3 Days Until Industry Ministry Audit... Focus on Renewable Energy and Electricity Rates

[Asia Economy Reporter Moon Chaeseok] With the National Assembly's Industry, Trade, Energy, Small and Medium Enterprises Committee's (Sanjoongwi) audit of the Ministry of Trade, Industry and Energy (MOTIE) just three days away, the effectiveness of policies promoting the spread of new and renewable energy such as the Green New Deal, the impact of the nuclear phase-out policy on Korea Electric Power Corporation's (KEPCO) performance, and the possibility of electricity rate hikes are expected to be key issues.

According to the energy industry on the 4th, Sanjoongwi plans to conduct audits on the Ministry of Trade, Industry and Energy on the 7th, eight institutions including the Korea Energy Technology Evaluation Institute on the 13th, 13 institutions including KEPCO on the 15th, and 11 institutions including Korea Gas Corporation on the 20th. A comprehensive audit of the Ministry of Trade, Industry and Energy is scheduled for the 22nd.

ESS Distribution Sluggish...Coal Power Export Ban Law & Mountain Solar Power Controversy

[Image source=Yonhap News]

The ruling and opposition parties have different interpretations regarding the Moon Jae-in administration's energy transition policies such as the Green New Deal. The opposition party is expected to probe the effectiveness and side effects of the energy transition policy during the audit.

The ruling party stated that the Green New Deal under the Moon Jae-in administration differs from the Lee Myung-bak administration's green growth in that it aims to induce economic growth through energy transition. Lee Hak-young, chairman of Sanjoongwi and a member of the Democratic Party, explained, "The Lee Myung-bak administration's green growth sought job creation through large-scale civil engineering projects such as the Four Major Rivers Project rather than energy transition in sectors with the highest greenhouse gas emissions. In contrast, the Moon Jae-in administration's Green New Deal policy aims for carbon neutrality, seeking to revive the economy and environment through low-carbon and eco-friendly energy transition without large-scale civil engineering projects."

The opposition is expected to point out that the pace of new and renewable energy policies is slow and safety issues are increasing. On the 21st of last month, Kwon Myung-ho of the People Power Party pointed out that only 52 out of 254 public institutions installed energy storage systems (ESS) under the mandatory public institution adoption system. Considering the intermittency of new and renewable energy (the instability of supply and demand due to weather, etc.), ESS distribution should increase, but it remains sluggish even among public institutions.

[Image source=Yonhap News]

The opposition is also expected to address safety issues of new and renewable energy that became controversial after mountain solar power collapsed during the monsoon in August. On the 25th of last month, Han Moo-kyung of the People Power Party pointed out through data received from the National Institute of Forest Science that losses caused by mountain solar power amount to 130 billion KRW annually. Assuming a project period of 20 years, he claimed losses could reach about 2.6 trillion KRW. In response, the Ministry of Trade, Industry and Energy announced on the 28th of last month a revision to the Enforcement Decree and Rules of the Renewable Energy Act and Electricity Business Act, allowing business operators who do not comply with the government's order for interim restoration of mountain areas and continue power trading to be ordered to suspend operations for up to six months.

The coal power export ban law that the ruling party seeks to introduce is also controversial. Kim Sung-hwan, chairman of the Green New Deal subcommittee of the ruling party's New Deal Committee and a Democratic Party member, has taken the lead in proposing a partial amendment to the Korea Electric Power Corporation Act to ban KEPCO's coal-fired power export. Some argue that while they agree with increasing domestic new and renewable energy supply through initiatives like RE100 (transitioning 100% of electricity consumption to renewable energy by 2050), legally banning coal power operators' export activities is excessive and raises dissatisfaction.

KEPCO Deficit Increases After Nuclear Phase-Out...Electricity Rate Reform Likely to be Discussed

The fact that KEPCO has posted deficits for two consecutive years following the acceleration of the nuclear phase-out policy after the Moon Jae-in administration took office is also expected to come under scrutiny. According to the Financial Supervisory Service's electronic disclosure system, KEPCO's consolidated operating profit was 11.3467 trillion KRW in 2015 and 12.0016 trillion KRW in 2016, but dropped to 4.9532 trillion KRW in 2017, the first year of the Moon administration, a reduction to one-third. In 2018, KEPCO posted a loss of 208 billion KRW, and last year a loss of 1.2765 trillion KRW.

Lee Cheol-gyu, opposition party secretary of Sanjoongwi and member of the People Power Party, stated, "KEPCO, which earned over 10 trillion KRW in operating profit annually before the Moon administration, posted operating losses in 2018-2019 due to the rapidly advanced nuclear and coal phase-out policies. The biggest reason for KEPCO's management deficit is the significant reduction in nuclear power's share, which increased additional costs for power generation."

According to Korea Hydro & Nuclear Power, the nuclear power operation rate was 74.8% in July. It was 71.3% in 2017 and 66.5% in 2018. KEPCO has explained that it was able to post an operating profit of 820.4 billion KRW in the first half of the year due to a decrease in fuel costs caused by the drop in international oil prices. They argue that international oil prices, not the nuclear phase-out policy, have the greatest impact on KEPCO's performance.

Since the opposition views the Moon administration's nuclear and coal phase-out policies as having adversely affected KEPCO's finances, the issue of electricity rate reform is also expected to be raised during the audit.

KEPCO is considering introducing a 'fuel cost linkage system' that links the prices of raw materials such as coal and liquefied natural gas (LNG) with electricity rates. The Korea Energy Economics Institute, a government-funded research institute, stated in an interim report commissioned by KEPCO that "the electricity rate cost recovery rate should be raised to 100% by 2022."

This content was produced with the assistance of AI translation services.