Tariff Freeze Followed by Rising Costs... KEPCO Faces 'Power Outage Crisis'

Impact of Raw Material Price Surge
Burden of Power Purchase Costs for LNG, Coal, and Oil

Limitations of Debt Rollover
Debt of 21.7 Trillion Won in 6 Years
Electricity Rates Must Be Normalized

The surge in liquefied natural gas (LNG) power purchase costs is largely due to the reduction in global exports of Russian energy following Russia's invasion of Ukraine earlier this year.

With the prices of energy raw materials necessary for electricity production soaring, and the government limiting electricity rate hikes out of concern for inflation, Korea Electric Power Corporation's (KEPCO) management crisis is being pushed to the brink, analysts say.

Nuclear Phase-Out Debt, Raw Material Price Surge Boomerang

According to the Ministry of Trade, Industry and Energy's raw material price information on the 25th, the LNG import price rose by 20.08 percentage points to $1,013.35 per ton compared to last month. KEPCO's LNG power purchase unit price more than doubled year-on-year, leading to a record-high expenditure of 3.5617 trillion won just last month.

The raw material price surge has also burdened power purchase costs for coal (thermal coal) and oil. In the first quarter of this year, coal (thermal coal) purchase costs totaled 6.8145 trillion won, up 74.7% from 3.899 trillion won in the same period last year, while oil costs rose by 57.7%. Due to the increase in raw material prices for base power sources such as thermal power generation (LNG, coal, oil), KEPCO spent 7.5836 trillion won on total power purchases as of February, recording sales revenue of 5.4767 trillion won and incurring a loss of approximately 2.1 trillion won.

Experts evaluate that increasing nuclear power generation to reduce additional power purchase costs could have cut about 70% of KEPCO's debt of 68.5 trillion won last year. However, increasing coal power generation, which is relatively cheaper, is also difficult because coal power is being reduced annually under the 2050 carbon neutrality policy aimed at decarbonizing power production.

Experts predict that if KEPCO had purchased coal power, which has relatively cheaper fuel costs than LNG, it could have saved at least 500 billion won. This is because the coal (thermal coal) power purchase unit price in the first quarter was 146.26 won, only 65.2% of the LNG purchase unit price of 224.03 won.

Limits to KEPCO's Debt Rollover

The government, concerned that public utility rate hikes would lead to inflation, has effectively left KEPCO's operating losses to be compensated later through large-scale tax injections. However, with KEPCO's total borrowings reaching 75 trillion won last year, this approach has also reached its limit. KEPCO must repay about 9.3 trillion won in borrowings within this year, and if such operating losses continue, the financial industry predicts that borrowings will reach 21.7 trillion won in six years, making operations virtually impossible.

According to the Ministry of Trade, Industry and Energy, the Korea Power Exchange, KEPCO, and six power generation public enterprises have passed a 'Regulation Amendment on the Payment Date of Power Transaction Fees' through the Rules Amendment Committee. This allows KEPCO to defer payment once if it cannot pay the power transaction fees to the six power generation public enterprises, enabling a one-time payment later. This is a desperate measure taken due to the worsening scale of KEPCO's debt and the difficulty of resolving operating losses in the short term.

To resolve KEPCO's performance deterioration caused by government policy risks, the only urgent solution left is to normalize electricity rates. However, KEPCO estimates that rates need to be raised by about 30 won per kWh for this, which is practically impossible to resolve in the short term. KEPCO raised electricity rates by 6.9 won this month based on fuel costs and climate environment charges, but experts warn that a significant increase in base fuel costs, calculated on an annual total cost basis, must be seriously considered to offset the deficit. Chu Kyung-ho, the nominee for Deputy Prime Minister and Minister of Economy and Finance, also criticized, "(Public enterprises) should not irresponsibly approach the issue by neglecting efforts to stabilize public utility rates, accumulating other price increase factors through reckless management, and then raising prices when the time comes."

Professor Jeong Dong-wook of the Department of Energy Systems Engineering at Chung-Ang University said, "Another way for KEPCO to escape operating losses is to increase the nuclear power plant utilization rate," adding, "To do this, appropriately allocating administrative discretion such as the Nuclear Safety and Security Commission's safety assessments to restart currently operable nuclear plants could be one method."

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