The government is moving to cut electricity rates, amid arguments that industrial power rates higher than those of major competitor nations are undermining the competitiveness of Korea's manufacturing sector. Kim Sung-hwan, Minister of Climate, Energy and Environment, said Tuesday that "given that our industry is competing with China, industrial power rates need to be lowered and stabilized." Kim stressed, "In major countries, industrial power rates tend to be lower than other rates, but only in our case have industrial rates become the most expensive," adding, "This part must be corrected." This is the right message in terms of strengthening industrial competitiveness.
The government's policy shift feels overdue, but it is welcome nonetheless. Successive administrations have championed the normalization of electricity rates, but by focusing on raising industrial rates more than residential ones, they have drawn criticism for "energy populism." Industrial power rates, which stood at 105.5 won per kilowatt-hour (kWh) in the first quarter of 2022, surged 75.8% to 185.5 won in the fourth quarter of 2024. This stands in contrast to the same period, when residential rates rose only 37.0% and commercial rates 31.4%. The excessive hikes in industrial power rates have led to a reversal situation since 2023, in which industrial rates exceed residential rates.
Electricity rate hikes concentrated on industrial users amount to shooting oneself in the foot by shrinking domestic industry. As of the end of last year, industrial power rates stood at 190.4 won, far higher than China's 129.4 won. As a result, the steel and petrochemical industries have been pushed into restructuring, driven back by China's low-price offensive. With companies burdened by high electricity rates repeatedly relocating overseas, concerns about a "manufacturing exodus" are also mounting. The ratio of outbound foreign direct investment (FDI) to domestic facility investment soared from 21.8% in 2015 to 39.1% in 2024, and the steeply rising burden of electricity rates played a part in this.
Industrial power rates must be cut to boost corporate investment and manufacturing competitiveness. It would also be "welcome rain after a drought" for traditional manufacturing, including the steel industry, which faces anti-dumping investigations by the United States, the European Union (EU), and Japan. It is also expected to serve as a primer for enhancing the competitiveness of advanced industries such as semiconductors, artificial intelligence (AI), and data centers, on which the nation's fate hangs. The key is swift execution. The government must quickly prepare a roadmap for electricity rate cuts that companies can feel, and reinforce plans to build a nuclear power ecosystem to raise the effectiveness of the policy.
