In recent years, the industrial electricity rates have surged significantly, leading to an increase in corporations seeking to purchase electricity directly from the electricity trading market without going through the Korea Electric Power Corporation. However, concerns have been raised that the administrative procedures are too complicated. Industry insiders have also expressed discontent that the government is raising the hurdles for direct electricity purchases to prevent '脱(脫)한전'.

According to the industry on the 19th, following SK Gas's petrochemical subsidiary SK Advanced, the petrochemical corporation LG CHEM has also applied for direct electricity purchase. Currently, households and corporations buy electricity purchased wholesale from the electricity trading market by the Korea Electric Power Corporation. The industry expects that by buying electricity directly from the trading market without going through KEPCO, they can save on electricity rates to some extent.

A representative from the electricity trading market said, 'Multiple corporations, including SK Advanced and LG CHEM, have applied for direct electricity purchases, and inquiries have also come from public enterprises.'

Overview of the LG CHEM Daesan Plant. The petrochemical industry is a representative electricity rate-sensitive sector./Courtesy of LG CHEM

The Ministry of Trade, Industry and Energy extended the transaction retention period from one year to three years after about three months of discussion following SK Advanced's application for direct electricity purchasing. A ministry official noted, 'To prevent corporations from cherry picking due to fluctuations in electricity prices, we have raised the hurdles so that only those who can properly utilize this system can participate.'

The wholesale electricity market prices are highly volatile, and requiring a contract retention for at least three years is a significant burden for corporations. KEPCO argued that the retention period should be five years. Honorary Professor Son Yang-hoon of the University of Incheon stated, 'It's a desperate situation where corporations are considering finding alternatives because it’s so challenging they could stop their factories. The term 'cherry picking' itself is incorrect.'

Regulations for applying for the transmission and distribution network use of the Korea Electric Power Corporation. The Korea Electric Power Corporation states that it takes 7 months for both new applicant corporations and existing corporations, which the industry views as a barrier to entry due to its length. /Courtesy of Korea Electric Power Corporation

There are also concerns that the administrative processing time for KEPCO's network usage agreements is excessively long. Even if corporations purchase electricity directly from the trading market, they must utilize KEPCO's transmission network and sign usage agreements for transmission and distribution networks. KEPCO has stated that this administrative processing takes about seven months.

A representative from SK Advanced said, 'Time is the most critical factor for corporations, and seven months is a significant barrier.' Professor Son also commented, 'Since they are already receiving electricity, an environmental impact assessment is not needed, and only replacing the meter is necessary. Even if some review is needed, seven months is unreasonable.'

SK Advanced decided to hold off on direct electricity purchases, judging that the minimum retention period of three years and the seven-month administrative processing pose too much uncertainty. A representative from SK Advanced stated, 'We are also considering other power procurement options, but if the expensive electricity rates rise in the upcoming summer, stopping production is also under consideration.'

In response to the criticism regarding the long administrative processing time, KEPCO explained, 'Direct purchase customers are a new type, and technical reviews and assessments of new standard contracts are necessary.'

Overview of the SK Gas Ulsan Plant. SK Gas, which temporarily suspends the introduction of direct power purchasing, is considering halting plant operations. /Courtesy of SK Gas

In the energy industry, it is seen that the government and KEPCO are not pleased with corporations’ direct electricity purchases. KEPCO fears losing customers, and the government has maintained a stance of controlling KEPCO by urging them not to raise electricity rates now, even while suppressing rate hikes. This is because if large corporate customers leave, justifications for keeping rates low will weaken.

There is also a perspective that the overall system, including KEPCO's deficits and rate structure, should be reviewed. Professor Kim Sung-soo from the Korea University of Technology and Education said, 'In foreign countries, there are many sales providers, leading to active direct transactions. While activating direct purchases in the long term makes sense, it’s a complex issue to consider who will bear KEPCO's accumulated deficits so far.' He added, 'Allowing free transactions in the direct transaction market for a set payment could be an alternative.'

KEPCO stated that direct electricity purchases should be conducted in a manner that enhances consumer choice and ensures equity.

A KEPCO representative noted, 'It is a prerequisite to ensure that all consumers equitably bear the costs that KEPCO previously shouldered, and it is desirable to improve the pricing determination system to timely adjust electricity rates reflecting costs and operate various pricing plans according to customer needs.'

View of the electric meter installed in downtown Seoul./Courtesy of News1