KEPCO Presents 'Nuclear Phase-Out Bill' and Initiates 'Solar Drive'

KEPCO to Launch Massive Solar Power Project in the US... Largest Scale Ever
To Secure Renewable Market... Expected Investment of Hundreds of Billions if Acquired
Facing '30 Trillion' Deficit This Year... Criticism of "Overambitious Expansion"
Government Admits 'Nuclear Phase-Out Bill'... "Vulnerable to Fuel Cost Surge"
Electricity Rates to Rise Amid KEPCO Deficit... 4-Person Household to Pay 1,700 KRW More Monthly

Korea Electric Power Corporation Seoul Headquarters located in Jung-gu, Seoul. [Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Despite Korea Electric Power Corporation's (KEPCO) ballooning deficit, it is pushing to acquire a massive 500MW solar power plant in the United States based on the judgment that it must not fall behind in the competition to secure the future renewable energy market. In fact, the solar power business is structured to maximize profitability according to the 'economies of scale.'

The fact that the U.S. is the world's largest renewable energy market is also closely related to KEPCO's current acquisition efforts. The U.S. is home to companies such as Google, Apple, and GM that have joined the 'RE100 (Renewable Energy 100%)' initiative, resulting in high demand for renewable energy like solar power. This means solar energy can be sold at prices higher than the generation cost.

This is why KEPCO is simultaneously promoting solar power projects in the U.S. Earlier, KEPCO acquired a 235MW solar power plant in California in 2018. In March, it submitted a Letter of Intent (LOI) and is negotiating to acquire an 89MW solar power plant located in Imperial County, California. This plant is also equipped with a 200MW-class Energy Storage System (ESS), which is expected to add significant value when participating in the U.S. power market in the future.

Deterioration of Financial Structure Inevitable

The problem lies in KEPCO's financial structure, which is worsening day by day. KEPCO posted a deficit of 7.8 trillion won in the first quarter alone. There are even projections that KEPCO could incur a deficit exceeding 30 trillion won this year. Additionally, KEPCO has issued corporate bonds worth 15.5 trillion won from the beginning of this year until this month. The corporate bonds issued in the past six months amount to about 1.5 times the total issuance of 10.43 trillion won last year.

Acquiring a massive solar power plant will inevitably increase factors worsening the financial structure. The plant is expected to include not only a large-scale 500MW generation facility but also a 500MW-class ESS installation. Considering the substantial costs required for ESS construction, the acquisition price is expected to be higher than that of a typical solar power plant. The energy industry estimates that if KEPCO acquires 100% equity in the Texas power plant, several hundred billion won will be invested.

Securing profitability is also an issue. Most of KEPCO's overseas renewable energy projects have failed to avoid losses. A representative example is the U.S. Colorado solar power plant that KEPCO acquired in 2017 but withdrew from after three years. Originally, KEPCO expected to generate sales of $230 million (2.754 trillion won) over 25 years from the Colorado plant. However, actual power generation was only about 80% of the initial plan, and the profitability rate was 0.7% as of 2018.

Criticism of ‘Solar Drive’

Given this situation, there are criticisms that KEPCO is recklessly pushing a ‘solar drive.’ The record-high deficit was originally the result of the Moon Jae-in administration's ‘nuclear phase-out’ policy, which reduced the share of cheap nuclear power and increased the share of expensive renewable energy and liquefied natural gas (LNG). In fact, the share of nuclear power in the ‘energy mix’ decreased from 30% in 2016 to 27.4% last year. Meanwhile, the share of renewable energy increased from 4.8% to 7.5% during the same period. The cost KEPCO paid for renewable energy purchases last year was 103.72 won per kWh, nearly twice that of nuclear power at 56.28 won.

The government recently acknowledged that KEPCO's deficit stems from the nuclear phase-out policy. The Ministry of Trade, Industry and Energy, the relevant department, released a statement on the 28th saying, "It is true that cost-increasing factors have accumulated due to changes in the power mix following the energy transition policy and efforts to suppress electricity rate hikes," adding, "If the power mix shifts from low-cost generation such as nuclear and coal to LNG and renewable energy, shocks to the electricity market will inevitably increase when international fuel prices surge." This is the first official statement from the ministry acknowledging that the reduction in nuclear power share has increased KEPCO's deficit factors.

Jung Seung-il, President of Korea Electric Power Corporation, Attending the People Power Party Policy Members' Meeting
(Seoul=Yonhap News) Reporter Ha Sa-heon = Jung Seung-il, President of Korea Electric Power Corporation, is attending the People Power Party Policy Members' Meeting held at the National Assembly on the 27th to give a lecture. 2022.6.27 [Photo by National Assembly Press Photographers]
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Contrasted with High-Intensity Self-Rescue Measures

Calls for KEPCO's self-reflection are growing. Since KEPCO's deficit directly translates into a burden on the public, there are criticisms that it should focus on improving its financial structure rather than expanding renewable energy projects under the banner of carbon neutrality. To resolve KEPCO's deficit, the government decided on the 27th to raise electricity rates by 5 won per kWh in the third quarter. This increase will raise the average monthly electricity bill for a family of four by about 1,700 won.

There is also a view that the acquisition of a massive solar power plant contrasts with KEPCO's high-intensity self-rescue measures. Last month, KEPCO formed an emergency countermeasure committee with its power group companies and began preparing self-rescue plans to improve its financial structure. It also announced plans to reduce costs by more than 6 trillion won through the sale of equity stakes, real estate, and restructuring of overseas businesses.

However, KEPCO maintains that it can pursue self-rescue measures and respond to carbon neutrality simultaneously. Through its ‘Mid-to-Long-Term Management Goals’ announced at the end of last year, KEPCO stated it plans to more than double its overseas renewable energy generation capacity from 826MW this year to 1,761MW by 2026.

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