As Korea’s once-low electricity rate rises, manufacturers mull pulling the plug

 
In January, Hyundai Steel announced that it would build a new electric arc furnace steel mill in the U.S. state of Louisiana capable of producing 2.7 million tons of steel annually. The decision was driven by the abundance of local customers and the state’s business-friendly environment — including its cheap electricity.
 
According to the U.S. Energy Information Administration and the Korea Electric Power Corporation (Kepco), Louisiana’s industrial electricity rate was $51.10 (77,260 won) per megawatt-hour — roughly half the current rate in Korea, where industrial electricity prices have surged.
 
 
Unlike large corporations that can relocate abroad, small and midsize manufacturers are struggling with rising energy costs.
 
“Electricity accounts for more than 20 percent of our production costs,” said a representative of Samil Metal, a surface treatment company. “Over the past two years, 10 out of 35 surface treatment firms in the Banwol Industrial Complex have gone out of business.”
 
The government’s decision to raise industrial electricity bills is sowing sour fruit.
 
A pillar of Korea’s longstanding reputation as a manufacturing powerhouse was affordable electricity, with industrial power rates historically kept below 100,000 won ($72) per megawatt-hour. But from 2022 to 2024, electricity rates for industrial users consuming over 300 kilowatts rose by about 70 percent, marking a dramatic shift.
 
In contrast, household electricity rates increased by just 30 percent over the same period. Korea had traditionally kept industrial rates lower than residential ones to support economic growth, but by 2023, that flipped — industrial users now pay more than households.
 

 
Critics say this disparity stems from what they call “electricity bill populism.”
 
To avoid public backlash, the government kept increases in residential and agricultural rates modest, while hiking industrial rates seven times since 2022. As of December 2024, the average industrial electricity rate was 173,260 won per megawatt-hour, compared to 152,390 won for households and 77,330 won for agricultural users.
 
“It’s hard to tell if these are industrial rates or political rates,” said a manufacturing industry representative. “Kepco is still running a deficit, so more hikes are likely — and that burden will probably fall on us again.”
 
Kepco argues that Korea’s electricity prices are still not high compared to the average of the Organisation for Economic Cooperation and Development.
 
The industrial sector begs to differ.
 
“Korea’s electricity is no longer cheap when compared with other manufacturing-heavy competitors,” said Choi Kyu-jeong of the Korea Chamber of Commerce and Industry’s green energy support center.
 
As of December, Korea’s industrial electricity rate stood at 190.4 won per kilowatt-hour, higher than the United States at roughly 121.5 won and China at 129.4 won, and close to France at 197.1 won.
 

Professionals mend a pylon in Nonsan, South Chungcheong, on Oct. 14, 2021 [JOONGANG ILBO]

To save on power bills, companies like SK Advanced and LG Chem are now opting for direct power purchases — bypassing Kepco and buying directly from the Korea Power Exchange. Although the system has been in place since 2003, it had been largely unused because Kepco’s rates were so low. Now, after more than two decades, companies are dusting off the option as costs rise.
 
Even state-owned enterprises are exploring alternatives. Last year, the Korea Railroad Corporation spent 579.6 billion won on electricity — nearly 9 percent of its operating expenses. With that figure expected to rise by more than 10 percent this year, the company has expressed interest in direct purchases. Kepco also noted that even users with capacities below 30,000 kilovolt-amperes — the threshold for direct purchases — are inquiring about upgrading their systems to leave Kepco behind.
 
For smaller firms, however, there is little recourse. Foundry and mold-making businesses — energy-intensive sectors — are being hit especially hard. Major foundries held an emergency board meeting on May 16, even discussing the possibility of halting operations.
 
“In nearly 60 years in the foundry business, I’ve never seen it this bad because of electricity prices,” said Seo Byung-moon, who has led BM Foundry for six decades.
 
“More than 500 million won — out of 3 billion won in monthly revenue — goes toward electricity, and that costs will climb further with summer pricing kicking in from June.”
 
What alarms industry leaders most is the pace of the increases.
 

A citizen looks at electric monitors inside a multi-household building in Jongno District, central Seoul, on Sept. 22, 2024. [NEWS1]

 
“Considering the revised pricing structure, our rates have more than doubled — from 100 won to 210 won per kilowatt-hour,” said Woo Ji-hun, head of the Korea Surface Finishing Master Group. “We can’t pass that cost on to buyers right away. Our only option may be to shut down.”
 
Experts warn that the price surge risks not only the viability of manufacturers but also the broader competitiveness of Korea’s industrial base.
 
“For manufacturing to be competitive, you need cheap labor, abundant resources or well-built infrastructure,” said Choi Jun-young, senior adviser at the law firm Yulchon. “With electricity prices now soaring, Korea is losing its appeal as a place to manufacture.”
 
There are also concerns that a mass departure of corporate clients from Kepco could destabilize the entire power system. Korea’s electric grid is built on economies of scale, which allow for a low-cost, stable supply. If major consumers exit the grid, that model may no longer hold.
 
Electricity demand from advanced industries is expected to keep rising. Experts say the next administration must reform the energy pricing system.
 
“Expanding designated zones for decentralized energy trading is one rational solution,” said Yoo Seung-hoon, a professor at Seoul National University of Science and Technology. In these zones, local businesses can bypass Kepco and directly purchase power — typically at prices 20 to 30 percent lower.
 
Some also advocate for a more nuanced pricing system.
 
“Instead of categorizing rates solely by usage type — industrial, agricultural or residential — we should segment them by region and voltage level,” said Cho Hong-chong, an economics professor at Dankook University. Since electricity is cheaper to supply at higher voltages, an updated rate structure could more fairly reflect those cost differences.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM YEON-JOO, IM SOUNG-BIN [[email protected]]