Further Tariff Hikes To Come
BMI View : We believe that the government's decision to increase electricity prices is aimed at reducing electricity consumption in South Korea. The country has experienced power shortages at least once in each of the past three years as demand has grown tremendously on the back of low prices, and it lacks sufficient reserve generation capacity. We expect the hike in electricity prices will lead to a moderation in electricity demand, and see room for additional increments in 2014.
On November 19, the South Korean Ministry of Trade and Energy announced via an emailed statement that it would be increasing electricity prices in the country by an average of 5.4% starting from November 21. Prices for industrial plants and buildings would be increased by 6.4%, while the rates for households and farms would be raised by a more modest 2.7% and 3.0% respectively. This is the second increase this year, following an increment of around 4% in January this year. The statement from the ministry also highlighted a plan to impose a tax on soft coal of KRW30/kg (US$0.03) from July 2014, while reducing duties on liquefied natural gas and kerosene to shift consumption of coal to gas and oil.
We believe that the government's decision to increase electricity prices is aimed at reducing electricity consumption in the country. South Korea has experienced power shortages at least once in each of the past three years as demand has grown tremendously, and it lacks sufficient reserve generation capacity ( see 'Dangjin Biomass Plant Indicates Growing Viability', November 12). Electricity consumption grew an average of 5.1% per annum over the last decade, and per capita consumption is one of the highest in the world, even among developed countries. As such, the government is under pressure to reduce the rate of growth in electricity consumption, and raising electricity prices is one way of doing so.
|Power-Hungry South Korea|
|Electricity Consumption by Country, kWh per capita|