Electricity rate hike to put weight on businesses

The Korea Times

The Korea Times

Business

Sun, October 1, 2023 | 17:38

Companies

Electricity rate hike to put weight on businesses

Posted : 2022-10-03 08:28

Updated : 2022-10-03 16:36

The headquarters of Korea Electric Power Corp. (KEPCO) in Naju, South Jeolla Province. Korea Times file

By Lee Kyung-min

Local manufacturers are highly likely to experience worse business conditions in the months to come, strained by the government's plan to increase electricity rates for industrial use, compounded further by inflation, the sharp depreciation of the Korean currency against the dollar as well as rapid increases in both borrowing costs and key raw material prices, according to market watchers, Sunday.

Further fanning the collective concern are the looming fears of a global economic recession, the key contributor to a spike in inventory storage costs closely tied to profit margins in the event that tightening consumer sentiment leads to plummeting market demand.

Consumers are expected to bear the burden in the form of higher prices of goods and services, the inevitable result of businesses seeking to offset unexpected higher production costs. About an increase of 1 percentage point in inflation will follow, some say.

The Ministry of Trade, Industry and Energy and Korea Electric Power Corp. (KEPCO) said on Sept. 30 that industrial electricity rates will be raised by up to 16.6 won ($0.01) per kilowatt-hour this month. The figure for four-person households will be raised 7.4 won per kilowatt hour.

"The rate hike will increase the burden for businesses, especially the manufacturing industries," an industry official said.

It is estimated that if industrial electricity rates is raised by 10 won per kilowatt-hour, it will incur an additional burden of 180 billion won on Samsung Electronics and 90 billion won on SK hynix.

"The prices of goods and services have already significantly risen over the past few months. The recent weakening of the Korean currency and spiking borrowing costs are certain to put Korean firms under greater strain," he added.

The industry official said that the ultimate goal of the government should be to bolster energy efficiency, an initiative unlikely to find a place in a country where electricity rate pricing is determined largely by political calculations, not by market principles.

"The government advocates the need to overcome the energy crisis, including the promotion of a nationwide energy saving campaign. However, the cost of electricity set without the cost of key input materials factored in will provide no sustainable solutions," he added.

lkm@koreatimes.co.kr