Government to Introduce Regional Industrial Electricity Tariffs... Up to 10% Cut for Non-Capital Areas

Reflecting Transmission Costs, Regional Energy Self-Sufficiency, and Balanced Growth... Expected Savings of KRW 2.8 Trillion
Targeting Implementation Within the Year in Connection With the Regional Wholesale Pricing System

The government will introduce a system to differentiate industrial electricity rates by region within this year. While keeping the current industrial electricity rates in the Seoul metropolitan area unchanged, the rates in non-capital regions with relatively abundant power supply will be reduced by up to approximately 10 percent. The country will be divided into a total of 11 regions, taking into account the power grid and the conditions for balanced regional development, and the size of the discounts will vary depending on transmission costs and regional energy self-sufficiency rates. Through these regional differences in pricing, the plan aims to redistribute concentrated electricity demand and corporate investments from the Seoul metropolitan area to non-capital regions.

On August 26, the Ministry of Climate, Energy and Environment and Korea Electric Power Corporation held a public hearing at the KEPCO Southern Seoul Headquarters in Yeongdeungpo-gu, Seoul, and revealed the design plan for the "Industrial Regional Electricity Tariff System." This concrete plan comes two years and two months after the enforcement of the "Special Act on the Promotion of Distributed Energy" in June 2024. The government and KEPCO aim to reflect feedback from the hearing, finalize the specific regions and rate levels, and implement the changes—after official notification and revising electricity tariffs terms—within the year.

The core of this plan is to establish a new "region-specific adjustment tariff" in addition to the electricity rates currently applied uniformly nationwide. The basic charge, energy charge, climate environment charge, and fuel cost adjustment charge will be applied as before, and the region-specific adjustment tariff will be added to these to calculate the final electricity bill. This will apply to both high-voltage A and high-voltage B industrial electricity consumers. As of last year, industrial electricity accounted for 51 percent of KEPCO’s total sales.

The government has decided to set regional differences by cutting rates in non-capital areas, rather than raising rates elsewhere. Based on last year's average industrial electricity selling price of KRW 181.9 per kWh, the maximum discount will be about KRW 18—roughly 10 percent off the average rate—in the most discounted regions.

Main Points of the Design Plan. Source: Ministry of Climate, Energy and Environment.

Regions will be divided for a total of 11, by overlapping "four wide regional groups" based on the power grid and "four zones" based on the level of balanced development. From the power grid perspective, these are: Southern Capital Area, Northern Capital Area, Central Area, and Southern Area. The Southern Capital Area includes southern Seoul and Gyeonggi, the Northern Capital Area includes northern Seoul, northern Gyeonggi, and Incheon, the Central Area encompasses Gangwon and Chungcheong, and the Southern Area covers Gyeongsang and Jeolla regions. Jeju will be excluded from this scheme due to its island status and unique power supply characteristics.

In addition, factors such as the local preferential index and regions in industrial crisis will be taken into account, further differentiating tariffs even within the same wide regional group. The government has proposed that all of North Chungcheong Province be classified as part of the Central Area for the power grid, but that subdivisions within North Chungcheong will be made according to local preferential indices. The final boundaries of the 11 regions will be determined through further feedback and consultation.

The criteria for determining the size of the discount mainly consist of three elements: transmission costs, regional energy self-sufficiency, and balanced growth. First, the costs for constructing and operating transmission networks will be allocated according to the transmission network usage ratio in each regional group. In regions with higher energy self-sufficiency, lower tariffs will be introduced to encourage a shift of electricity demand to areas with greater power generation. In addition, a balanced growth discount, reflecting regional characteristics such as population, finance, and industry, will be applied. Distribution costs are excluded from this calculation because many industrial customers do not use the distribution network, and including these costs could disadvantage rural and fishing communities with lower consumption density.

Applying this plan will create a clear gap in tariffs between the capital and non-capital areas. In the Southern Capital Area, where electricity demand is concentrated, rates will remain the same as the current level or be adjusted by around KRW 1 per kWh at most. The Northern Capital Area, including Incheon, will see rates reduced by up to KRW 10, while the Central Area (Gangwon and Chungcheong regions) will have discounts of up to KRW 15. In the Southern Area, including Gyeongsang and Jeolla—regions with a relatively high proportion of nuclear and renewable energy generation facilities—rates will be discounted by up to KRW 18.

The reason behind the government's push for regional electricity tariffs is the imbalance in supply and demand, with electricity demand concentrated in the capital area and power generation facilities concentrated outside the capital. Currently, about 40 percent of the electricity used in the Seoul metropolitan area is brought in from non-capital regions. This situation is driving up the cost of building and operating long-distance transmission grids, but there are limits to expanding transmission lines due to local residents’ acceptance issues. Since the single nationwide rate provides little economic incentive for companies to move to areas with abundant power, the intention is to signal regional price differences directly through the rates themselves.

The scale of industrial electricity discounts to be provided by introducing the regionally differentiated system is estimated at about KRW 2.8 trillion per year. However, the actual amount may vary depending on the final regional classifications and other factors. Financial resources will come from KEPCO’s cost reductions due to the introduction of regional wholesale electricity prices, more segmented transmission costs by region, the company’s own financial burden, and some government budget support.

Alongside differentiated retail industrial prices, a regional pricing system will also be introduced into the wholesale power market. Currently, the wholesale market operates under a single price, but it will be split into capital and non-capital zones, with different trading prices applied to each depending on local electricity supply and demand. The plan is to provide regional price signals from the generation stage and apply differentiated industrial rates on the consumption side, thereby spreading out both power supply and demand.

Other countries also reflect regional electricity market prices and network usage costs in their electricity tariffs. The United States, Japan, and Sweden reflect regional wholesale prices and network tariffs in their retail electricity tariffs, while the United Kingdom incorporates regional differences in transmission and distribution costs. In particular, Sweden divided its electricity market into four regions in 2011 when congestion worsened as power generation concentrated in the north and consumption in the south. KEPCO analyzes that the move has enhanced the competitiveness of steel companies in the north, where electricity rates are relatively low, and supported shifts to electric power.

Seonghwan Kim, Minister of Climate, Energy and Environment, said, "The introduction of a regional industrial electricity tariff system is central to reforming the electricity pricing system for the mutual benefit of KEPCO and industry. Incentivizing power-intensive industries to invest in non-capital regions will fundamentally ease the nation’s overall burden of constructing transmission networks, bolster balanced regional development, and further enhance our industry’s long-term competitiveness."

This content was produced with the assistance of AI translation services.