A family of four in South Korea will see electricity bills rise as much as 1,050 won ($0.89) per month starting October as the Korea Electric Power Corp. decided to raise utility prices for the first time in eight years to mitigate skyrocketing fuel costs.
According to the state-run utility firm Thursday, the electricity bill will go up 3 won per kilowatt-hour, the first increase since November 2013. For an average four-member household that consumes 350 kW of electricity per month, this would translate to a price hike of 1,050 won.
A Kepco official explained that the surging price of liquefied natural gas, one of the three key feedstock to generate electricity in Korea, forced the company to make such a decision, despite inflation concerns over the pandemic-hit local economy.
In Korea, power bills are adjusted every quarter based on changing fuel prices in the previous three months. The nation’s electricity bills in the fourth quarter, for instance, reflect fluctuations of fuel prices in the June-August period.
The price of LNG, which stood at 548.04 won per kilogram in June, soared almost 10 percent to 601.85 won in August. In principal, the electricity rate should go up 10.8 won per kWh, but the quarterly increase is capped at 3 won per kWh by law.
Experts said the state-run utility firm, which is expected to log a record 4 trillion-won deficit this year, could not shoulder the rise in production costs, with LNG prices projected to stay strong due to supply issues and ahead of the winter season.
“The LNG price is dictated by supplies coming from Europe. However, Europe itself is suffering a supply shortage, triggering a competition among Asian countries that are trying to stock up ahead of winter,” Yoo Seung-woo, an analyst from SK Securities, said.
According to the Korea Energy Economics Institute, the LNG shortage in Europe is triggered by Russia, as the world’s No. 1 gas exporter is cutting LNG supplies to the region in a bid to fast-track the certification of the Nord Stream 2 pipeline in Germany.
The Nord Stream 2 project is designed to deliver Russian gas directly to Germany via the Baltic Sea, which would allow Russia to bypass Ukraine and double its annual gas export to 110 billion cubic meters. The certification process of Nord Stream 2 is expected to take up to four months to complete. If the clearance process goes as planned, commercial operations could begin by the end of this year.
On the demand side, countries are stocking up on fuel ahead of winter, amid a global push to shun coal-fired plants, experts also noted.
South Korea, for one, has been closing both coal-fired plants and nuclear power stations in its pursuit of renewable energy. But in reality, it is relying more on LNG.
Further adding upward pressure on the LNG price was Europe, which this summer presented a comprehensive climate package “Fit for 55.” The plan entails a series of climate actions to curb net greenhouse gas emissions by at least 55 percent by 2030.
The climate package purports to put a price on carbon, impose higher costs on polluting energy sources like oil, coal and gas and encourage low-carbon energy like solar, wind, hydro and nuclear.
By Kim Byung-wook (email@example.com)Internet Explorer Channel Network