FKI Calls for Ending Monopoly in Power Industry... "Opposition Cites Risks of Rate Hikes and Safety Management"

"KEPCO Monopoly System Is Not Sustainable"
Some Raise Counterarguments Including Risk of Rate Hikes

[Asia Economy Reporter Moon Chaeseok] As calls grow louder to activate power purchase agreements (PPAs) that allow direct transactions between private power producers and consumers without involving Korea Electric Power Corporation (KEPCO), voices from the business community have emerged advocating for a shift from the current public enterprise monopoly system to a competitive structure. However, some oppose this, citing risks such as rate hikes and declines in safety and maintenance management capabilities.

On the 21st, the Federation of Korean Industries (FKI) argued that the monopoly structure centered on KEPCO and its subsidiaries in the power industry should be broken and market competition principles introduced. They believe that, as in most OECD countries, competition between private and public enterprises will improve power quality and enable rationalization of rates. Above all, considering the limitations of the fuel cost linkage system?which has not functioned properly amid soaring oil prices, inflation, public opinion, and pressure from fiscal authorities?they stated that the current monopoly system is unsustainable and must be acknowledged as such.

Yoo Hwan-ik, head of the FKI’s Industrial Headquarters, emphasized, "The public monopoly system that ignores market principles is the fundamental cause of KEPCO’s chronic deficits, and such a system is unsustainable. Rather than continuing to delay discussions on power industry reform, efforts should be made step-by-step to improve the system into a more market-friendly and innovation-driven structure that aligns with global standards." He implied that postponing the transition to a competitive system is not the best approach.

The FKI proposed that for the development of the power industry, competition should be introduced in the retail sector, neutrality of transmission and distribution networks should be secured, and vulnerable groups and manufacturers should be protected. The power industry supply chain consists of 'generation-transmission-distribution-retail.' The 'generation' sector, previously controlled by KEPCO, has been divided among six subsidiaries including Korea Hydro & Nuclear Power and the Southeast, East, South, West, and Central Power companies, with some private companies like GS EPS, SK E&S, and POSCO Energy competing. About 70% is managed by KEPCO subsidiaries, while roughly 30% is in competition with private firms. The remaining 'transmission-distribution-retail' sectors are entirely under KEPCO’s control.

The FKI cited examples such as the UK, which introduced retail market competition in 1999 and fostered energy innovation ventures like OVO Energy; Japan, which over 20 years since 2000 reformed by separating the transmission and distribution networks from the top 10 private monopolies to offer bundled services including telecommunications and gas; and France, which, like Korea, operates mainly through a public enterprise (EDF) but has partially introduced market competition in distribution, retail, and renewable sectors.

Countries that have liberalized their power markets commonly allow consumers greater rights to choose from various products by region and power source, even if electricity rates rise somewhat. According to the FKI, among the 37 OECD countries, only Korea and Israel operate both transmission-distribution networks and retail markets under monopoly systems.

The FKI also noted that the Yoon Seok-yeol administration has set "establishing a power market based on competition and fairness principles and establishing cost-based electricity pricing" as an energy policy direction. The FKI stated, "The first step to realizing government policy is to introduce competition in the power retail sector," adding, "Competitive pressure in the power retail market is expected to improve the overall efficiency of the energy system." They further noted, "Innovations in energy demand using new technologies are difficult to achieve under a monopolistic power retail system."

Some in the power industry counter that the proposal is unrealistic due to risks such as rate increases, expanded safety and maintenance management risks, and high entry barriers for private companies. Unlike Europe, Korea faces fundamental weaknesses in supply stability because its grid is blocked from the continent due to North Korea.

Moreover, private companies may find it difficult to equip facilities comparable to KEPCO and its six subsidiaries, meaning it could take a long time to manage production costs and secure economic viability. Many also worry that electricity rates could skyrocket amid inflation. There are concerns about how well private companies can handle maintenance and management work nationwide, previously managed by KEPCO and its subsidiaries, and questions about accountability if safety accidents increase due to ineffective management.

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