Power generation affiliates consolidation gains traction to boost efficiency

The South Korean government has begun preliminary work to consolidate power generation subsidiaries under Korea Electric Power Corp., in a move aimed at improving efficiency across the electricity industry. With President Lee Jae-myung showing strong resolve to streamline public institutions, an outline of the consolidation plan is expected to emerge within this year, though significant friction is anticipated given the potential impact on employment and regional economies.

According to industry sources Thursday, the Ministry of Climate, Energy and Environment has recently commissioned a research project titled “A study on new roles for power public enterprises in the energy transition period.” The project focuses on redefining the roles of power generation public companies and setting directions for restructuring, effectively presupposing the consolidation of generation subsidiaries.

Through the study, the ministry plans to assess whether the current structure of power generation companies is suitable for meeting goals such as South Korea’s 2035 Nationally Determined Contribution (NDC) for greenhouse gas reductions. It will also review legal issues related to potential amendments to laws including the Act on the Korea Electric Power Corp., the Act on the Management of Public Institutions and the Monopoly Regulation and Fair Trade Act. A ministry official said the study was intended to “draw the initial blueprint for discussions on consolidating power generation public enterprises.”

The ministry’s move follows repeated calls by President Lee for consolidation of public institutions. In August last year, during a meeting on saving national finances, Lee said there were “so many public institutions that it’s hard to even count them” and suggested consolidation was necessary. He reiterated similar concerns during a ministry work briefing last month, questioning why power generation subsidiaries had been divided in the first place.

The consolidation push is expected to align with the government’s upcoming 12th Basic Plan for Long-term Electricity Supply and Demand. When commissioning the study, the ministry noted that the plan, which will incorporate the new administration’s energy policy direction, is scheduled to be finalized in 2026, adding that a swift review of new roles for power public enterprises is needed.

KEPCO currently oversees five major power generation subsidiaries — Korea Southern Power, Korea Western Power, Korea East-West Power, Korea South-East Power and Korea Midland Power. While their portfolios differ, they mainly operate coal-fired power plants, liquefied natural gas (LNG) facilities and renewable energy assets. The current structure was created during the 2001 power sector reform, which separated generation from transmission and sales to boost efficiency through partial privatization. Critics now argue that inefficiencies have instead grown.

Yoo Seung-hoon, a professor of future energy convergence at Seoul National University of Science and Technology, said side effects include excessive competition among public firms, such as bidding against one another for overseas projects or competing too aggressively in performance evaluations.

One widely discussed option is to regroup functions of the power companies into similar units. Under this scenario, renewable energy functions would be separated from the five generators to establish a tentative “Renewable Energy Corp.,” while coal-based generation units would be merged into a provisional “Korea Power Generation Corp.” This would reorganize the sector by power source — nuclear power under Korea Hydro & Nuclear Power, coal-fired generation and renewable energy. The new generation company could then be divided by region, such as central and southern areas, or by function, such as coal and LNG. Yoo cautioned that merging all five entities into a single company could instead lead to diseconomies of scale.

Labor unions at the power generation firms and the interests of local governments are also expected to become key variables in the consolidation process.