D-Day for Presidential Election, KEPCO on Alert... 10 Trillion Won Deficit in First Half if Electricity Rates Frozen

Government to Review Q2 Electricity Rate Hike Proposal by 20th
KEPCO: "Energy Price Surge Makes Additional Increase Inevitable"
Existing Hike Plan May Be Scrapped Depending on Presidential Election Outcome
Possibility of Around 10 Trillion Won Deficit in First Half of This Year

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Korea Electric Power Corporation (KEPCO), which recorded the largest-ever operating loss last year, is on high alert on the day of the presidential election. This is because the decision on whether to raise electricity rates in the first half of this year could depend on the election results. There are even projections that KEPCO’s operating loss could reach 20 trillion won this year in the worst-case scenario.

According to related ministries on the 9th, KEPCO plans to submit a proposal to the Ministry of Trade, Industry and Energy on the 16th of this month to raise electricity rates by 3 won per kWh for the second quarter of this year. The Ministry of Trade, Industry and Energy will review the electricity rate proposal submitted by KEPCO through the Electricity Committee’s deliberation and make a final decision on whether to raise rates by the 20th of this month. If the ministry does not respond with a separate opinion by the 20th, KEPCO will announce the submitted electricity rate proposal to the government as is on the following day.

This proposed increase by KEPCO is separate from the government’s previously announced increase plan. Earlier, the government and KEPCO announced that electricity rates would be raised twice, next month and in October, by 4.9 won per kWh each time, totaling 9.8 won. The climate and environment charge will also increase by 2 won per kWh starting next month. As a result, electricity rates will effectively increase by 11.8 won per kWh from October this year. Nevertheless, KEPCO’s additional electricity rate hike is due to the application of the ‘fuel cost linkage system.’ This system, implemented since January last year, adjusts electricity rates every three months based on the import prices of fuel costs such as oil and natural gas.

Energy Prices Soar... “The More We Sell, The More We Lose”

KEPCO insists that an additional electricity rate hike in the second quarter is inevitable. This is because energy prices have skyrocketed due to geopolitical conflicts such as the Ukraine crisis. In fact, international oil prices surpassed $130 during trading on the 7th. The situation is similar for liquefied natural gas (LNG). The Dutch TTF natural gas futures price, a European natural gas price benchmark, more than doubled in just one week.

The electricity wholesale price (SMP), which is the cost KEPCO pays to power producers for electricity, is also soaring. SMP is a key indicator that determines KEPCO’s profitability. According to the Korea Power Exchange, the SMP on the mainland on the 8th was 192.68 won per kWh, about 52% higher than 126.81 won on January 1 this year. The average integrated SMP last month was 197.32 won, marking the highest level in 10 years since 2012.

Although KEPCO urgently needs to raise electricity rates, the possibility of an additional increase in the second quarter remains uncertain. This is because the consumer price inflation rate has been above 3% for five consecutive months, and the next government is unlikely to choose an electricity rate hike that would face strong public resistance early in its term.

[Image source=Yonhap News]

Possibility of ‘April Increase’ Cancellation... Worst Case: 10 Trillion Won Deficit in First Half

The existing increase plan could be canceled depending on the presidential election results. Initially, Yoon Seok-yeol, the People Power Party’s presidential candidate, pledged to nullify the April increase plan announced by the current government. Although it was omitted from the final pledge book, Yoon’s campaign still considers it a valid pledge. Joo Han-kyu, professor of nuclear engineering at Seoul National University and head of the nuclear and energy policy division of Yoon’s campaign, said, “The candidate’s statement should be regarded as a valid pledge,” adding, “The basic intent of ‘nullifying the April increase’ is to expose the current government’s failure to raise electricity rates in a timely manner while advocating for nuclear phase-out.”

However, Lee Jae-myung, the Democratic Party’s presidential candidate, has not clearly stated his position on the current government’s electricity rate increase plan. He has only given general responses regarding electricity rates. Lee said, “We will rationalize electricity rates through the fuel cost linkage system but respond flexibly in terms of timing, considering inflation and the impact on the low-income economy.”

This is why there is an analysis that KEPCO’s ‘snowballing deficit’ is an inevitable outcome. The securities industry expects KEPCO to record a deficit of about 5.3 trillion won in the first quarter alone. This quarterly deficit nearly approaches KEPCO’s record loss last year (about 5.8 trillion won). It is reported that there is a consensus within KEPCO that the first quarter deficit could exceed 5 trillion won. In the worst case, KEPCO’s deficit could reach around 10 trillion won in the first half of this year.

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