Korea Electric Power Corp. (KEPCO) is predicted to sustain around 30 trillion won in cumulative losses in 2022, but KEPCO has shored up its financial structure worth about 400 billion won through the sale of assets for the past six months.
If the situation continues unabated, steep electricity rate hikes are evitable and demand for the fundamental reform of the power industry is expected to gain traction.
KEPCO secured 363.1 billion won by disposing of four assets, including 294.5 billion won by selling the remaining plot of the Euijeongbu Substation site.
The power company secured 4.5 billion won by selling a stake in Happy Charger, an EV charging company. KEPCO’s disposal of some assets hit a snag in the wake of the effects of the global economic recession.
Yoo Seung-hoon, dean of Seoul National University of Science and Technology, who also sits on the Electricity Regulatory Commission, said KEPCO’s sale of assets must be done carefully in consideration of the effects of the strained financial market.
Besides the disposal of assets, the power company saved 2,984.1 billion won through the realignment of businesses and reduction of power purchase prices.
The figure represented a 75.3 percent portion of KEPCO’s financial structure improvement goal, which stands at 2,633.5 billion won.
The power company saved 1,077 billion won through the temporary easing of the system marginal price (SMP), with which Korea Electric Power Corp. (KEPCO) purchases electricity from power generation companies on top of the dividing of electricity prices between Jeju and on-land areas.
A cap in SMP, which was introduced effective Dec. 1, has left KEPCO breathing a sigh of relief, as the company has been suffering from snowballing losses.
However, experts share the view that additional steep electricity rate hikes are evitable to help KEPCO ease losses.
According to the Ministry of Trade, Industry and Energy (MOTIE) and the power industry, MOTIE gave the go-ahead for the cap in the system’s marginal price on Dec. 1.
KEPCO buys electricity from its subsidiary power companies and independent power firms in the wholesale market, and sells it for general or industrial use in the retail market.
The introduction of the SMP cap system means that even if wholesale electricity prices soar according to the demand and supply of the market, an allowable upper limit is imposed.
SMP generally fluctuates according to movements of LNG prices, the most expensive fuel unit price. JMK spot price, an LNG import price index, jumped from $19.02 per MMBtu in October 2021 to $53.38 in October 2022, and during the same period, the integrated SMP: surged to 251.65 won, a nearly 2.5-fold jump from 107.76.
A revision to the government’s notice on the upper limit on electricity transaction prices stipulates that if the average SMP in the three months stands above the upper 10 percent of the average SMP for the past 10 years, an allowable upper limit in SMP shall be imposed for one month.
But experts said the introduction of the SMP cap system is not a fundamental solution. KEPCO, already seeing its cumulative losses in Q3 soar to 21 trillion won, is predicted to surpass 30 trillion won in losses by the end of this year.
KEPCO has spent more than 30 trillion won in purchasing electricity in the wholesale market since the SMP has jumped over twice so far this year.
Power industry experts expect electricity prices to rise by at least 30 percent to bring KEPCO’s fiscal management come back to normal. They pointed out that electricity, recognized as a public asset, should not be set at below-market prices.
An OECD report on the Korean economy said that Korea’s cheaper electricity rates are owed to the government setting them below cost. Korea’s household electricity rates are cheaper compared to major countries across the globe.
Korea had the lowest electricity rates, except Mexico, a petroleum producing country, in 2019. Electricity rates in Japan and Europe are twice higher than those in Korea. An additional electricity rate hike is expected early next year.
According to a report submitted to the National Assembly Trade, Industry, Energy, SMEs and Startups Committee by the Ministry of Trade, Industry and Energy, MOTIE and KEPCO set proper electricity rate hike for next year at 51.6 won per kWh, 2.7 times higher than the 19.3 won hike for this year.
An about 60 won hike per kWh is required, but it is most likely to happen at around 10 won, experts have said.
