Adjustment of Coal Power Loss Compensation Settlement Coefficient... Some Opposition Arises

Discussion on Amendments to Electricity Market Operation Rules at the Electric Committee on the 27th

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chae-seok] Due to the impact of the novel coronavirus infection (COVID-19), the profitability of coal power generation has declined, causing power generation public enterprises to incur losses, prompting authorities to discuss institutional improvements.

According to the electricity authorities on the 25th, the 'Amendment to the Electricity Market Operation Rules,' which includes adjusting the settlement adjustment coefficient applied to Korea Electric Power Corporation's (KEPCO) power generation subsidiaries, is scheduled to be presented at the Electricity Committee meeting on the 27th.

The amendment mainly involves retrospectively applying an increased settlement adjustment coefficient, which was applied to these subsidiaries in the first half of this year, to compensate for the unrecovered profits of the power generation subsidiaries.

KEPCO purchases electricity from six power generation subsidiaries through the Korea Power Exchange. The purchase price applies the System Marginal Price (SMP), which is the generation cost of the most expensive power plant.

Since coal power generation has a low cost, applying the SMP as is would allow the power generation subsidiaries to earn profits. KEPCO, however, incurs losses.

Therefore, when KEPCO purchases electricity from the power generation subsidiaries, it multiplies the SMP by a settlement adjustment coefficient ranging between 0 and 1 to calculate the payment.

Due to COVID-19, electricity demand has decreased, and the price of liquefied natural gas (LNG) has fallen due to the drop in oil prices, causing the SMP to plummet. As the profitability of coal power generation declined, the power generation subsidiaries suffered losses.

This is why the power generation subsidiaries have been requesting compensation for the unrecovered profits in the first half of the year.

Accordingly, after discussions among stakeholders including the Korea Power Exchange, KEPCO, and the power generation subsidiaries, institutional improvements have been pursued. The settlement adjustment coefficient in the first half was reportedly around 0.7 to 0.8.

Regarding whether this will affect consumer benefits, there is a clear difference in views between the power generation industry and environmental groups. The power generation industry explained, "The settlement adjustment coefficient is an issue of profit adjustment between KEPCO and its subsidiaries and does not affect KEPCO's consolidated financial statements, so it is unrelated to consumers such as electricity rates."

The environmental group Climate Solution opposed, stating, "If the settlement adjustment coefficient is adjusted retroactively, KEPCO's electricity purchase costs will increase, inevitably leading to higher electricity rates."

Climate Solution added, "We have filed a provisional injunction to prohibit deliberation on the 'Amendment to the Electricity Market Operation Rules' with electricity consumers and renewable energy power producers as the main parties."

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