4 Trillion Won This Year Alone... KEPCO's Largest Deficit Ever

Investment and climate environment costs increased in renewables, but fuel cost linkage system ineffective, raising management burden
Concerns over electricity price freeze in Q4 ahead of presidential election

[Sejong=Asia Economy Reporter Kwon Haeyoung] Korea Electric Power Corporation (KEPCO), a state-owned energy company, is expected to record a deficit close to 4 trillion won this year. This figure far exceeds the 2.8 trillion won deficit during the 2008 global financial crisis, which was considered the worst in history. Since the inauguration of the Moon Jae-in administration in 2017, investments in renewable energy have increased due to a rapid shift in energy policy, and climate and environmental costs have risen significantly. However, the fuel cost linkage system, which was introduced with difficulty after nine years, has not functioned properly, resulting only in increased management burdens for KEPCO.

According to the '2021-2025 Mid-to-Long-Term Financial Management Plan' submitted by KEPCO to Rep. Yoon Young-seok of the People Power Party on the 6th, KEPCO's operating loss this year is expected to reach 3.8492 trillion won (consolidated including power generation subsidiaries). The deficit of KEPCO alone, excluding the performance of power generation subsidiaries, is even larger at 4.3845 trillion won. This is more than 1 trillion won greater than the deficit in 2008 during the global financial crisis (2.7981 trillion won on a consolidated basis), and KEPCO is expected to record the largest loss in its history this year.

KEPCO stated in the report, "In 2021, a deficit of 3.8 trillion won is expected due to rising energy prices," and added, "From 2022 onwards, operating profits are expected to return due to the stabilization of fuel cost adjustment charges."

Last year, KEPCO recorded a surplus of over 4 trillion won due to falling energy prices. However, the situation has changed significantly this year. International oil prices have been rising, and expenditures have increased substantially due to investments in renewable energy for carbon neutrality and climate and environmental costs. On the other hand, the fuel cost-electricity rate linkage system introduced this year has practically become non-functional, so revenues have not improved.

The government had to raise electricity rates in the 2nd and 3rd quarters due to rising fuel costs after the first application in the 1st quarter, but froze electricity rates twice citing inflation control. According to KEPCO, a 1% increase in electricity rates would increase KEPCO's pre-tax net profit by 268.8 billion won on a half-year basis and 537.5 billion won annually. The reduction in the operation rate of coal-fired power plants, which are cheap power sources, is also a factor increasing KEPCO's burden.

An industry official said, "As the rise in energy prices is fully reflected in the second half, even if electricity rates are raised in the 4th quarter, it will be difficult to fully reflect the increase in production costs," adding, "If electricity rate hikes are blocked again in the 4th quarter ahead of the March presidential election next year, trust in the fuel cost linkage system and government policies will completely collapse."

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