"Korea Electric Power Corporation Blocked from Raising Electricity Rates, Weakened Momentum for Eco-Friendly Transition"

KEPCO to Freeze Electricity Rate Hikes Through Q1 Next Year
Stock Down 20% Since Early This Year, Operating Loss Nears 6 Trillion Won Next Year
"Rate Increase Needed for Eco-Friendly Transition and Long-Term Consumer Burden Reduction"

[Asia Economy Reporter Minji Lee] There are projections that if the government freezes electricity rates in the first quarter of next year, Korea Electric Power Corporation's (KEPCO) operating losses will increase further. Consequently, the company's capacity for eco-friendly investments is also expected to weaken.

Looking at KEPCO's stock price on the 25th, it points to 21,500 KRW, down 20% since the beginning of the year. Over the past month, the stock price has fallen by 2.5%, which is analyzed to reflect concerns that the deficit could widen due to the freeze on electricity rates from January to March next year despite rising fuel costs.

Recent quarterly tariff adjustment results for KEPCO show that the variable fuel cost is 29.1 KRW per kWh, and considering the actual fuel cost adjustment unit price with the cap applied, an increase of 3 KRW per kWh is necessary. However, the government postponed the application after raising the fourth-quarter fuel cost adjustment unit price by 3 KRW per kWh last September, citing reasons such as stabilizing citizens' livelihoods. In conclusion, although an increase of 29.1 KRW per kWh is needed to reach the standard fuel cost, it was effectively frozen. Yuje-seon, a researcher at Hana Financial Investment, said, “The reasons for the previous freeze, such as the prolonged COVID-19 pandemic and inflationary pressures, have reemerged,” adding, “Considering the price trends of major raw materials like thermal coal and crude oil, the rise in fuel costs affecting performance is expected to continue through the first half of next year and beyond.”

In June, when the third-quarter fuel cost adjustment unit price was frozen, guidance for the fourth quarter was provided, and an increase was implemented afterward. However, this time, there was no special mention of future prospects during the freeze, making it difficult to expect uncertainty resolution. Researcher Yu added, “The unreflected portion due to rising raw material prices has rapidly accumulated to 29.1 KRW/kWh,” and analyzed, “When the total cost settlement is conducted next year, including the recalculated climate environment charges, it will act as a factor for electricity rate increases.”

Adjustments to climate environment charges, total cost, and standard fuel costs are scheduled for early next year, but considering political uncertainties and inflationary burdens, an immediate increase is expected to be difficult. Accordingly, there is no reason to expect an upward revision of KEPCO's operating profit forecast for next year.

With the failure to raise electricity rates, KEPCO's financial soundness is expected to deteriorate. Electricity rates are public utility charges determined by law considering inflation and are heavily influenced by government policy decisions aimed at public welfare. Since 2011, when the linkage system became ineffective due to rapid inflation, electricity rates are unlikely to respond to losses as accounts receivable like gas rates do. According to securities firms, KEPCO's operating loss this year is estimated at 4.7 trillion KRW and is expected to approach 6 trillion KRW next year.

Ultimately, the freeze on electricity rates is expected to weaken KEPCO's investment capacity, which is key to the transition to eco-friendly energy. KEPCO and its power generation subsidiaries plan massive investments totaling 15.9 trillion KRW, including more than doubling renewable energy generation facility investments to 1.2 trillion KRW in 2002, but considering the large deficit next year, the feasibility of these plans is uncertain.

Overseas countries such as the United States, the United Kingdom, and Japan also tend to suppress retail rates compared to wholesale rates, but retail rates have increased by more than 10%, and China is also in the process of liberalizing its electricity market by expanding industrial electricity rate hikes since October. Mungyeongwon, a researcher at Meritz Securities, said, “Suppressing rate increases only leads to greater long-term consumer burdens,” and added, “Korea also needs policies that allow minimal electricity rate increases to facilitate eco-friendly transitions and reduce long-term consumer burdens.”

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