KEPCO Losses Snowball As True Cost of Fuel Not Reflected in Electricity Rates
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KEPCO Losses Snowball As True Cost of Fuel Not Reflected in Electricity Rates
Electricity bills will rise 6.9 won per kilowatt-hour (kWh) from April, but variation for fuel costs in the second quarter of the year will be frozen

25(Mon), Apr, 2022

Electricity bills will rise 6.9 won per kilowatt-hour (kWh) from April. Four-member households with an average electricity consumption is expected to see electricity bills increase 2,300 won monthly on average. 

But Korea Electric Power Corp. decided to freeze the variation on fuel costs for the second quarter of the year, a major when it comes to determining electricity rates. 

KEPCO originally planned to increase the variation on fuel costs in consideration of the rising price of international crude oil, but put it on hold in accordance with the government’s request.
It may be construed to be influenced by President-elect Yoon Suk-yeol’s public pledge to retract electricity rate increases, easing the financial burden of rising energy prices on the population. 

The surging burden related to fuel costs now has to be shouldered by KEPCO.

Originally, KEPCO set the fuel cost unit variation for Q2 at 33.8 won per kWh, reflecting crude oil and LNG price hikes. 

The state utilities company submitted to the government on March 16 a plan to raise the fuel cost unit variation to 3 won per kWh, a quarterly increase cap, but the government put it on hold. 

The fuel cost unit variation is designed to reflect market price fluctuations of fuels for power generation such as LNG and bituminous coal.

Prof. Yoo Seung-hoon of Seoul National University of Science & Technology Energy Policy Department said energy prices, which have surged since last year, were forced to not be reflected in electricity rates. 

It should have been put on hold due to KEPCO’s snowballing losses. Skyrocketing inflation prices are cited as the major reason to freeze the fuel cost unit variation. 

In February, the consumer price index jumped 3.7 percent year-on-year. Livestock and industrial product prices surged 8.8 percent and 5.2 percent, respectively. 

Some industry analysts said the Ministry of Trade, Industry and Energy was mindful of President-elect Yoon’s public pledge of cancelling electricity rate raises. 

In April, President-elect Yoon said the President Moon Jae-in government’s decision to raise electricity rates should be cancelled since it was based on the side-effects of the government’s policy of weaning the nation off nuclear power. 

Deferring adjusting of variation on fuel costs is feared to further exacerbate snowballing losses KEPCO has already suffered. 

The state utilities company logged 5,860.1 billion won in losses, the worst-ever one, last year. Since international crude prices and other energy price hikes began to surge from late last year, KEPCO is feared to see its losses snowball this year. Securities predicted that KEPCO will post losses between 14,804.5 billion won and 19,923.7 billion won. 

KEPCO’s fuel unit prices per kWh soared. Unit prices for bituminous coal, oil and LNG jumped from 62.64 won, 157.27 won and 82.84 won in March 2021 to 79.01 won, 313.23 won and 184.15 won in March 2022, respectively. 

Hikes ranged from 26 percent to 122 percent. KEPCO generates electricity with expensive fuels the company purchases, but the utilities company is now allowed to raise electricity rates. 

A view of Korea Electric Power Corp. headquarters in Naju, Jeollanam-do. (Photo: KEPCO)

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