quarter due to spikes in prices of LNG, coal and oil, but the company decided to raise by Won 3 due to concerns over financial burden on households," Kepco said in a statement.

Import prices of LNG rose Won 654.72/kg in August, from Won 601.85/kg in July and Won 548.04/kg in June, while imports prices of coal climbed to Won 158.93/kg in August, from Won 152.7/kg in July and Won 141.76/kg in June, the Kepco statement said.

Kepco can raise electricity rate again in January next year if fuel costs stay strong, it said.

South Korea's LNG importers, led by state-run Korea Gas Corp., paid an average $10.3/MMBtu in August, up from $6.12/MMBtu a year earlier and $9.59/MMBtu in July, according to customs data compiled by S&P Global Platts.

South Korea's LNG import bills have climbed since May this year on higher crude oil prices and LNG spot prices.

The MOTIE indicated it would also raise domestic prices of natural gas later this year by saying city gas prices have been frozen for a year and a half despite the hikes in import costs.

South Korea's LNG imports jumped 20.8% year on year to 30.64 million mt for the first eight months this year, compared with 25.36 million mt in the year-ago period to meet stronger power demand driven by heat wave and shutdown of several nuclear reactors.