The South Korean government cleared a regulatory hurdle to ease household heating costs with the approval of revised pricing standard guidelines.

The regulation reform committee of the Ministry of Trade, Industry and Energy approved a new notice on pricing standards for district cooling and heating on Monday, which allows the minimum allowable heating rate to be gradually lowered to 95 percent of the base rate over the next three years.

If followed by institutional changes, the revision is expected to reduce the average monthly heating bill for a four-person household in an 85-square-meter home to as low as 6,800 won ($4.89). During the peak winter months from December to March, savings could total up to 27,200 won per household.

Private-sector members of the committee postponed the item in April 2025 but approved it this month, attaching a condition that the government maintain dialogue with the industry as needed.

Under the current rate system that has been in place since 2015, Korea District Heating Corp. (KDHC), the largest operator, sets the market reference price. Around 30 public and private operators base their pricing on KDHC rates and could charge up to 10 percent more if they prove that their total costs were higher.

However, the government argues that private operators benefit from lower fuel costs and more efficient energy mixes and should therefore charge less than KDHC. The previous regulation allowed private operators to set rates between 100 and 110 percent of KDHC’s, effectively preventing reductions. Under the new rules, providers with lower heating costs can set rates up to 5 percent below KDHC’s.

According to the energy ministry, private companies directly import liquefied natural gas (LNG), lowering their fuel costs, while KDHC must procure LNG through Korea Gas Corp., which is more expensive. Industry estimates suggest large private operators secure LNG at prices about 30 percent lower than KDHC.

Private firms also benefit more from cogeneration. While KDHC operates with a higher share of heat-only peak load boiler (PLB) systems relative to combined heat and power (CHP) systems (a 1 to 1.2 ratio), private companies maintain a 1 to 0.6 ratio, favoring CHP systems that produce and sell both electricity and heat. Electricity accounts for 20 to 30 percentage points more of total revenue at private firms. In effect, part of the electricity-related costs may be passed on to consumers via higher heating charges.

“Large private heating providers have adopted modern high-capacity generators to boost electricity sales, but KDHC must consider energy efficiency at the national level,” an energy industry official said.

A government official added that while private operators effectively hold monopolies in their local markets, they continue to earn excess profits without returning value to society.

Private operators are pushing back, arguing that the existing rate cap already protects consumers and that the government’s effort to lower rates constitutes excessive market intervention. In response, another government official said the original intent behind the 110 percent rate cap was to prevent consumer harm from excessive pricing, not guarantee operator profits. The government is also considering a possible legal amendment to clarify the system.

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