South Korea Raises Electricity Prices to Curb Consumption, Summer Power Shortages

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--Though the effects of green stimulus packages are waiting to be felt, the South Korean government is now being forced to fight inflation instead of promoting economic growth. Exports are still on the rise. The South Korean economy expanded during the first quarter of the year due to the demand for products like steel following the earthquake and tsunami in Japan. Output however, is starting to lag due to a lack of key components from Japan.

Energy consumption and pricing are also goading inflation. The South Korean government is raising electricity prices, though not nearly enough for Korea Electric Power Corporation (NYSE:KEP) (KEPCO) (Seoul) to cover the cost of materials used for electrical generation equipment.

Clean energy policies like the Green New Deal, as well as another multibillion dollar economic stimulus package, are pushing for South Korea's entrance into the global electrical generation industry. These policies have stimulated the drive for clean energy, though the government has not adequately adjusted the prices of state-run KEPCO's electricity to cover for the costs.

The current cost of electricity has not deterred consumption rates. Last year, South Korea was the eighth largest electricity consumer in the world and KEPCO suffered losses of more than $1 billion. As it stands now, KEPCO's combined losses for the past three years surpass the $5 billion mark due to inadequate pricing alone. Though the raise in electricity prices is expected to take affect next month, officials are worried that it will not be enough to dissuade consumption.

This year's consumption rates, spurred by a heat wave, have the potential to upset the supply and demand balance. Peak demand is expected to reach 73 gigawatts next month, sapping the country's reserves. If demand exceeds 96% of the supply, measures such as load shedding, also known as rolling blackouts, may be taken into consideration. Fear of capacity trouble has prompted the government to call for conservation, urging consumers to turn off unnecessary lights and restrict air conditioner use.

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