Korea Railroad Corp. (KORAIL) plans to build a Combined Heat and Power (CHP) plant, also known as a cogeneration power plant, at its Goyang train depot by 2027 to reduce electricity costs.
The state-run railway operator, which uses electricity to power KTX high-speed trains and several commuter lines, including Lines 1, 3, and 4 in the Seoul metropolitan area, has seen its power bills skyrocket over the past few years. Last year, the company spent 580 billion won ($400 million), or 8.7% of its 6.64 trillion won in operating expenses, on electricity. Electricity costs are projected to rise by another 60 billion won this year.
Korea has long had one of the lowest industrial electricity rates in the world. Even as the state-run Korea Electric Power Corporation (KEPCO) faced mounting losses and debt due to the previous Moon Jae-in administration’s nuclear phase-out policy and soaring oil prices, the government raised electricity rates only once. The government has avoided raising residential electricity rates, which are usually met with strong public resistance, and instead hiked industrial electricity rates twice since May 2023.
Rising electricity costs are prompting more companies to find alternative solutions, from building in-house power plants to purchasing cheaper electricity directly from the wholesale market, bypassing KEPCO.
KORAIL, which powers 98% of its trains with electricity, is among the companies most affected by the industrial electricity rate hikes. Even though total train mileage fell 1.2% over the past three years, electricity costs have continued to climb.
At a press conference on March 25, KORAIL President Han Moon-hee said rising electricity bills are putting pressure on KORAIL’s financial health. He added that the company plans to expand its nationwide network of in-house power plants to reduce costs.
The country’s leading manufacturing giants with high electricity consumption, including those in oil refining, semiconductors, and steel sectors, are also stepping up efforts to construct in-house power plants.
HD Hyundai Oilbank is building a 277-megawatt (MW) liquefied natural gas (LNG) power plant near its Seosan facility in South Chungcheong Province, which will be completed in 2027. Hyundai Steel is planning a 499 MW LNG plant at its Dangjin facility in the same province by 2028.
SK Hynix began operating 585 MW LNG plants in Cheongju and Icheon in 2023 and 2024, respectively, in response to rising electricity prices. Korea Zinc has been generating electricity in-house with a 272.5 MW combined-cycle LNG plant at its Onsan smelter since 2021.
The petrochemical sector, currently experiencing an unprecedented downturn, is turning to alternative electricity suppliers outside of KEPCO. SK Advanced, a petrochemical subsidiary of SK Gas, applied to the Korea Power Exchange (KPX) to purchase electricity directly from the wholesale market at around 30 won per kilowatt-hour (kWh), a steep discount from KEPCO’s current industrial rate of 185.5 won per kWh.
The direct purchase system, introduced in 2003, allows consumers to buy electricity directly from the wholesale market, bypassing KEPCO. The system had been vastly underused because KEPCO’s rates had been historically low for so long. But after KEPCO increased industrial electricity rates to 185.5 won per kWh in October last year, companies are revisiting the largely dormant system for the first time in over 20 years.
The Korea Enterprises Federation (KEF) noted that while residential electricity rates had risen by 40.4 won per kWh over the past three years, industrial rates had increased by 80 won. “We’re deeply concerned that rising electricity costs will stifle production and investment,” the KEF said in a statement on March 25. A recent survey by the Korea Chamber of Commerce and Industry found that nearly 40% of Korean manufacturers are considering switching to alternative power-sourcing methods.
The Ministry of Trade, Industry, and Energy (MOTIE) is expected to pass a new rule on March 28 clarifying procedures for direct electricity purchases. Once finalized, the system is likely to see broader adoption among companies.
