KEPCO Expects Improvement in Negative Margin Structure in May... Higher Possibility of Electricity Rate Freeze in Q3

Korea Electric Power Corporation (KEPCO) 'Loss-Making for 8 Consecutive Quarters'
May Power Purchase Price Lower Than 2nd Quarter Electricity Rates

With the continuous decline in the System Marginal Price (SMP) of electricity wholesale prices, the increase in electricity rates, and the shift to a downward trend in international oil prices, attention is focused on Korea Electric Power Corporation's (KEPCO) electricity sales price and purchase price for May. As the 'negative margin' trend, which caused losses the more electricity was sold, is likely to be interrupted or eased, support for freezing electricity rates in the third quarter is growing stronger.

A government official said on the 13th, "With international oil prices falling and rates rising, from May onward, KEPCO's selling price of electricity may become higher than its purchase price." The official added, "Last month, the electricity rate per kWh (154.6 won) exceeded the SMP (143.6 won), which is significant as it is the first time this has happened throughout last year and this year," and predicted, "Even if an immediate return to profitability does not occur, the negative margin will be greatly reduced."

This also affects the decision-making process for electricity rates in the third quarter (July to September). The government official stated, "Until now, KEPCO has been suffering from negative margins, but the situation has changed, making a profit expectation possible," dismissing the possibility of electricity rate increases in the third quarter.

The government raised the second quarter electricity rate by 8 won per kWh starting May 16. The electricity rate was 146.6 won per kWh in the first quarter and 154.6 won per kWh in the second quarter this year. According to the Korea Power Exchange, the SMP, which is reflected in KEPCO's electricity purchase price, has fallen for three consecutive months since March this year, contributing to the decline in purchase prices. The integrated SMP for May was 143.64 won per kWh, down 21.22 won from the previous month.

In the May electricity statistics monthly report to be announced by KEPCO in July, the sales price is highly likely to exceed the SMP for the first time since September 2021. Based on this outlook, KEPCO's financial structure, which has recorded losses for eight consecutive quarters since the fourth quarter of 2021, is expected to improve. The government anticipates that if electricity rates are increased by 5% annually, the accumulated deficit could be completely eliminated by 2027.

KEPCO bond issuance is also continuously decreasing. The amount of new long-term bonds issued by KEPCO has steadily declined from 3.21 trillion won in January to 800 billion won in May. Although 800 billion won was newly issued by the 12th of this month, potentially increasing issuance again, the market expects KEPCO bond issuance to continue decreasing from a macro perspective.

In the securities industry, there are also forecasts that KEPCO's profitability will improve in the second half of this year. Kim Ki-myung, a researcher at Korea Investment & Securities, explained, "KEPCO's future profitability is expected to improve significantly compared to the 6.2 trillion won operating loss recorded in the first quarter," and added, "Based on profitability improvement, there is a possibility of reducing future KEPCO bond issuance volume." A KEPCO official commented on bond issuance plans, saying, "We need to respond flexibly according to funding operation plans," but also predicted, "Since sales prices will rise and revenue will increase in summer, the downward trend may continue."

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