End of Jangma, Start of Heatwave... KEPCO Deficit Widens Further

On the 25th, when a heatwave advisory was issued for most regions nationwide, heat haze was rising from the ground at the Sejongno intersection in Jongno-gu, Seoul. Photo by Jin-Hyung Kang aymsdream@

[Asia Economy Sejong=Reporter Dongwoo Lee] As the monsoon season ends this summer and the intense heat begins in earnest, the deficit of Korea Electric Power Corporation (KEPCO) is expected to deepen as electricity demand increases. This is because the electricity rates have increased less compared to the rise in fuel costs such as international oil prices, resulting in a continuous 'loss the more electricity is sold' situation. KEPCO is promoting financial soundness plans such as asset sales to reduce the deficit, but without fundamental solutions like rate normalization, it is analyzed that the deficit will inevitably widen in the second half of this year.

According to the Korea Power Exchange on the 27th, the average wholesale electricity price (SMP) on the mainland basis until this month is 150.15 KRW per kWh, up 17.4% compared to the same period last month (June 1-27, 127.86 KRW). After peaking at 202.11 KRW in April, SMP showed a downward trend for two consecutive months before turning upward this month.

SMP is the price at which KEPCO purchases electricity from power generators and is influenced by fuel prices such as oil and liquefied natural gas (LNG). On the other hand, considering that KEPCO sells electricity at an average price of around 105-110 KRW, it is effectively supplying electricity at a loss. The government raised the fuel cost adjustment rate by 5.0 KRW per kWh in the third quarter of this year, but KEPCO analyzed that it needs to raise it by at least 33.6 KRW to escape the current deficit structure.

The concern is that as the summer heat intensifies and electricity demand increases, KEPCO’s deficit could widen further. According to the Korea Power Exchange, power plants with the cheapest fuel costs, such as nuclear power, are operated first, followed sequentially by coal and LNG plants with higher fuel costs. Ultimately, as the operation rates of coal and LNG plants increase, SMP also rises.

According to the New York Mercantile Exchange (NYMEX), natural gas futures have risen about 30.30% over the past month. As of the 25th (local time), they closed at 8.47 dollars per MMBtu (unit of heat), more than doubling compared to one year ago (4.00 dollars). The calorific unit price of Korea Gas Corporation also rose 17.2%, from 77,662 KRW per Gcal last month to 91,017 KRW this month.

Minjae Lee, a researcher at NH Investment & Securities, estimated KEPCO’s fuel costs in the second quarter increased 49% year-on-year to 5.8 trillion KRW, and electricity purchase costs rose 66% to 7.2 trillion KRW. Due to the rise in fuel costs, KEPCO purchased electricity from power plants at 156 KRW per kWh but sold it at 110 KRW, resulting in a loss of about 40 KRW per kWh.

If this situation continues, there is an analysis that KEPCO could record a deficit of about 30 trillion KRW this year. KEPCO’s operating loss consensus for this year is minus 23.27 trillion KRW, and Hana Securities estimated that KEPCO’s deficit could reach 30.22 trillion KRW this year.

A power generation company official expressed concern, saying, "If KEPCO’s actual rate normalization is not achieved, the increase in electricity demand during the summer will be directly reflected in the third quarter’s business performance, further expanding the deficit."

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