Carbon neutrality, electricity bill freeze exacerbating KEPCO's snowballing debt

The Korea Times

The Korea Times

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Tue, September 26, 2023 | 08:59

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Carbon neutrality, electricity bill freeze exacerbating KEPCO's snowballing debt

Posted : 2021-12-21 16:44

Updated : 2021-12-22 10:54

Korea Electric Power Corporation (KEPCO) headquarters in Naju, South Jeolla Province / Courtesy of KEPCO

By Kim Bo-eun

The price freeze on electricity announced earlier this week is set to add to the snowballing debt of the state-run Korea Electric Power Corp. (KEPCO), at a time electricity generation has become increasingly expensive as the government has accelerated the shift to eco-friendly power.

KEPCO announced its decision on Monday to freeze electricity rates for the first quarter of next year, due to inflation rates and the COVID-19 pandemic that have increasingly placed a burden upon the public. But the government came under fire as the latest price freeze is seen as a measure to cling to support ahead of the presidential election to be held in March next year.

The government decision will weigh on KEPCO, which is seeing its operating losses and debt accumulating. KEPCO's outstanding debt stood at 138.2 trillion won ($115.7 billion) in September, up from 132.5 trillion won at the end of 2020, according to the Financial Supervisory Service.

As a means to achieve carbon neutrality by 2050 and tackle the problem of fine dust, the Moon Jae-in administration has sought to increase the proportion of liquefied natural gas (LNG) and renewable energy used in power generation.

Accordingly, the Moon administration decided to bring up the percentage of renewable energy in power generation to 70 percent. At the same time, it has sought to cut the percentage of nuclear power generation to 6 percent, as it has aimed to phase out nuclear power, citing safety issues. Renewable energy, however, is the most expensive among energy sources to generate while nuclear energy is relatively cheap.

The rising fuel prices are also exacerbating KEPCO's burden. According to the state-run firm, the average fuel cost for the months of September through November rose 61.6 percent year-on-year.

But KEPCO failed to raise prices accordingly. The government, for the first time, raised fees by 3 won per kilowatt-hours in the fourth quarter of this year, but this only had the effect of canceling out the 3 won per kilowatt-hours that was lowered in the first quarter of this year. KEPCO had proposed a 3 won per kilowatt-hour raise in electricity costs in the first quarter of 2022, but the government decided against it.

Korea's electricity is already the second-cheapest among the 36 OECD member nations.

KEPCO estimates its operating loss to reach 4.38 trillion won this year.

"Considering the rapid rise of global fuel prices, the appropriate adjustment for the first quarter of 2022 would come to 29.1 won per kilowatt-hour," KB Securities analyst Jung Hye-jung said.

"In addition to the rise in fuel costs, which will have a major impact in 2022, sufficient funds are required given growing environment-related costs and investments into the construction of renewable power generation complexes, but KEPCO's deficit is expected to grow."

KEPCO shareholders claim that the company's price freeze on electricity is a breach of duty that goes against their interests. KEPCO is a state-run firm, with the government owning 51.1 percent of its shares, but is a listed company with shares also owned by retail investors, who have pledged to take collective action against the latest price freeze.

"Korea has one of the world's largest per capita electricity consumption rates, as a manufacturing powerhouse. Electricity policy is therefore of the utmost importance," Sejong University professor Kim Dae-jong said.

"The price of electricity should be left to the market, but the latest freeze is a populist policy initiated ahead of the election next year."

bkim@koreatimes.co.kr