The government's designation of Ulsan Mipo, Pohang in North Gyeongsang Province, and Seosan in South Chungcheong Province as "distributed energy special zones" has opened a path for the struggling petrochemical industry to purchase electricity at prices lower than Korea Electric Power Corporation's industrial rates. However, the actual cost savings are expected to be limited as power purchase agreement (PPA) targets are restricted to 300-megawatt combined heat and power plants.
The Ministry of Climate, Energy and Environment announced Wednesday that Ulsan Mipo National Industrial Complex, Pohang in North Gyeongsang Province, and Seosan in South Chungcheong Province were selected as distributed energy special zones following the 37th Energy Committee's written review. This brings the total number of special zones to seven, including Uiwang in Gyeonggi Province, Gangseo in Busan, Jeju, and South Jeolla Province, which were designated last month.
Distributed energy special zones aim to promote "local production and local consumption" of electricity and foster future power industries by granting regulatory exemptions under the Special Act on Distributed Energy Promotion. While renewable energy can already be sold directly to power consumers through PPA transactions, all power sources in distributed special zones can enter into PPAs after receiving preliminary review during the designation stage.
Among the three newly designated areas, Ulsan Mipo and Seosan fall under the "demand attraction" category, which experiments with various rate structures using PPAs. Specifically, projects will be pursued to supply electricity to petrochemical companies in Ulsan Mipo National Industrial Complex and Daesan National Industrial Complex in Seosan at prices lower than current industrial electricity rates. The petrochemical industry, which is currently undergoing restructuring, has consistently demanded electricity rate reductions from the government, and an institutional foundation to realize this has now been established.
However, the cost relief effect for petrochemical companies from the special zone designation is expected to be minimal in the near term. This is because direct PPA targets in both Ulsan Mipo and Seosan are limited to 300-megawatt regional combined heat and power plants. A power plant with 300-megawatt capacity can produce 2,628 gigawatt-hours of electricity if operated at 100% capacity 24 hours a day throughout the year. In contrast, according to the Korea Power Exchange, petroleum refining, chemical, and rubber and plastic product manufacturers in Korea used 64,171.5 gigawatt-hours of electricity last year. Even with maximum utilization of both plants, only about 8.2% of the petrochemical industry's power consumption could be replaced. Moreover, since combined heat and power plants use relatively expensive liquefied natural gas as fuel, the price gap with industrial electricity rates is not expected to be significant.
Petrochemical companies in Yeosu National Industrial Complex face particular difficulty accessing cheap electricity despite the entire South Jeolla Province being designated as a special zone. This is because only plans to supply locally produced renewable energy to large-scale data centers were reviewed at the time of designation. "The special zone exemptions apply only to pre-reviewed activities within areas determined by the Energy Committee," a government official emphasized.
It is also unlikely that all electricity from combined heat and power plants permitted for PPAs through this designation will be supplied exclusively to petrochemical companies. Ulsan submitted a business plan that includes attracting a 100-megawatt artificial intelligence data center and supplying locally produced electricity to it. Ulsan City's vision is to operate data centers using local electricity and utilize minus 162-degree cold air generated from nearby LNG terminals for data center cooling.
Seosan City is also reported to have submitted a plan to the Energy Committee to use part of the electricity sales revenue from PPAs for solar power deployment and aging transformer replacement in nearby areas.
Pohang in North Gyeongsang Province was selected as a distributed energy special zone under the "new industry promotion" category for capturing future industries. The plan is to supply electricity to nearby secondary battery companies through a 40-megawatt green ammonia fuel cell powered by renewable energy.
