Despite Record-High Electricity Rate Hike, KEPCO Faces 10 Trillion Won Deficit This Year

[Image source=Yonhap News]

[Asia Economy Sejong = Reporter Lee Dongwoo] Despite the government's record-high increase in electricity rates in the first quarter of this year, projections indicate that Korea Electric Power Corporation (KEPCO) will continue to operate at a multi-trillion-won deficit through the end of the year. This is because the government, concerned about surging inflation, limited the rate hike needed for KEPCO's normalization (51.6 won) to just one-quarter of that amount (13.1 won). KEPCO, which is already facing a cash shortage, has stated that it will have no choice but to secure operating funds by issuing corporate bonds again this month.

According to financial information provider FnGuide on January 3, KEPCO is estimated to record an operating loss of 7.117 trillion won in the first quarter of this year. While sales for the same period are expected to reach 22.627 trillion won, a 37.4% increase compared to the same period last year (16.464 trillion won), the loss is projected to improve by only 8.6% (667 billion won).

This is because the low electricity rate structure relative to costs was not fully resolved in this rate hike. According to the Monthly Electric Power Statistics, from January to October last year, KEPCO purchased electricity at 151.5 won per kWh and sold it at 116.7 won per kWh, incurring a loss of 34.8 won for every kWh sold. Even with a 13.1 won increase in the first quarter of this year, an average deficit of around 21 won per kWh will continue to accumulate.

Industry Minister Lee Changyang stated, "From the second quarter onward, we plan to comprehensively consider international energy prices and inflation to determine whether to raise rates." However, experts believe that it will be difficult to decide on rate hikes every quarter due to inflationary pressures. The financial sector estimates that if the government fails to implement the originally mentioned rate hike (51.6 won), KEPCO's cumulative deficit could reach 11.972 trillion won by the end of the year.

The Ministry of Trade, Industry and Energy had initially requested the government to implement a "high first half, low second half" rate increase, with much higher rates in the first and second quarters than in the third and fourth quarters. Accordingly, there was a possibility of a rate increase of up to about 20 won per kWh in the first quarter. However, the Ministry of Economy and Finance reportedly preferred a plan for evenly distributed quarterly increases, citing concerns that a sharp hike in public utility rates could further fuel inflationary pressures.

The key issue is whether the government will be able to promptly reflect the upward trend in international energy prices. The Ministry of Trade, Industry and Energy decided to maintain the current limit on the adjustment range for the fuel cost pass-through system in this rate hike. Under current law, the fuel cost adjustment rate, which reflects changes in fuel prices in electricity rates, is limited to an increase of 3 won per quarter and 5 won per year. Yoo Seunghoon, professor of energy policy at Seoul National University of Science and Technology, said, "The current structure of the fuel cost adjustment system makes it difficult to promptly reflect changes in international energy prices in costs, which limits the ability to adjust rates accordingly."

The persistently high prices of major power generation fuels such as liquefied natural gas (LNG), coal, and oil also remain a burden. According to the Korea Power Exchange, in November last year, the calorific value price of LNG was 153,802 won per 1 Gcal, a 100.1% increase from a year earlier (76,856 won). During the same period, coal (up 88.8%) and oil (up 76.0%) also nearly doubled, continuing to weigh on KEPCO's finances. KEPCO plans to continue securing operating funds through corporate bond issuance this year as well. Last year, it issued a total of 31.8 trillion won in corporate bonds at an average interest rate of 4.19%, with interest payments amounting to 3 trillion won.

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