South Korea’s first-ever direct power purchase agreement (PPA) has raised expectations for broader adoption of the system by energy-intensive industries, as companies seek relief from surging industrial electricity costs and look to bypass state-run utility Korea Electric Power Corp (KEPCO).

LG Chem Ltd. announced on Thuraday that it has been sourcing electricity directly from the Korea Power Exchange (KPX) under the “direct power purchase system” since June 2025.

In Korea, industrial electricity rates for large corporations increased by 70 percent between 2022 and 2024 - nearly twice the 37 percent rise in residential rates over the same period. While residential rates were kept relatively low to avoid social backlash, industrial rates were adjusted more aggressively.

Despite a 2.7 percent year-on-year drop in industrial electricity usage from January to May 2025, KEPCO’s sales from industrial sales climbed 7.2 percent, data from the electricity statistics showed. This reflects higher unit costs being passed on to corporate users.

The growing burden on businesses has prompted renewed interest in direct PPAs - where companies buy electricity directly from the KPX, paying only network usage fees to KEPCO. A recent survey by the Korea Enterprises Federation found that among 112 companies in power-intensive sectors such as steel and chemicals, average electricity bills rose 36.4 percent in 2023 from the previous year, with electricity costs rising to 10.7 percent of total sales from 7.5 percent.

The government recently revised regulations to tighten direct PPA eligibility. The minimum contract term was extended from one to three years in April 2025 and early termination now carries a re-entry restriction of up to nine years - a move aimed at preventing opportunistic switching between KEPCO and the power exchange based on rate fluctuations.

Still, corporate interest in direct PPAs remains strong. Following SK Advanced’s application, petrochemical firms such as Hanwha Solutions Corp are reportedly reviewing similar moves. Even public-sector entities, including Korea Railroad Corporation (KORAIL), are exploring participation.

Industry analysts estimate that direct power purchases can yield savings of approximately 30 won per kilowatt-hour (kWh), making the system highly attractive.

Energy experts warn that if the current trajectory continues, up to 25 percent of KEPCO’s corporate clients could exit the system, potentially slashing the utility’s annual sales by as much as 16 trillion won ($11.6 billion).

Yoo Seung-hoon, a professor in the Department of Future Energy Convergence at Seoul National University of Science and Technology, urged policymakers to take action. “The government needs to either adopt a fuel cost pass-through system for industrial electricity rates or liberalize the industrial power market to allow private sector competition,” he said.

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