Korea Electric Power Corp. (KEPCO) is expected to be under greater financial burden as the power company saw its system marginal price (SMP) soar to the highest level in about seven years.
SMP is the price with which KEPCO buys electricity from power companies via Korea Power Exchange. KEPCO is forecast to see its operating loss rise in the fourth quarter of this year since wholesale prices surged, but growth of retail prices has been weighed down to some extent, thus widening of KEPCO’s losses.
The weighted SMP average jumped to 148.67 won per kWh on Dec. 1, the most since Jan. 16, 2015, when 143.16 won was recorded, according to Korea Power Exchange.
Rising electricity costs are owed to surging global liquefied natural gas prices, which is an unfavorable factor in the government’s policy of weaning the nation off nuclear power. The current situation is not transient, but a long-term problem.
The government, reducing the nation’s dependence on nuclear power with no greenhouse gas emissions, has increased LNG power generation, which emits less greenhouse gases than coal and petroleum, but much more than nuclear power.
As power generation by renewable energies, such as photovoltaic power and wind power, falls short of baseload expectations, the government has turned to LNG as a fuel for power generation as part of the strategy to reduce carbon emissions as much as possible. But as global LNG prices surged, the government has no option but to raise electricity prices.
Given global trends of rising demand for LNG, an additional raise in electricity charges will be inevitable until the power generation portion of nuclear power units is raised.
An evaluation of fuel unit prices for the period between October and December, announced by the government and KEPCO on Sept. 23, showed that prices of bituminous coal, LNG and bunker C-oil surged to 355.42 won per kg between June and August, a 19 percent jump over the previous three months. LNG prices jumped 72 percent during the same period.
Futures of LNG imported by Korea jumped over three times in September compared to those in February. Global LNG prices have showed signs of keeping on rising.
The problem is that the nation is cutting the power generation portion of cheaper nuclear power, while raising the power generation percentage of more expensive LNG and renewable energies.
The power generation portion of nuclear power stood at 29.8 percent, versus 20 percent for LNG, in July 2016, when the current government was launched.
But things have changed. The percentage of nuclear power declined to 22.7 percent while the port of LNG surged to 28.9 percent.
As long as the government sticks to its policy of weaning the nation off nuclear power and expanding renewable energies, KEPCO is expected to see power generation costs surge.
Due to unpredictable power generation amounts, caused by precarious weather conditions, the nation has to depend on the LNG power generation.
Costs for purchasing electricity should have based on retail prices, not whole-sale prices, and the current electricity pricing structure has made a fuel cost indexing system futile, forcing KEPCO to sustain related losses. KEPCO suffered 936.7 billion won in losses in the 3rd quarter of this year.
The huge losses were a surprised for securities companies, who predicted that the power company would log about 300 billion won in operating profit.
KEPCO reported 936.7 billion won in Q3 operating losses on a consolidated basis. Q3 losses were 170 billion won more than 764.8 billion won in Q2 operating losses. Cumulative operating losses soared to 1,896.5 billion won in the first nine months of this year.
KEPCO Builds Emergency Response System to Brace for Cold Wave
KEPCO has begun to conduct prior inspection into electricity facilities and build an emergency response regime for three months to brace for a winter cold wave.
KEPCO said the power supply is forecast to be stabilized during this winter, but the power company has designed the period between Dec.1 and next Feb. 28 as a special time in which countermeasures will be taken to cope with emergency cases.
KEPCO predicted that the power supply capacity is forecast to peak to 110,178MW and power consumption is predicted to peak at between 90,300MW and 93,500MW during the third week of next January.
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