Industrial electricity rates to drop 10% in Yeongnam, Honam; Honam semiconductor complexes to be biggest beneficiaries

South Korea's government is set to implement a tiered industrial electricity rate system, with significant reductions planned for the Yeongnam and Honam regions. The proposed policy aims to lower industrial electricity costs by up to 10% in these southern areas, a move anticipated to provide substantial relief to power-intensive industries.

The Honam region's semiconductor industrial complexes are poised to be the primary beneficiaries. With four fabrication plants requiring a considerable amount of power, the projected 18 won per kilowatt-hour reduction could lead to annual savings exceeding 700 billion won for these facilities alone. Other heavy electricity consumers, including steel and petrochemical companies, are also expected to benefit as they have been advocating for lower rates to improve competitiveness against cheaper Chinese imports.

Minister of Climate, Energy and Infrastructure, Kim Seong-hwan, has previously highlighted the disparity between South Korea's industrial electricity prices, averaging around 180 won per kWh, and China's, which range from 120 to 140 won per kWh. The government's intention behind the regional differentiation is to encourage power-intensive industries to locate in regions with ample electricity supply, such as Yeongnam and Honam, which have abundant nuclear and solar power generation.

However, the policy is likely to create controversy as major semiconductor clusters planned for the southern Seoul metropolitan area, including Samsung's national industrial complex and SK Hynix's complex in Yongin, are expected to be excluded from the significant rate reductions. This exclusion could create a considerable cost disadvantage for these facilities compared to those in the Honam region. The Ministry plans to release further details at a public hearing later this month, noting that the plan is not yet finalized.

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Industrial electricity prices are averaging around 180 won per kWh, while China's industrial electricity prices are around 120-140 won per kWh. Our industries are competing with China in almost all sectors, and petrochemical and steel industries are particularly struggling.