KEPCO Forecasts Highest Electricity Purchase Costs in 5 Years This Month... How Will the Snowballing Deficit Be Managed?

Average SMP from 1st to 25th of this month at 141.53 KRW per kWh... Expected to reach highest point since January 2015 (140.54 KRW)
Cumulative deficit this year projected at 4.7546 trillion KRW... Deficit likely to increase next year

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kwon Haeyoung] As international oil prices rise, the 'System Marginal Price (SMP)' at which Korea Electric Power Corporation (KEPCO) purchases electricity from power producers is soaring, and the average SMP for this month is expected to reach its highest level in over five years. Concerns are growing that KEPCO's deficit will balloon like a snowball as the government freezes electricity rates for the first quarter of next year.

According to the Korea Power Exchange and industry sources on the 26th, the average SMP (based on the mainland) from the 1st to the 25th was 141.53 KRW per kilowatt-hour (kWh). If the monthly average SMP exceeds 140 KRW, it will be the first time since January 2015 (140.54 KRW).

SMP is influenced by oil prices, and recent trends show that it surpassed the 70 KRW mark in January at 70.47 KRW, then rose rapidly to 82.72 KRW in June, 93.41 KRW in August, 107.53 KRW in October, and 126.83 KRW in November. During the same period, international oil prices based on Dubai crude rose from around 50 USD per barrel in January to the 80 USD range in October, currently standing at the 70 USD range. Although the rise in international oil prices has slowed, SMP generally lags behind oil prices, so the upward trend in SMP is expected to continue until the first half of next year.

KEPCO's management burden is also expected to increase. Since about 80% of KEPCO's total budget is spent on electricity purchases, and the government is freezing electricity rates for the first quarter of next year, KEPCO's cost burden is growing even heavier.

The average consensus among securities firms for KEPCO's operating loss in the fourth quarter is 3.6248 trillion KRW. Adding the cumulative operating loss of 1.1298 trillion KRW from the first to third quarters of this year, the annual cumulative operating loss is calculated to reach 4.7546 trillion KRW.

Securities firms expect operating losses in the first and second quarters of next year, with deficits estimated at 1.095 trillion KRW and 2.572 trillion KRW, respectively. Some voices have raised concerns that KEPCO's annual operating loss could reach 10 trillion KRW next year.

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