Half-Baked Fuel Cost Linkage System... Political Logic Fuels KEPCO Deficit

KEPCO's Debt Reaches 142 Trillion Won This Year, Up 9 Trillion from Last Year
Operating Loss Hits Record High of 3.8492 Trillion Won... KEPCO Cites Increased Power Purchase Costs Due to Rising International Fuel Prices
Renewable Energy Supply Obligation Costs Rising... Expected to Exceed 3 Trillion Won Annually

[Sejong=Asia Economy Reporter Kwon Haeyoung] The reason Korea Electric Power Corporation (KEPCO) is expected to record the largest deficit in history this year lies in the rise in energy prices. This means that the burden of fuel costs, such as international oil prices, is directly affecting its performance. However, looking at it from another perspective, this also suggests that the 'Fuel Cost Linkage System,' which periodically reflects the rise and fall of power generation costs in electricity rates, is practically inoperable. While imports are limited, the burden of various climate and environmental costs due to energy transition and trillion-won level investments planned for Korea Energy Engineering University?criticized as a 'political engineering university' due to President Moon Jae-in's election pledge?are expected to push KEPCO's debt beyond 140 trillion won this year.

◆KEPCO Debt to Reach 142 Trillion Won This Year=According to the '2021-2025 Mid-to-Long-Term Financial Plan' submitted by KEPCO to Rep. Yoon Young-seok of the People Power Party on the 6th, KEPCO's debt is expected to increase by 9.66 trillion won from 132.4753 trillion won last year to 142.1354 trillion won this year. The debt ratio is projected to rise from 187.5% to 216.7% during the same period, and interest expenses are estimated to increase from 1.9954 trillion won to 2.0625 trillion won, exceeding 2 trillion won annually. Operating losses are expected to reach 3.8492 trillion won, and the interest coverage ratio is -1.9 times, indicating a rapid deterioration in financial conditions.

KEPCO explained the cause of the operating deficit by stating, "The increase in international fuel prices such as oil and thermal coal has raised power purchase costs." According to the report, KEPCO revised its average oil price forecast for 2021-2022 upward from the initial $52 per barrel based on Dubai crude to $62.5 this year. Thermal coal prices were also raised from $70.8 per ton to $92.4. Although oil prices surged sharply from the beginning of the year, prompting the need to raise electricity rates in the second and third quarters, the government repeatedly blocked electricity rate hikes citing inflation control. The burden on KEPCO is expected to increase further in the second half of the year when the effect of rising fuel costs fully manifests.

The rapid reduction in the utilization rate of coal-fired power plants, a cheap power source, due to accelerated energy transition under the current administration, is another factor increasing KEPCO's cost burden. According to KEPCO, the planned average coal power utilization rate for 2021-2024 was lowered from 70% to 55.3% this year. This led to poor performance in KEPCO's power generation subsidiaries in the first half of the year. Korea Southern Power recorded an operating loss of 12.7 billion won in the first half of this year, turning to a deficit compared to the same period last year, while Korea Midland Power and Korea South-East Power posted operating profits of 47.4 billion won and 91.5 billion won, respectively, down 58.9% and 21.9%.

◆Renewable Energy Supply Obligation Costs Surge Annually=On the other hand, the burden of various costs, including climate and environmental costs, is increasing. KEPCO is compensating power producers for renewable energy production and purchase costs, and the related Renewable Energy Supply Obligation (RPS) compliance costs are rising. KEPCO's RPS compliance costs increased from 1.612 trillion won in 2017 to 2.0163 trillion won in 2018, 2.0474 trillion won in 2019, 2.247 trillion won in 2020, and reached 1.6773 trillion won in the first half of this year, expected to exceed 3 trillion won annually.

To make matters worse, KEPCO is also being mobilized for political purposes. To fulfill President Moon's election pledge, about 1 trillion won must be poured into Korea Energy Engineering University, established in Naju, Jeollanam-do, over approximately 10 years. KEPCO plans to invest 41.3 billion won this year, 72.9 billion won in 2022, 129.7 billion won in 2023, 124.8 billion won in 2024, and 123.5 billion won in 2025, totaling 492.1 billion won over the next five years. Critics argue that KEPCO is being used for political purposes to secure votes in traditional ruling party strongholds by providing gifts to local residents through this 'political engineering university.' With increased investments in various facilities related to renewable energy, KEPCO's debt is also rising and is expected to reach about 166 trillion won by 2025.

An industry insider said, "Under the current administration, KEPCO's energy transition costs are rapidly increasing, and the fuel cost linkage system is not functioning properly due to political interference," adding, "Ultimately, this is placing a burden on the next administration."

Professor Jeong Dong-wook of Chung-Ang University's Department of Energy Systems Engineering said, "Although there were factors for electricity rate hikes, the fuel cost linkage system has become a half-baked system as it is not working properly," and added, "To raise electricity rates, KEPCO's management efficiency and diversification of electricity production portfolios, including nuclear power, must also be pursued."

Meanwhile, KEPCO's stock price, which was 30,050 won on December 18 last year, fell 21.6% to 23,800 won as of the closing price on the 3rd. During the same period, the KOSPI index rose by 15.5%.

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