Fuel Cost Adjustment Unit Price Frozen, A Choice for the People?… KEPCO's 'Snowball Deficit' Concerns

Fuel Cost Adjustment Rate Frozen for Q2... KEPCO Faces Loss of 89.22 KRW per kWh
Immediate Household Burden Reduced... KEPCO's Interest Costs Ultimately Borne by Public
Current Government and Transition Team Criticized for 'Passing the Buck'... "Could Become a Zombie Company"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Dongwoo Lee, Sejong=Reporter Junhyung Lee] The background behind the government and Korea Electric Power Corporation (KEPCO) freezing the fuel cost adjustment unit price for the second quarter of this year largely stems from the need to stabilize citizens' livelihoods amid high inflation rates. This measure aims to minimize household burdens considering the increase in the standard fuel cost and climate environment charges (6.9 KRW per kWh) to be applied from next month. However, concerns are growing that KEPCO's ballooning deficit, realized due to the frozen rates, may eventually return as a burden on the public.

According to KEPCO on the 29th, the electricity rate increase next month is expected to be around 2,120 KRW, reduced by 1,000 KRW from the initially projected 3,120 KRW for an average household of four using 307 kWh per month due to the fuel cost adjustment unit price freeze. This measure reduces the immediate burden on the public.

On the other hand, KEPCO's management situation is expected to worsen further. Last year, KEPCO posted a record operating loss of 5.8601 trillion KRW. Due to the recent surge in fuel costs, there are even forecasts that this year's deficit could exceed 20 trillion KRW. Yujeseon, a researcher at Hana Financial Investment, pointed out, "If the low level of electricity rate increases cannot be sustained, it will be even more difficult to reflect larger increase factors in the rates."

Previously, KEPCO had calculated the fuel cost adjustment unit price for the second quarter of this year at 33.8 KRW per kWh to normalize rates. This means that at least this amount must be raised to avoid deficits. In fact, the average wholesale electricity price KEPCO purchased from power plants last month was 197.32 KRW per kWh, while the electricity selling price was 108.1 KRW. This means KEPCO loses 89.22 KRW for every 1 kWh of electricity sold.

The problem is that KEPCO's deficit does not end as an issue for a single company. Although electricity rates were frozen to reduce the immediate burden on the public, the increase in interest costs due to the expanding deficit of KEPCO, the national grid operator, is a burden that the public must bear. This is why some criticize the fuel cost adjustment unit price freeze as a ‘hot potato’ being passed between the current government and the transition team ahead of the local elections in June.

Professor Yanghoon Son of the Department of Economics at Incheon National University explained, "The current government's energy mix policy has failed, and energy prices have surged, worsening KEPCO's profitability," adding, "Even if electricity rates are raised immediately, it is not enough to solve the problem in the short term." He said, "KEPCO's debt exceeded 145 trillion KRW last year, and the daily interest burden alone exceeds 10 billion KRW. If KEPCO fails to receive appropriate electricity rates, there is a high possibility it will become a ‘zombie company.’"

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