Why Was the Fuel Cost Linkage System Introduced... KEPCO Reports 1 Trillion Won Operating Loss in Q3 (Comprehensive)

Jung Seung-il, President of Korea Electric Power Corporation, attended the National Assembly inspection on the 12th held by the National Assembly's Industry, Trade, Energy, Small and Medium Venture Business Committee regarding Korea Electric Power Corporation, and is reporting on business operations. Photo by Yoon Dong-joo doso7@

[Sejong=Asia Economy Reporter Kwon Haeyoung] Korea Electric Power Corporation (KEPCO) recorded an operating loss close to 1 trillion won in the third quarter of this year due to the sharp rise in fuel costs such as liquefied natural gas (LNG). Despite the introduction of the 'fuel cost linkage system,' which periodically reflects fuel cost fluctuations in electricity rates, the government, concerned about inflation, did not sufficiently raise electricity rates, which increased the scale of losses. While increasing the share of renewable energy generation to achieve carbon neutrality and rapidly reducing cheap power sources such as nuclear and coal power, the government suppressed electricity rate hikes, leading to criticism that the current administration is passing the 'bomb' to the next government.

KEPCO announced on the 12th that its consolidated operating loss for the third quarter of this year was tentatively estimated at 936.7 billion won, turning to a deficit compared to the same period last year (operating profit of 2.3322 trillion won).

Following an operating loss of 764.8 billion won in the previous second quarter, this marks two consecutive quarters of losses. As a result, the cumulative operating loss up to the third quarter of this year was calculated at 1.1298 trillion won.

Sales in the third quarter were 16.4622 trillion won, up 4.8% compared to the same period last year, and net loss turned to 1.0259 trillion won. On a cumulative basis for the third quarter, sales were 45.0564 trillion won, an increase of 2.7% compared to the same period last year.

The operating loss is interpreted as due to decreased profitability. Fuel and power purchase costs increased due to high oil prices, while profitability worsened as electricity rates were frozen in the third quarter.

According to KEPCO, electricity sales volume from the first to the third quarter of this year increased by 4.6% compared to the same period last year due to an increase in the average operating rate of the manufacturing industry. However, since the increase in fuel costs was not reflected in electricity rates, the sales unit price fell by 2.2%, resulting in only a 1.9% increase in electricity sales revenue.

KEPCO introduced the fuel cost linkage system this year, which reflects fuel costs incurred in electricity production in electricity rates every three months. Electricity rates for the second and third quarters should have risen reflecting the upward trend in oil prices, but the government froze rates citing the stabilization of citizens' lives suffering from the prolonged COVID-19 pandemic.

From the first to the third quarter, fuel costs of KEPCO subsidiaries and power purchase costs from private power producers increased by 1.8965 trillion won and 2.8301 trillion won, respectively, compared to the same period last year. In addition, other operating expenses expanded to 735.2 billion won due to increased depreciation expenses from the acquisition of power generation and transmission and distribution facilities.

Meanwhile, KEPCO plans to make high-intensity management efficiency efforts, such as suppressing the unit cost of power supply within 3%. It also announced that it will strengthen efforts to create new revenue sources, including securing core carbon neutrality technologies and expanding overseas renewable energy projects.

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