Rising Electricity Costs and the Shifting Energy Dynamics in South Korea: Implications for Industrial Competitiveness and Investment Risk

South Korea's industrial landscape is undergoing a seismic shift as electricity prices surge to unprecedented levels, reshaping competitive dynamics and investment risks across sectors. From 2022 to 2024, industrial electricity rates for high-consumption users (over 300 kilowatts) soared by 70 percent, surpassing household rates for the first time in December 2024, reaching 173,260 won per megawatt-hour. This dramatic increase-far outpacing the U.S. rate of 121.5 won and China's 129.4 won per kilowatt-hour-has forced manufacturers to rethink energy strategies, with large firms like SK Advanced and LG Chem exploring direct power purchases to bypass the Korea Electric Power Corporation (Kepco). For smaller and midsize enterprises, however, the burden is existential, as their limited flexibility to relocate or diversify energy sources threatens long-term competitiveness.

Industrial Competitiveness Under Pressure

The electronics and communication sector, a cornerstone of South Korea's economy, exemplifies the strain. In October 2025, this sector consumed 4,987.301 kWh monthly, reflecting a slight decline but still underscoring its high energy dependency. With industry accounting for 48 percent of total electricity use, the cost burden is not isolated but systemic. Industry leaders have called for energy pricing reforms, emphasizing that South Korea's once-competitive energy costs now jeopardize its position as a global manufacturing hub.

Strategic Sectoral Reallocation and Renewable Energy Investments

Amid these challenges, South Korea has accelerated its pivot to renewable energy, driven by carbon neutrality goals and the need to stabilize energy costs. Between 2020 and 2025, clean energy investments grew by an average of 10 percent annually compared to the 2016–2020 period. The government's 21.6 percent renewable energy target for 2030-focusing on offshore wind, hydrogen, and battery storage-has catalyzed large-scale projects. For instance, Norwegian company E's 750 MW Bandibuli floating offshore wind farm, set to supply 440,000 households and reduce CO₂ emissions by 3.75 million tons annually, highlights the scale of international collaboration.

Sectoral reallocation is evident in the shift from solar to offshore wind, with 2024 auction results favoring wind over solar. This aligns with the government's 3rd Energy Master Plan, which prioritizes offshore wind capacity expansion to 18.3 GW by 2030. However, challenges persist: land use constraints, public opposition, and grid integration costs remain significant hurdles.

Investment Opportunities in Alternative Energy Infrastructure

The Green New Deal, launched in 2020, has further accelerated this transition, aiming to scale renewable energy supply and foster green innovation. Key projects, such as KEPCO's Gunsan Port offshore wind farm and SK E&S's Jeonnam 1–3 projects, illustrate the private sector's active role in this transformation. By 2030, renewables are projected to grow from 6.5 percent of the grid in 2019 to 21 percent, with solar and wind capacities expanding from 29.9 GW to 42.7 GW.

Investors are also eyeing the government's planned shift from the cost-based pool (CBP) pricing system to a price-bid model, which could intensify competition among power generators. While this reform poses risks for private companies, it also creates opportunities for firms with scalable renewable infrastructure to capture market share.

Conclusion: Balancing Risk and Resilience

South Korea's energy transition is a double-edged sword. Rising electricity costs threaten industrial competitiveness, particularly for SMEs, but the push toward renewables and offshore wind offers a pathway to long-term resilience. For investors, the key lies in aligning with companies and projects that can navigate regulatory shifts, technological hurdles, and public acceptance challenges. As the country's energy mix evolves, strategic investments in alternative infrastructure-backed by government policy and international partnerships-will define the next era of South Korea's industrial and environmental leadership.